FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
June 30, 1998 0-11909
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
(Exact Name of Registrant as specified in its Charter)
Delaware 16-1212761
- -------------------- --------------------------------
(State of Formation) (IRS Employer Identification No.)
2350 North Forest Road
Suite 12-A
Getzville, New York 14068
(Address of Principal Executive Office)
Registrant's Telephone Number: (716) 636-0280
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-Q or any
amendment to this Form 10-Q. (X)
As of June 30, 1998, the issuer had 10,000 units of limited partnership interest
outstanding.
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
- ------ ---------------------
<S> <C> <C>
Balance Sheets -
June 30, 1998 and December 31, 1997 3
Statements of Operations -
Three Months Ended June 30, 1998 and 1997 4
Statements of Operations -
Six Months Ended June 30, 1998 and 1997 5
Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 6
Statements of Partners' (Deficit) -
Six Months Ended June 30, 1998 and 1997 7
Notes to Financial Statements 8 - 20
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21 - 23
---------------------------------------------
</TABLE>
-2-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
BALANCE SHEETS
--------------
June 30, 1998 and December 31, 1997
-----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Property, at cost:
Land $ 848,015 $ 848,015
Buildings and improvements 8,923,273 8,923,273
Furniture and fixtures 425,000 425,000
---------------- -----------------
10,196,288 10,196,288
Less accumulated depreciation 5,622,421 5,396,130
---------------- -----------------
Property, net 4,573,867 4,800,158
Cash 198 -
Cash - security deposits 71,333 70,895
Escrow deposits 383,917 277,566
Accounts receivable, net of allowance for doubtful
accounts of $66,506 and $49,139, respectively 7,265 2,846
Mortgage costs, net of accumulated
amortization of $101,051 and $96,854 241,345 242,460
Leasing commissions, net of accumulated amortization
of $5,897 and $5,117 2,302 3,082
Other assets 7,814 23,172
---------------- -----------------
Total Assets $ 5,288,041 $ 5,420,179
================ =================
LIABILITIES AND PARTNERS' (DEFICIT)
- ----------------------------------
Liabilities:
Cash overdraft $ - $ 151,190
Mortgages payable 5,295,932 5,343,052
Accounts payable and accrued expenses 613,928 457,535
Account payable - affiliates 28,270 76,669
Accrued interest 59,087 40,427
Security deposits and prepaid rents 97,778 70,884
---------------- -----------------
Total Liabilities 6,094,995 6,139,757
---------------- -----------------
Losses of unconsolidated joint ventures
in excess of investment 888,188 720,743
---------------- -----------------
Minority interest in consolidated
joint venture 215,420 375,901
---------------- -----------------
Partners' (Deficit):
General partners (218,072) (215,242)
Limited partners (1,692,490) (1,600,980)
---------------- -----------------
Total Partners' (Deficit) (1,910,562) (1,816,222)
---------------- -----------------
Total Liabilities and Partners' (Deficit) $ 5,288,041 $ 5,420,179
================ =================
</TABLE>
See notes to financial statements
-3-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Three Months Ended June 30, 1998 and 1997
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 474,933 $ 445,269
Interest and other income 37,886 35,318
--------------- ---------------
Total income 512,819 480,587
--------------- ---------------
Expenses:
Property operations 280,291 173,887
Interest 129,928 123,953
Depreciation and amortization 115,634 49,634
Administrative:
Paid to affiliates 41,132 67,168
Other 87,668 77,607
--------------- ---------------
Total expenses 654,653 492,249
--------------- ---------------
Loss before allocated loss from joint venture
and loss allocated to minority interest (141,834) (11,662)
Allocated loss from joint venture 35,091 (1,927)
(Income) loss allocated to minority interest 151,874 (60,288)
--------------- ---------------
Net loss $ 45,131 $ (73,877)
=============== ===============
Loss per limited partnership unit $ 4.38 $ (7.17)
=============== ===============
Distributions per limited partnership unit $ - $ -
=============== ===============
Weighted average number of
limited partnership units
outstanding 10,000 10,000
=============== ===============
</TABLE>
See notes to financial statements
-4-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 951,400 $ 917,302
Interest and other income 60,166 46,926
---------------- -----------------
Total income 1,011,566 964,228
---------------- -----------------
Expenses:
Property operations 624,616 368,281
Interest 251,132 248,701
Depreciation and amortization 231,268 96,725
Administrative:
Paid to affiliates 84,829 106,586
Other 157,097 120,423
---------------- -----------------
Total expenses 1,348,942 940,716
---------------- -----------------
(Loss) income before allocated income (loss) from joint venture
and loss (income) allocated to minority interest (337,376) 23,512
Allocated income (loss) from joint venture 82,556 (3,538)
Loss (income) allocated to minority interest 160,481 (136,202)
---------------- -----------------
Net loss $ (94,340) $ (116,228)
================ =================
