UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2004
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( ) 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
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 file (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, 2004, 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. A portion of the interest in the
Research Triangle Land Joint Venture was 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, 2004, 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, 2004 were employees of the
Corporate General Partner or its affiliates.
Northwind Office Park represents 100% of the Partnership's revenue
generated for the last three years.
This annual report contains certain forward-looking statements
concerning the Partnership's current expectations as to future results. Words
such as "believes", "forecasts", "intends", "possible", "expects", "estimates",
"anticipates" or "plans" and similar expressions are intended to identify
forward-looking statements. Such statements may not ultimately turn out to be
accurate due to, among other things, economic or market conditions or the
failure of the Partnership to sell an investment which is under contract.
ITEM 2: PROPERTIES
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As of December 31, 2004, the Partnership owned Northwind Office Park,
an office complex located in East Lansing, Michigan. The property consists of
2
five office buildings containing a total of 89,200 gross square feet, and 70,713
net rentable square feet. At December 31, 2004, Northwind was 67% occupied. The
2003 and 2002 year end occupancy rates were 73% and 74%, respectively.
There was a 9.75% first mortgage loan on the Northwind property, which
matured in December 2002, and a 9% second mortgage loan on the property, which
was paid in 2004. As of December 31, 2004, there is no mortgage loan on the
Northwind property.
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 $4,952,588 at December 31, 2004.
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, 2004, 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 2004, 2003 or 2002.
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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2004 2003 2002 2001 2000
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Balance sheet data
Net rental property $ 2,225,245 2,212,325 2,186,727 2,170,349 4,534,501
Total assets 2,630,322 2,644,892 2,592,896 2,619,014 4,907,962
Mortgage loans payable - 14,418 73,058 237,634 6,361,767
Partners' equity (deficit) 1,560,312 1,452,822 1,225,570 1,049,338 (3,460,292)
===============================================================================
Operating data
Rental income 848,133 843,547 880,401 1,050,604 2,204,179
Other income 10,333 15,341 8,368 41,874 76,160
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Total revenue 858,466 858,888 888,769 1,092,478 2,280,339
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Property operating costs 618,302 536,671 557,457 662,336 1,284,066
Depreciation - - - - 176,647
Interest expense 92 1,558 15,933 117,342 581,572
Administrative expenses 230,820 231,259 278,277 335,555 489,572
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Total expenses 849,214 769,488 851,667 1,115,233 2,531,857
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Income (loss) before joint venture
operations and gain on sale of
property 9,252 89,400 37,102 (22,755) (251,518)
Equity in earnings of unconsolidated
joint ventures 98,238 137,852 139,130 317,105 131,175
Minority interest in
consolidated venture operations - - - (545,015) (3,469)
Gain on sale of property - - - 4,760,295 -
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Net income (loss) $ 107,490 227,252 176,232 4,509,630 (123,812)
===============================================================================
Cash flow data
Net cash provided (used) by:
Operating activities (31,082) 2,487 (22,072) (408,352) 216,778
Investing activities (12,920) 46,402 91,622 7,351,841 10,991
Financing activities (14,418) (58,640) (164,576) (6,770,710) (211,321)
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Net increase (decrease) in cash
and equivalents $ (58,420) (9,751) (95,026) 172,779 16,448
===============================================================================
Per limited partnership unit:
Net income (loss) $ 10.43 22.04 17.09 389.11 (12.01)
===============================================================================
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. The Partnership made no
distributions to limited partners in 2004, 2003 or 2002. 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.
5
Limited partners should be aware that it is possible that they will
receive an allocation of income from gain on sale of properties on which they
will be required to pay income taxes and there is no assurance that
distributions from the sale of the properties will be sufficient to satisfy
these obligations.
Except as described above and in the consolidated financial statements,
the general partner is not aware of any trends or events, commitments or
uncertainties that may impact liquidity in a material way.
Results of Operations:
- ----------------------
The results of operations of the Partnership, excluding equity in
earnings from joint ventures for the year ended December 31, 2004, produced a
net income of $9,252. The results compare to net income of $89,400 in 2003 and
$37,102 in 2002.
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.
2004 as compared to 2003
- ------------------------
Rental income remained consistent while other income decreased by
approximately $5,000 in 2004 due to forfeited security deposits at Northwind in
2003.
