FORM 10-K
UNITED STATES
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, 2003
( ) 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)
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [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, 2003, 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, 2003, 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, 2003 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:
2003 2002 2001
---- ---- ----
Northwind Office Park 100% 100% 76%
Foxhunt Apartments - - 24%
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
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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
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As of December 31, 2003, 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, 2003, Northwind was 73% occupied. The
2002 and 2001 year end occupancy rates were 74% and 87%, 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 $14,418 at December 31, 2003 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 $5,060,888 at December 31, 2003.
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
3
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.
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, 2003, there were 1,053
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 2003, 2002 or 2001.
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.
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ITEM 6: SELECTED FINANCIAL DATA
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At or for the years ended December 31,
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2003 2002 2001 2000 1999
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Balance sheet data
Net rental property $ 2,212,325 2,186,727 2,170,349 4,534,501 4,583,491
Total assets 2,644,892 2,592,896 2,619,014 4,907,962 5,039,970
Mortgage loans payable 14,418 73,058 237,634 6,361,767 6,569,638
Partners' equity (deficit) 1,452,822 1,225,570 1,049,338 (3,460,292) (3,336,480)
=========================================================================
Operating data
Rental income 843,547 880,401 1,050,604 2,204,179 1,993,775
Other income 15,341 8,368 41,874 76,160 134,745
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Total revenue 858,888 888,769 1,092,478 2,280,339 2,128,520
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Property operating costs 536,671 557,457 662,336 1,284,066 1,434,757
Depreciation -- -- -- 176,647 262,181
Interest expense 1,558 15,933 117,342 581,572 709,493
Administrative expenses 231,259 278,277 335,555 489,572 420,104
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Total expenses 769,488 851,667 1,115,233 2,531,857 2,826,535
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Income (loss) before joint venture
operations and gain on sale of property 89,400 37,102 (22,755) (251,518) (698,015)
Equity in earnings of unconsolidated
joint ventures 137,852 139,130 317,105 131,175 122,437
Minority interest in
consolidated venture operations -- -- (545,015) (3,469) 54,127
Gain on sale of property -- -- 4,760,295 -- --
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Net income (loss) $ 227,252 176,232 4,509,630 (123,812) (521,451)
=========================================================================
Cash flow data
Net cash provided (used) by:
Operating activities 2,487 (22,072) (408,352) 216,778 (173,320)
Investing activities 46,402 91,622 7,351,841 10,991 176,088
Financing activities (58,640) (164,576) (6,770,710) (211,321) (360,043)
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Net increase (decrease) in cash
and equivalents $ (9,751) (95,026) 172,779 16,448 (357,275)
=========================================================================
Per limited partnership unit:
Net income (loss) $ 22.04 17.09 389.11 (12.01) (50.58)
=========================================================================
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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 had 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 2003, 2002 or 2001. 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, 2003, produced a
net income of $89,400. The results compare to net income of $37,102 in 2002 and
a net loss of $22,755 in 2001.
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.
2003 as compared to 2002
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Rental income decreased approximately 4% due a decrease in occupancy at
Northwind and an increase in concessions. Other income increased by
approximately $7,000 in 2003 due primarily to forfeited security deposits at
Northwind.
Total expenses decreased approximately 10% for the year ended December
31, 2003. Property operations decreased $21,000 due to a decrease in electric
6
and gas expense and a reduction in real estate tax expense at Northwind. Other
administrative expense decreased approximately $41,000 due primarily to
decreased legal and professional fees. Administrative expense and reimbursement
to affiliated parties decreased approximately 5% due to decreased portfolio
reimbursed expenses. Interest expense decreased approximately $14,000 due to a
larger portion of each mortgage payment being applied towards principal due to
amortization of the mortgage and the final payment of one of the mortgages at
Northwind in October 2002.
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,
increased approximately 5% due to increased professional fees and advertising.
Administrative expense and reimbursement to affiliated parties, decreased
approximately $23,000. Portfolio reimbursed 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.
Joint Ventures
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The Research Triangle Industrial Park Joint Venture experienced 100%
occupancy in 2003 and 2002. Its 2003 net income remained consistent with 2002.