Loss per limited partnership unit $ (9.15) $ (11.27)
================ =================
Distributions per limited partnership unit $ - $ -
================ =================
Weighted average number of
limited partnership units
outstanding 10,000 10,000
================ =================
</TABLE>
See notes to financial statements
-5-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (94,340) $ (116,228)
Adjustments to reconcile net loss to net cash
(used in) provided by operating
activities:
Depreciation and amortization 231,268 96,725
Loss from joint venture (82,556) 3,538
Minority interest share of net loss (160,481) 136,202
Changes in operating assets and liabilities:
Cash - security deposits (438) (19,502)
Escrow deposits (106,351) (113,776)
Accounts receivable (4,419) (3,581)
Leasing commissions - -
Other assets 15,358 11,778
Accounts payable and accrued expenses 156,393 (128,982)
Accrued interest 18,660 (7,728)
Security deposits 26,894 28,649
---------------- -----------------
Net cash (used in) provided by operating activities (11) (112,905)
---------------- -----------------
Cash flow from investing activities:
Distributions from joint venture 250,000 -
---------------- -----------------
Net cash provided by investing activities 250,000 -
---------------- -----------------
Cash flows from financing activities:
Cash overdraft (151,190) 171,956
Accounts payable - affiliates (48,399) 12,914
Principal payments on mortgages and notes (47,120) (81,185)
Mortgage costs (3,082) 2,099
---------------- -----------------
Net cash provided by (used in) financing activities (249,791) 105,784
---------------- -----------------
Increase (decrease) in cash 198 (7,121)
Cash - beginning of period - 7,121
---------------- -----------------
Cash - end of period $ 198 $ -
================ =================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 232,472 $ 256,429
================ =================
</TABLE>
See notes to financial statements
-6-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF PARTNERS' (DEFICIT)
---------------------------------
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
General
Partners Limited Partners
Amount Units Amount
------ ----- ------
<S> <C> <C> <C>
Balance, January 1, 1997 $ (210,366) 10,000 $ (1,443,328)
Net loss (3,487) - (112,741)
------------------ --------------- -----------------
Balance, June 30, 1997 $ (213,853) 10,000 $ (1,556,069)
================== =============== =================
Balance, January 1, 1998 $ (215,242) 10,000 $ (1,600,980)
Net income (2,830) - (91,510)
------------------ --------------- -----------------
Balance, June 30, 1998 $ (218,072) 10,000 $ (1,692,490)
================== =============== =================
</TABLE>
See notes to financial statements
-7-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
1. GENERAL PARTNER'S DISCLOSURE
----------------------------
In the opinion of the General Partners of Realmark Property Investors
Limited Partnership II, all adjustments necessary for the fair
presentation of the Partnership's financial position, results of
operations, and changes in cash flows for the six months ended June 30,
1998 and 1997 have been made in the financial statements. The financial
statements are unaudited and subject to any year-end adjustments which
may be necessary.
2. FORMATION AND OPERATION OF PARTNERSHIP
--------------------------------------
Realmark Property Investors Limited Partnership II (the "Partnership"),
a Delaware Limited Partnership, was formed March 25, 1982, to invest in
a diversified portfolio of income-producing real estate.
In September 1982, the Partnership commenced the public offering of
units of limited partnership interest. Other than matters relating to
organization, it had no business activities and, accordingly, had not
incurred any expenses or earned any income until the first interim
closing (minimum closing) of the offering which occurred January 31,
1983. All items of income and expense arose subsequent to this date. On
August 31, 1983, the offering was concluded, at which time 10,000 units
of limited partnership interest were outstanding. The General Partners
are Realmark Properties, Inc., a Delaware corporation, the corporate
General Partner, and Mr. Joseph M. Jayson, the individual General
Partner. Joseph M. Jayson is the sole shareholder of J.M. Jayson &
Company, Inc. (JMJ) and Realmark Properties, Inc. is a wholly-owned
subsidiary of J.M. Jayson & Company, Inc.
Under the Partnership agreement, the General Partners and affiliates
can receive compensation for services rendered and reimbursement for
expenses incurred on behalf of the Partnership.
-8-
<PAGE>
FORMATION AND OPERATION OF PARTNERSHIP (CONTINUED)
-------------------------------------------------
Net income or loss arising from the sale or refinancing shall be
distributed first to the limited partners in an amount equivalent to a
7% return on the average of their adjusted capital contributions, then
in an amount equal to their capital contributions, then an amount equal
to an additional 5% of the average of their adjusted capital
contributions after the general partners receive a disposition fee,
then to all partners in an amount equal to their respective positive
capital balances, and finally, in the ratio of 86% to the limited
partners and 14% to the general partners.