Total expenses increased approximately 10% for the year ended December
31, 2004. Property operations increased approximately $82,000 due to significant
increases in utilities of $20,000, insurance of $15,000, cleaning of $10,000 and
resident management and employee benefits of $20,000. Numerous other expenses
had lesser increases, which make up the remainder of the increase in property
operations. Administrative expense to affiliated parties increased by $9,000 due
to a increase in portfolio management fees.
The increase in overall expense was offset by decreases in other
administrative expenses and interest expense. Other administrative expenses
decreased $10,000 due to a large decrease in promotional expense offset by
increases in legal fees. Interest expense decreased $1,500 due to the Northwind
mortgage being paid off in February 2004.
2003 as compared to 2002
- ------------------------
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
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
6
management 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.
Joint Ventures
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The Research Triangle Industrial Park Joint Venture experienced 100%
occupancy in 2004 and 2003. Its 2004 net income decreased by approximately
$80,000 from the 2003 net income. Rental income decreased approximately $8,000
due to a decrease in quarterly common area maintenance fees. Other income
remained consistent from 2003 to 2004. Total expenses increased 10% mainly due
to an increase in consulting fees, legal fees, commissions from the lease
renewal, and resident management expenses and fees. 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 and $108,000 in 2002. In 2004, the venture used cash
flow from operations to reduce outstanding accounts payable and accrued
expenses.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The Partnership invests only in short term money market instruments, in
amounts in excess of daily working cash requirements. The rates of earnings on
those investments increase or decrease in line with the general movement of
interest rates. The mortgage loans on the Partnership's properties are fixed
rate and therefore, are not subject to market risk.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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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.
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.
7
PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The Partnership, as an entity, does not have any directors or officers.
The Individual General Partner of the Partnership is Joseph M. Jayson. The
directors and executive officers of Realmark Properties, Inc., the Partnership's
Corporate General Partner, as of December 31, 2004, are listed below. Each
director is subject to election on an annual basis.
Title of All Positions Held with
Name the Corporate General Partner Year First Elected to Position
- ---- ----------------------------- ------------------------------
Joseph M. Jayson Chairman of the Board, President 1979
and Treasurer
Judith P. Jayson Vice President and Director 1979
Joseph M. Jayson and Judith P. Jayson are married to each other.
The Directors and Executive Officers of the Corporate General Partner
and their principal occupations and affiliations during the last five years or
more are as follows:
Joseph M. Jayson, age 66, 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 42 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 42 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 23 years, Mr. Jayson and an affiliate have also engaged in
developmental drilling for gas and oil.
Judith P. Jayson, age 64, 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 33 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
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
- --------------------------------
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
Getzville, New York 14068
ITEM 11: EXECUTIVE COMPENSATION
- -------- ----------------------
No direct remuneration was paid or payable by the Partnership to
directors and officers (since it has no directors or officers), nor was any
direct remuneration paid or payable by the Partnership to directors or officers
of Realmark Properties, Inc., the Corporate General Partner and sponsor, for the
year ended December 31, 2004. 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, 2004. The general partners and the executive officers of the
Corporate General Partner, as of December 31, 2004, 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
- -------- ----------------------------------------------
The properties of the Partnership and its subsidiary are managed by
9
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
- -----------------------------------------------
Audit Engagement: Toski, Schaefer & Co., P.C. was engaged as the Partnership's
independent auditor for years 2004 and 2003. All fees incurred for the years
ended December 31, 2004 and 2003 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, 2004 and
2003 totaled $30,700 and $28,150, respectively.
Audit-Related Fees: None.
Tax Fees: The Partnership engaged Toski, Schaefer & Co., P.C. to provide tax
filing and compliance services during the years ended December 31, 2004 and
2003. The fees for these services amounted to $6,885 and $4,104, respectively.
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 2004 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 2004 and 2003, 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.
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.
10
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, 2004.
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, 2004 and 2003 F-2
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002 F-3
Consolidated Statements of Partners' Equity for the years
ended December 31, 2004, 2003 and 2002 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 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.
11
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 filed December 31, 2003, are incorporated herein by
reference.
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.