Rental income increased approximately 1% in 2003 due to the sole tenant of
Research Triangle renewing their lease late in 2002. Total expenses increased 2%
mainly due to legal fees, commissions from the lease renewal, and increased
insurance expense. 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 $72,000 in 2003, $108,000 in
2002 and $104,500 in 2001.
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
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None.
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ITEM 9A: CONTROLS AND PROCEDURES
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The Partnership maintains a set of disclosure controls and procedures
designed to ensure that information required to be disclosed by the Partnership
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Within the 90-day period
prior to the filing of this report, an evaluation was carried out under the
supervision and with the participation of the Partnership's management,
including the Partnership's Individual General Partner and Principal Financial
Officer, of the effectiveness of the Partnership's disclosure controls and
procedures. Based on that evaluation, the Partnership's Individual General
Partner and Principal Financial Officer concluded that the Partnership's
disclosure controls and procedures are effective.
Subsequent to the date of their most recent evaluation, there have been
no significant changes in the Partnership's internal control over financial
reporting or in other factors that could significantly affect the internal
control over financial reporting.
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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, 2003, are listed below. Each
director is subject to election on an annual basis.
Title of All Positions Held with Year First
Name the Corporate General Partner 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 65, 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 41 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 41 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 22 years, Mr. Jayson and an affiliate have also engaged in
developmental drilling for gas and oil.
Judith P. Jayson, age 63, 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 32 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.
9
Audit Committee
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The Partnership has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
members of the audit committee are Joseph M. Jayson and Bryant E. Zilke.
Audit Committee Financial Expert
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The Directors and Executive Officers of the Corporate General Partner
have determined that Bryant E. Zilke is an audit committee financial expert as
defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Mr. Zilke is not independent within the meaning
of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act due to limited
circumstances, namely that the Partnership is small in size and there is limited
personnel. Mr. Zilke is not independent as a result of being an employee of an
affiliate of the Corporate General Partner.
Code of Ethics
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The Partnership has adopted a code of ethics for the partners,
principal financial officer, and employees of the Corporate General Partner or
its affiliates who render services on behalf of the Partnership. The Partnership
will provide to any person without charge, upon request, a copy of the code of
ethics which is available from:
Realmark Property Investors Limited Partnership - II
Attention: Investor Relations
2350 North Forest Road
Suite 12-A
Getzville, New York 14068
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, 2003. 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, 2003. The general partners and the executive officers of the
Corporate General Partner, as of December 31, 2003, 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.
10
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: PRINCIPAL ACCOUNTING FEES AND SERVICES
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Audit Engagement: Toski, Schaefer & Co., P.C. was engaged as the Partnership's
independent auditor for years 2003 and 2002. All fees incurred for the years
ended December 31, 2003 and 2002 were approved by the Audit Committee.
Audit Fees: Audit fees for the audit of the Partnership's annual financial
statements included in the Partnership's annual report on Form 10-K and those
financial statements included in the Partnership's quarterly reports on Form
10-Q by Toski, Schaefer & Co., P.C. for the years ended December 31, 2003 and
2002 totaled $28,150 and $23,100, respectively.
Audit-Related Fees: None.
Tax Fees: The Partnership engaged Toski, Schaefer & Co., P.C. to provide tax
filing and compliance services during the year ended December 31, 2003. The fees
for these services amounted to $4,104. No tax services were provided during the
year ended December 31, 2002.
All Other Fees: None.
The Audit Committee has set a policy that all fees incurred by the
Partnership for services performed by its independent auditors must be
pre-approved by the Audit Committee. All fees related to 2003 were pre-approved
by the Audit Committee.
The Audit Committee oversees the Partnership's financial reporting
process. Management has the primary responsibility for the financial statements
and the financial reporting process, including the systems of internal controls.
In fulfilling its oversight responsibilities, the Audit Committee reviewed the
audited financial statements with management, including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements.
The Audit Committee has the sole authority to retain and terminate the
Partnership's independent auditors and approves all fees paid to the independent
auditors. During 2003 and 2002, the Audit Committee reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not just the
acceptability, of the Partnership's accounting principles and such other matters
as are required to be discussed with the Audit Committee under generally
accepted auditing standards. In addition, the Audit Committee has discussed with
the independent auditors the auditors' independence from management and the
Partnership, including the matters in the written disclosures required by the
Independence Standards Board, and considered the scope and type of non-audit
services provided by the auditor when reviewing the compatibility of those
non-audit services with the auditors' independence.