Partnership income or loss not arising from sale or refinancing shall
be allocated 97% to the limited partners and 3% to the general
partners.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash
----
For purposes of reporting cash flows, cash includes the following
items: cash on hand; cash in checking; and money market savings.
Cash - security deposits
------------------------
Cash - security deposits represents cash on deposit in accordance with
terms of a U.S. Department of Housing and Urban Development (HUD)
regulatory agreement for multi-family housing projects under Section
223(f).
Investment in unconsolidated joint ventures
-------------------------------------------
The Partnership's investment in Research Triangle Industrial Park West
Associates Joint Venture and Research Triangle Land Joint Venture are
unconsolidated joint ventures which are accounted for on the equity
method.
-9-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------
Property and depreciation
-------------------------
Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets. Expenditures for
maintenance and repairs are expensed as incurred, and major renewals
and betterments are capitalized. The Accelerated Cost Recovery System
are used to calculate depreciation expense for tax purposes.
Minority interest in consolidated joint venture
-----------------------------------------------
The minority interest in a consolidated joint venture is stated at the
amount of capital contributed by the minority investor adjusted for its
share of joint venture losses.
Rental income
-------------
Rental income is recognized on the straight line method over the terms
of the leases. The outstanding leases with respect to rental properties
owned are for terms of no more than one year for residential properties
and five years for commercial buildings.
Escrow deposits
---------------
Escrow deposits represent cash which is restricted for the payment of
property taxes or for repairs and replacements in accordance with the
mortgage agreement.
Mortgage costs
--------------
Mortgage costs incurred in obtaining property mortgage financing have
been deferred and are being amortized over the terms of the respective
mortgages.
4. ACQUISITION AND DISPOSITION OF RENTAL PROPERTY
----------------------------------------------
In January 1984 the Partnership acquired a 120 unit apartment complex
(Colony of Kettering) located in Kettering, Ohio for a purchase price
of $2,769,650, which included $197,032 in acquisition fees. The
property was sold in December 1986 for $3,850,000 which generated a
total net gain for financial statement purposes of $1,482,290. For
income tax purposes, the gain is being recognized under the installment
method.
-10-
<PAGE>
ACQUISITION AND DISPOSITION OF RENTAL PROPERTY (CONTINUED)
----------------------------------------------------------
In February 1984 the Partnership acquired a 250 unit complex (Foxhunt)
located in Dayton, Ohio for a purchase price of $5,702,520, which
included $455,637 in acquisition fees.
In December 1983 the Partnership acquired an office complex (Northwind)
located in East Lansing, Michigan for a purchase of $3,876,410, which
included $285,713 in acquisition fees. In 1984, the carrying value of
the property was increased for additional acquisition fees of $123,950.
In July of 1996, the Partnership entered into a plan to dispose of the
property, plant and equipment of Foxhunt Apartments with a carrying
amount of $2,886,577. Management has determined that a sale of the
property is in the best interest of the investors. As of June 30, 1997,
the agreement, with an anticipated sales price of $7.4 million, was
canceled by the buyer. The Partnership has not entered into any other
agreements since.
Financial Accounting Standards Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of (the "Statement") requires that assets to be disposed of be
recorded at the lower of carrying value or fair value, less costs to
sell. The Statement also requires that such assets not be depreciated
during the disposal period, as the assets will be recovered through
sale rather than through operations. In accordance with this Statement,
the long-lived assets of the Partnership, classified as held for sale
on the balance sheet, are recorded at the carrying amount which is the
lower of carrying value or fair value less costs to sell, and have not
been depreciated during the disposal period. Depreciation expense, not
recorded during the disposal period, for the six months ended June 30,
1997 totaled approximately $93,000.
5. INVESTMENT IN JOINT VENTURES
----------------------------
In December 1983 the Partnership entered into an agreement with Adaron
Group (Adaron) and formed Research Triangle Industrial Park West
Associates Joint Venture (Joint Venture), the primary purpose of which
was to construct office/warehouse buildings as income producing
property. Under the terms of the agreement, the Partnership was to
provide the majority of the capital required for the purchase of land
and completion of the Joint Venture's development, while Adaron was to
provide development supervision and management services.
-11-
<PAGE>
INVESTMENT IN JOINT VENTURES (CONTINUED)
---------------------------------------
The initial phase of development, which was sold in June 1987,
consisted of two buildings: a 101,000 square foot office/distribution
building and a 42,000 square foot office building. The purchaser of the
property was not affiliated with either joint venture partner. The
Partnership received approximately $2,300,000 in proceeds from the
sale, and in July 1987 these proceeds were distributed to the limited
partners.
On August 20, 1992 Realmark Property Investors Limited Partnership VI-A
(RPILP VI-A) purchased Adaron's Joint Venture interest, acquiring
substantially all of the rights previously held by Adaron. Ownership of
the Joint Venture is now divided equally between the Partnership and
RPILP VI-A. The original Joint Venture agreement provided that the
Partnership be allocated 95% of any income or loss incurred during
phase I, while the most recent agreement provides for the allocation of
50% of any income or loss from phase II to both the Partnership and
RPILP VI-A.