12
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, 2005
------------------- --------------
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, 2005
------------------- --------------
JOSEPH M. JAYSON, Date
President, Treasurer and Director
/s/ Judith P. Jayson March 31, 2005
------------------- --------------
JUDITH P. JAYSON, Date
Vice President and Director
13
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,
2004 and 2003, and the related consolidated statements of operations, partners'
equity, and cash flows for each of the three years in the period ended December
31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Partnership is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, 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, 2004 and
2003, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, 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 29, 2005
F-1
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2004 and 2003
Assets 2004 2003
------ ---- ----
Property and equipment, at cost, all held for sale:
Land $ 460,515 460,515
Buildings and improvements 4,286,260 4,273,340
Furniture and equipment 9,950 9,950
---------- ----------
4,756,725 4,743,805
Less accumulated depreciation 2,531,480 2,531,480
---------- ----------
Net property and equipment 2,225,245 2,212,325
Cash and equivalents 167,131 225,551
Accounts receivable 74,646 7,171
Receivables from affiliated parties 133,772 138,723
Escrow deposits - 15,995
Other assets 29,528 45,127
---------- ----------
Total assets $2,630,322 2,644,892
========== ==========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Mortgage loan payable - 14,418
Accounts payable and accrued expenses 73,003 42,761
Security deposits and prepaid rents 48,684 88,330
---------- ----------
Total liabilities 121,687 145,509
---------- ----------
Losses of unconsolidated joint ventures in excess of investment 948,323 1,046,561
Partners' equity:
General partners 369,292 366,067
Limited partners 1,191,020 1,086,755
---------- ----------
Total partners' equity 1,560,312 1,452,822
---------- ----------
Total liabilities and partners' equity $2,630,322 2,644,892
========== ==========
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, 2004, 2003 and 2002
2004 2003 2002
------- -------- --------
Income:
Rental $848,133 843,547 880,401
Interest and other 10,333 15,341 8,368
-------- -------- --------
Total income 858,466 858,888 888,769
-------- -------- --------
Expenses:
Property operations 618,302 536,671 557,457
Interest 92 1,558 15,933
Administrative:
Affiliated parties 130,020 120,739 127,113
Other 100,800 110,520 151,164
-------- -------- --------
Total expenses 849,214 769,488 851,667
-------- -------- --------
Income before equity in earnings of unconsolidated
joint ventures 9,252 89,400 37,102
Equity in earnings of unconsolidated joint ventures 98,238 137,852 139,130
-------- -------- --------
Net income $107,490 227,252 176,232
======== ======== ========
Net income per limited partnership unit $ 10.43 22.04 17.09
======== ======== ========
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, 2004, 2003 and 2002
Limited Partners
General ----------------
Partners Units Amount
-------- ----- ------
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
Net income 3,225 -- 104,265
--------- ------- ---------
Balances at December 31, 2004 $ 369,292 10,000 1,191,020
========= ======= =========
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, 2004, 2003 and 2002
2004 2003 2002
---- ---- ----
Cash flows from operating activities:
Net income $ 107,490 227,252 176,232
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Amortization 217 7,921 10,379
Equity in earnings of joint ventures (98,238) (137,852) (139,130)
Changes in:
Accounts receivable (67,475) (6,513) 3,022
Receivables from affiliated parties 4,951 (40,228) (48,629)
Escrow deposits 15,995 (2,276) (2,313)
Other assets 15,382 4,947 (14,989)
Accounts payable and accrued expenses 30,242 (38,920) (603)
Security deposits and prepaid rents (39,646) (11,844) (6,041)
--------- -------- --------
Net cash provided by (used in)
operating activities (31,082) 2,487 (22,072)
--------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (12,920) (25,598) (16,378)
Distributions from joint venture -- 72,000 108,000
--------- -------- --------
Net cash provided by (used in)
investing activities (12,920) 46,402 91,622
--------- -------- --------
Cash flows from financing activities -
principal payments on mortgage loan (14,418) (58,640) (164,576)
--------- -------- --------
Net decrease in cash and equivalents (58,420) (9,751) (95,026)
Cash and equivalents at beginning of year 225,551 235,302 330,328
--------- -------- --------
Cash and equivalents at end of year $ 167,131 225,551 235,302
========= ======== ========
Supplemental disclosure of cash flow information -
cash paid for interest $ 200 4,270 14,175
========= ======== ========
See accompanying notes to consolidated financial statements.
F-5
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002
(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 and sold in 2001. The
Partnership 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, 2004, 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 2004, 2003, and 2002.
(d) Cash and Equivalents
------------------------
Cash and equivalents include money market accounts and any highly
liquid debt instruments purchased with a maturity period 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. In February 2004, the mortgage for the Northwind
property was paid off. As of December 31, 2004, there are no deferred
mortgage costs.