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The Audit Committee discussed with the Partnership's independent
auditors the overall scope and plans for their audit. The Audit Committee meets
with the independent auditors to discuss the results of their examinations,
their evaluations of the Partnership's internal controls, and the overall
quality of the Partnership's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the General Partners (and the General Partners have
approved) that the audited financial statements be included in the annual report
on Form 10-K for the year ended December 31, 2003.
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, 2003 and 2002 F-2
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001 F-3
Consolidated Statements of Partners' Equity for the years
ended December 31, 2003, 2002 and 2001 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 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
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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.
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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.
14. Code of Ethics is filed herewith.
21. Subsidiary of the Partnership is filed herewith.
31. Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, is filed herewith.
32. 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.
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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 30, 2004
--------------------------------- --------------
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 30, 2004
--------------------------------- --------------
JOSEPH M. JAYSON, Date
President, Treasurer and Director
/s/ Judith P. Jayson March 30, 2004
--------------------------------- --------------
JUDITH P. JAYSON, Date
Vice President and Director
14
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,
2003 and 2002, and the related consolidated statements of operations, partners'
equity, and cash flows for each of the three years in the period ended December
31, 2003. 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, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, 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.
/s/ TOSKI, SCHAEFER & CO., P.C.
-------------------------------
TOSKI, SCHAEFER & CO., P.C.
Williamsville, New York
March 26, 2004
F-1
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2003 and 2002
Assets 2003 2002
------ ---- ----
Property and equipment, at cost, all held for sale:
Land $ 460,515 460,515
Buildings and improvements 4,273,340 4,247,742
Furniture and equipment 9,950 9,950
---------- ----------
4,743,805 4,718,207
Less accumulated depreciation 2,531,480 2,531,480
---------- ----------
Net property and equipment 2,212,325 2,186,727
Cash and equivalents 225,551 235,302
Accounts receivable 7,171 658
Receivables from affiliated parties 138,723 98,495
Escrow deposits 15,995 13,719
Other assets 45,127 57,995
---------- ----------
Total assets $2,644,892 2,592,896
========== ==========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Mortgage loan payable 14,418 73,058
Accounts payable and accrued expenses 42,761 81,681
Security deposits and prepaid rents 88,330 100,174
---------- ----------
Total liabilities 145,509 254,913
---------- ----------
Losses of unconsolidated joint ventures in excess of investment 1,046,561 1,112,413
Partners' equity:
General partners 366,067 359,249
Limited partners 1,086,755 866,321
---------- ----------
Total partners' equity 1,452,822 1,225,570
---------- ----------
Total liabilities and partners' equity $2,644,892 2,592,896
========== ==========
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, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Income:
Rental $ 843,547 880,401 1,050,604
Interest and other 15,341 8,368 41,874
---------- ---------- ----------
Total income 858,888 888,769 1,092,478
---------- ---------- ----------
Expenses:
Property operations 536,671 557,457 662,336
Interest 1,558 15,933 117,342
Administrative:
Affiliated parties 120,739 127,113 168,454
Other 110,520 151,164 167,101
---------- ---------- ----------
Total expenses 769,488 851,667 1,115,233
---------- ---------- ----------
Income (loss) before equity in earnings of
unconsolidated joint ventures,
minority interest in consolidated joint venture
operations, and gain on sale of property 89,400 37,102 (22,755)
Equity in earnings of unconsolidated joint ventures 137,852 139,130 317,105
Minority interest in consolidated joint
venture operations -- -- (545,015)
Gain on sale of property -- -- 4,760,295
---------- ---------- ----------
Net income $ 227,252 176,232 4,509,630
========== ========== ==========
Net income per limited partnership unit $ 22.04 17.09 389.11
========== ========== ==========
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, 2003, 2002 and 2001
Limited Partners
General ----------------
Partners Units Amount
-------- ----- ------
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
Net income 6,818 -- 220,434
---------- ---------- ----------
Balances at December 31, 2003 $ 366,067 10,000 1,086,755
========== ========== ==========
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, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income $ 227,252 176,232 4,509,630
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Amortization 7,921 10,379 10,262
Equity in earnings of joint ventures (137,852) (139,130) (317,105)
Minority interest in consolidated joint
venture operations -- -- 545,015
Gain on sale of property -- -- (4,760,295)
Changes in:
Accounts receivable (6,513) 3,022 8,457
Receivables from affiliated parties (40,228) (48,629) 14,605
Escrow deposits (2,276) (2,313) (12,917)
Other assets 4,947 (14,989) (55,864)
Accounts payable and accrued expenses (38,920) (603) (398,578)
Security deposits and prepaid rents (11,844) (6,041) 48,438
---------- ---------- ----------
Net cash provided by (used in)
operating activities 2,487 (22,072) (408,352)
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property -- -- 7,084,969
Additions to property and equipment (25,598) (16,378) (81,848)
Distributions from joint venture 72,000 108,000 348,720
---------- ---------- ----------
Net cash provided by investing
activities 46,402 91,622 7,351,841
---------- ---------- ----------
Cash flows from financing activities:
Distributions to minority interest in consolidated
joint venture -- -- (646,577)
Principal payments on mortgage loan (58,640) (164,576) (6,124,133)
---------- ---------- ----------
Net cash used in financing
activities (58,640) (164,576) (6,770,710)
---------- ---------- ----------
Net increase (decrease) in cash and equivalents (9,751) (95,026) 172,779
Cash and equivalents at beginning of year 235,302 330,328 157,549
---------- ---------- ----------
Cash and equivalents at end of year $ 225,551 235,302 330,328
========== ========== ==========
Supplemental disclosure of cash flow information -
cash paid for interest $ 4,270 14,175 111,184
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-5
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(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, 2003, 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 2003, 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.
(h) Rental Income
-------------
Rental income is recognized as earned according to the terms of the leases.
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, Continued
------------------------
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, 2003.
(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 2003, 2002 or
2001.
(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, 2003, net assets for financial
reporting purposes were $849,865 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 January 2003, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation (FIN) No. 46, "Consolidation of Variable Interest
Entities." In December 2003, the FASB reissued FIN No. 46R with certain
modifications and clarifications. FIN No. 46R is effective on March 31,
2004 for the Partnership. The Partnership does not believe that this
pronouncement will have a material impact on its financial position, cash
flows, or results of operations.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of
this pronouncement did not have a material impact on the Partnership's
financial position, cash flows, or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity."
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of this pronouncement did not have a material impact on the
Partnership's financial position, cash flows, or results or operations.
F-9
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(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 $2,212,325 at December 31, 2003, and the
property generated net income of $204,978 during the year then ended.
Depreciation expense, not recorded during the disposal periods on Foxhunt
Apartments and Northwind Office Park amounted to $186,000, $184,000, and
$215,000, for the years ended December 31, 2003, 2002 and 2001,
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 2003 2002
------ ---- ----
Property, net of accumulated depreciation $ 1,684,255 1,473,368
Cash and equivalents 26,667 34,606
Escrow deposits 871,080 861,615
Other assets 245,242 272,481
----------- -----------
Total assets $ 2,827,244 2,642,070
=========== ===========
Liabilities and Partners' Deficit
---------------------------------
Liabilities:
Mortgage loan payable 5,060,888 5,161,824
Accounts payable and accrued expenses 288,337 140,633
----------- -----------
Total liabilities 5,349,225 5,302,457
----------- -----------
Partners' deficit:
The Partnership (1,161,575) (1,230,778)
RPILP - VI A (1,360,406) (1,429,609)
----------- -----------
Total partners' deficit (2,521,981) (2,660,387)
----------- -----------
Total liabilities and partners' deficit $ 2,827,244 2,642,070
=========== ===========
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,