(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) 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.
F-7
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
(h) Per Unit Data
-----------------
Per limited partnership unit is based on the weighted average number of
limited partnership units outstanding for the year.
(i) Fair Value of Financial Instruments
---------------------------------------
The fair value of the Partnership's financial instruments approximated
their carrying values at December 31, 2004.
(j) 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 2004, 2003, or 2002.
(k) 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, 2004, net
assets for financial reporting purposes were $960,909 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
- ----------------------------------------------------------
(l) 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.
(m) Recent Pronouncements
-------------------------
In April 2004, the EITF released Issue No. 03-06, "Participating
Securities and the Two Class Method under SFAS No. 128, Earnings per
Share", which addressed a number of questions regarding the computation
of earnings per share by companies that have issued securities other
than common stock that contractually entitle the holder to participate
in dividends and earnings of the company when, and if, it declares
dividends on its common stock. It requires that undistributed earnings
for the period be allocated to a participating security based on the
contractual participation rights of the security to share in those
earnings as if all the earnings for the period had been distributed in
calculating earnings per share. EITF Issue No. 03-06 is effective for
fiscal periods beginning after March 15, 2004. It requires that prior
period earnings per share amounts be restated to ensure comparability
year over year. The adoption of EITF Issue No. 03-06 did not have an
impact on the Partnership's financial position, results of operations
or cash flows.
In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.151,
"Inventory Costs, an amendment of ARB No. 43, Chapter 4". The standard
requires that abnormal amounts of idle capacity and spoilage costs
should be excluded from the cost of inventory and expensed when
incurred. The provision is effective for fiscal periods beginning after
June 15, 2005. The Partnership does not believe this pronouncement will
have a material effect on its financial position, results of operations
or cash flows.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets, an amendment of APB No. 29, Accounting for Nonmonetary
Transactions." SFAS 153 requires exchanges of productive assets to be
accounted for at fair value, rather than at carryover basis, unless (1)
neither the asset received nor the asset surrendered has a fair value
that is determinable within reasonable limits or (2) the transactions
lack commercial substance. SFAS 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
The Partnership does not believe this pronouncement will have a
material effect on its financial position, results of operations or
cash flows.
In December 2004, the FASB released its final revised standard, SFAS
No. 123R, "Share-Based Payment." SFAS 123R requires that a public
entity measure the cost of equity based service awards based on the
grant-date fair value of the award. That cost will be recognized over
the period during which an employee is required to provide service in
exchange for the award or the vesting period. No compensation cost is
F-9
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
(m) Recent Pronouncements, Continued
------------------------------------
recognized for equity instruments for which employees do not render the
requisite service. A public entity will initially measure the cost of
liability based service awards based on its current fair value; the
fair value of that award will be remeasured subsequently at each
reporting date through the settlement date. Changes in fair value
during the requisite service period will be recognized as compensation
cost over that period. Adoption of SFAS 123R is required for fiscal
periods beginning after June 15, 2005. The Partnership does not believe
this pronouncement will have a material effect on its financial
position, results of operations or cash flows.
(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.
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 $2,225,245 at December 31, 2004, and the
property generated net income of $150,312 for the year then ended.