------------------------
2003 2002 2001
---- ---- ----
Income:
Rental $984,634 975,220 899,322
Other 2,231 5,335 11,812
-------- -------- --------
Total income 986,865 980,555 911,134
-------- -------- --------
Expenses:
Property operations 201,803 178,923 127,047
Interest 427,613 433,798 442,817
Administrative:
Affiliated parties 59,078 54,867 47,449
Other 15,965 26,047 20,009
-------- -------- --------
Total expenses 704,459 693,635 637,322
-------- -------- --------
Net income $282,406 286,920 273,812
======== ======== ========
Allocation of net income:
The Partnership 141,203 143,460 136,906
RPILP - VI A 141,203 143,460 136,906
-------- -------- --------
Total $282,406 286,920 273,812
======== ======== ========
A reconciliation of the Partnership's investment in Research Triangle
Industrial Park Joint Venture is as follows:
2003 2002 2001
---- ---- ----
Losses in excess of investment at
beginning of year $(1,230,778) (1,266,238) (1,298,644)
Allocated net income 141,203 143,460 136,906
Distribution from joint venture (72,000) (108,000) (104,500)
----------- ----------- -----------
Losses in excess of investment at
end of year $(1,161,575) (1,230,778) (1,266,238)
=========== =========== ===========
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 $115,010 and $118,365 at December 31, 2003 and 2002,
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, 2000 $ 101,562
Distributions (646,577)
Allocated income 545,015
---------
Balance at December 31, 2001 $ --
=========
(5) Mortgage Loan Payable
---------------------
Northwind Office Park has a mortgage loan bearing interest at 9% and
payable in monthly principal and interest installments of $4,779. The
mortgage loan matured in 1995 and the balance is currently payable on
demand. The loan had a balance of $14,418 and $73,058 at December 31, 2003
and 2002, respectively.
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:
2003 2002 2001
---- ---- ----
Property management fees based on a percent-
age (generally 5%) of the rental income $ 52,666 53,157 82,191
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 68,073 73,956 86,263
-------- -------- --------
$120,739 127,113 168,454
======== ======== ========
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, 2003, 2002 and 2001.
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:
2004 $ 636,708
2005 451,674
2006 362,186
2007 268,336
2008 162,837
============
(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, 2003
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 $ 14,418 460,515 3,415,895 857,445 -- 460,515 4,273,340 4,733,855 2,530,690
========== ======= ========= ======= ======== ======= ========= ========= =========
Research
Triangle JV
Raleigh, NC 5,060,888 750,612 4,920,738 220,216 (412,500) 338,112 5,140,954 5,479,066 3,794,811
Research Triangle
Land JV
Raleigh, NC -- 412,500 -- 20,484 (194,842) 238,142 -- 238,142 --
---------- --------- --------- ------- -------- ------- --------- --------- ---------
$5,060,888 1,163,112 4,920,738 240,700 (607,342) 576,254 5,140,954 5,717,208 3,794,811
========== ========= ========= ======= ======== ======= ========= ========= =========
(RESTUBBED TABLE)
Life
on which
depreciation
in latest
Date statement of
Property of Date operations
Description 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, 2001 through
December 31, 2003.
F-16
Schedule III, Cont.
-------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2003, 2002 and 2001
(1) Cost for Federal income tax purposes is $4,733,855.
(2) A reconciliation of the carrying amount of land and buildings as of
December 31, 2003, 2002 and 2001 follows:
Partnership Properties
----------------------
2003 2002 2001
---- ---- ----
Balance at beginning of year $ 4,708,257 4,693,936 10,128,864
Additions 25,598 14,321 78,200
Dispositions (5) -- -- (5,513,128)
----------- ----------- -----------
Balance at end of year $ 4,733,855 4,708,257 4,693,936
=========== =========== ===========
Joint Venture Properties
------------------------
2003 2002 2001
---- ---- ----
Balance at beginning of year $5,506,321 5,506,321 5,701,163
Additions 210,887 -- --
Dispositions (6) -- -- (194,842)
---------- ---------- ----------
Balance at end of year $5,717,208 5,506,321 5,506,321
========== ========== ==========
F-17
Schedule III, Cont.
-------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2003, 2002 and 2001
(3) A reconciliation of accumulated depreciation for buildings and
improvements for the years ended December 31, 2003, 2002 and 2001
follows:
Partnership Properties
----------------------
2003 2002 2001
---- ---- ----
Balance at beginning of year $2,530,690 2,530,690 5,613,710
Dispositions (5) -- -- (3,083,020)
---------- ---------- ----------
Balance at end of year (4) $2,530,690 2,530,690 2,530,690
========== ========== ==========
Joint Venture Properties
------------------------
2003 2002 2001
---- ---- ----
Balance at beginning and
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-18