Depreciation expense, not recorded during the disposal periods on Northwind
Office Park amounted to $187,000, $186,000, and $184,000, for the years
ended December 31, 2004, 2003 and 2002, 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 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 2004 2003
------ ----------- ---------
Property, net of accumulated depreciation $ 1,737,281 1,684,255
Cash and equivalents -- 26,667
Escrow deposits 731,672 871,080
Other assets 241,414 245,242
----------- -----------
Total assets $ 2,710,367 2,827,244
=========== ===========
Liabilities and Partners' Deficit
---------------------------------
Liabilities:
Mortgage loan payable 4,952,588 5,060,888
Accounts payable and accrued expenses 76,804 288,337
----------- -----------
Total liabilities 5,029,392 5,349,225
----------- -----------
Partners' deficit:
The Partnership (1,060,097) (1,161,575)
RPILP - VI A (1,258,928) (1,360,406)
----------- -----------
Total partners' deficit (2,319,025) (2,521,981)
----------- -----------
Total liabilities and partners' deficit $ 2,710,367 2,827,244
=========== ===========
F-11
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Investments in Unconsolidated Joint Ventures, Continued
- ------------------------------------------------------------
Operating Information
---------------------
Years ended December 31,
-------------------------------
2004 2003 2002
--------- -------- ---------
Income:
Rental $ 976,950 984,634 975,220
Other 1,772 2,231 5,335
--------- -------- ---------
Total income 978,722 986,865 980,555
--------- -------- ---------
Expenses:
Property operations 254,302 201,803 178,923
Interest 418,830 427,613 433,798
Administrative:
Affiliated parties 58,617 59,078 54,867
Other 44,017 15,965 26,047
--------- -------- ---------
Total expenses 775,766 704,459 693,635
--------- -------- ---------
Net income $ 202,956 282,406 286,920
========= ======== =========
Allocation of net income:
The Partnership 101,478 141,203 143,460
RPILP - VI A 101,478 141,203 143,460
--------- -------- ---------
Total $ 202,956 282,406 286,920
========= ======== =========
A reconciliation of the Partnership's investment in Research Triangle
Industrial Park Joint Venture is as follows:
2004 2003 2002
------------ ---------- ----------
Losses in excess of investment at
beginning of year $ (1,161,575) (1,230,778) (1,266,238)
Allocated net income 101,478 141,203 143,460
Distribution from joint venture -- (72,000) (108,000)
------------ ---------- ----------
Losses in excess of investment at
end of year $ (1,060,097) (1,161,575) (1,230,778)
============ ========== ==========
F-12
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments in 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 $111,770 and $115,010 at December 31, 2004 and 2003,
respectively.
(5) Mortgage Loan Payable
- --------------------------
Northwind Office Park made the final payment on a mortgage loan bearing
interest at 9% and payable in monthly principal and interest installments
of $4,779 in February 2004. The loan had a balance of $14,418 at December
31, 2003.
(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:
2004 2003 2002
---- ---- ----
Property management fees based on a percent-
age (generally 5%) of the rental income $ 51,046 52,666 53,157
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 78,974 68,073 73,956
----------- --------- ----------
$ 130,020 120,739 127,113
=========== ========= ==========
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, 2004, 2003 and 2002.
F-13
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Related Party Transactions, Continued
- ------------------------------------------
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.
(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 non-cancelable
operating leases with terms of more than one year are as follows:
2005 $ 695,540
2006 547,243
2007 380,197
2008 245,675
2009 20,116
(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
F-14
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Settlement of Lawsuit, Continued
- -------------------------------------
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, 2004
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 $ - 460,515 3,415,895 870,365 - 460,515 4,286,260 4,746,775 2,530,690
Research
Triangle JV
Raleigh, NC 4,952,588 750,612 4,920,738 220,216 (412,500) 338,112 5,193,980 5,532,092 3,794,811
Research
Triangle
Land JV
Raleigh, NC - 412,500 - 20,484 (194,842) 238,142 - 238,142 -
----------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
$ 4,952,588 1,163,112 4,920,738 240,700 (607,342) 576,254 5,193,980 5,770,234 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, 2004.
F-16
Schedule III, Cont.
-------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2004, 2003 and 2002
(1) Cost for Federal income tax purposes is $4,746,775.
(2) A reconciliation of the carrying amount of land and buildings as of
December 31, 2004, 2003 and 2002 follows:
Partnership Properties
----------------------
2004 2003 2002
---- ---- ----
Balance at beginning of year $ 4,733,855 4,708,257 4,693,936
Additions 12,920 25,598 14,321
------------- ---------- -----------
Balance at end of year $ 4,746,775 4,733,855 4,708,257
============= ========== ===========
Joint Venture Properties
------------------------
2004 2003 2002
---- ---- ----
Balance at beginning of year $ 5,717,208 5,506,321 5,506,321
Additions 53,026 210,887 -
------------- --------- ----------
Balance at end of year $ 5,770,234 5,717,208 5,506,321
============= ========= ==========
(3) A reconciliation of accumulated depreciation for buildings and
improvements for the years ended December 31, 2004, 2003 and 2002 follows:
Partnership Properties
----------------------
2004 2003 2002
---- ---- ----
Balance at beginning and end of year (4) $ 2,530,690 2,530,690 2,530,690
============= ========= =========
Joint Venture Properties
------------------------
2004 2003 2002
---- ---- ----
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.
F-17