Net cash flow from the Joint Venture is to be distributed as follows:
To the Partnership until it has received a return of 8% (10.25% prior
to September 1986) per annum on the amount of capital contributed by
the Partnership. To the extent such return is not received from year to
year, it will accrue and be paid from the next available cash flow; to
the Joint Venturer up to an amount equal to that paid to the
Partnership. No amount will be accrued in favor of the other investor;
any remaining amounts will be distributed 60% to the Joint Venturer and
40% to the Partnership.
To the extent there are net proceeds from any sale or refinancing of
the subject property, said proceeds will be paid first to the
Partnership to the extent the 8% (10.25% prior to September 1986) per
annum return on its invested capital is unpaid. Any additional net
proceeds will be payable to the Partnership until it has received an
amount equal to its capital contributions, reduced by any prior
distribution of sale or refinancing proceeds. Thereafter, any remaining
net proceeds will be divided 50% to the Partnership and 50% to the
other Joint Venturer.
-12-
<PAGE>
INVESTMENT IN JOINT VENTURES (CONTINUED)
---------------------------------------
On August 20, 1992, the Partnership entered into an agreement with
Adaron Group to form the Research Triangle Land Joint Venture. The
primary purpose of this joint venture is to develop land on the site of
Research Triangle. 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 is shown at cost of
$412,500. This joint venture had no operations and limited expenses,
including real estate taxes and insurance expense, for the six month
period ended June 30, 1998 or 1997.
A summary of the combined assets, liabilities and equity of the joint
venture as of June 30, 1998 and December 31, 1997, and the results of
its operations for the six month periods ended June 30, 1998 and 1997
are as follows:
-13-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
BALANCE SHEETS
--------------
June 30, 1998 and December 31, 1997
-----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 495,048 $ 1,127,231
Property, net of accumulated depreciation 1,738,044 1,798,721
Other assets 1,031,439 649,541
--------------- ---------------
Total Assets $ 3,264,531 $ 3,575,493
=============== ===============
LIABILITIES AND PARTNERS' (DEFICIT)
- ----------------------------------
Liabilities:
Notes payable $ 5,534,953 $ 5,558,723
Accounts payable - affiliates 9,460 -
Accounts payable and accrued expenses 128,306 90,069
--------------- ---------------
Total Liabilities 5,672,719 5,648,792
--------------- ---------------
Partners' (Deficit):
General partners (1,303,510) (1,136,064)
Other investors (1,104,679) (937,235)
--------------- ---------------
Total Partners' (Deficit) (2,408,188) (2,073,299)
--------------- ---------------
Total Liabilities and Partners' (Deficit) $ 3,264,531 $ 3,575,493
=============== ===============
</TABLE>
-14-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Six Months Ended June 30, 1998 and 1997
---------------------------------------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 542,902 $ 499,029
Interest and other income 407 2,562
--------------- ---------------
Total income 543,309 501,591
--------------- ---------------
Expenses:
Property operations 22,222 30,299
Interest 229,470 214,654
Depreciation and amortization 75,763 227,735
Administrative 50,743 35,978
--------------- ---------------
Total expenses 378,198 508,666
--------------- ---------------
Net income (loss) $ 165,111 $ (7,075)
=============== ===============
Allocation of net income (loss):
The Partnership $ 82,556 $ (3,538)
RPILP II 82,555 (3,537)
--------------- ---------------
$ 165,111 $ (7,075)
=============== ===============
A reconciliation of the investments in Research Triangle Industrial Park Joint
Ventures:
Investment in Joint Venture at beginning of period $ (937,234)
Distributions (250,000)
Allocated income 82,556
---------------
Investment in Joint Venture at end of period $ (1,104,679)
===============
</TABLE>
-15-
<PAGE>
INVESTMENT IN JOINT VENTURES (CONTINUED)
----------------------------------------
On September 27, 1991 the Partnership entered into an agreement to form
a joint venture with Realmark Property Investors Limited Partnership
VI-A (RPILP VI-A) and Realmark Property Investors Limited Partnership
VI-B (RPILP VI-B). The joint venture was formed for the purpose of
operating the Foxhunt Apartment complex owned by the Partnership. Under
the terms of the agreement, RPILP VI-A contributed $390,000 and RPILP
VI-B $1,041,568 to buy out the promissory note on the property. The
Partnership contributed the property net of the first mortgage.
The original joint venture agreement provided that any income, loss,
gain, cash flow, or sale proceeds be allocated 63.14% to the
Partnership, 10.04% to RPILP VI-A and 26.82% to RPILP VI-B. On April 1,
1992, utilizing proceeds from a mortgage refinancing, the Partnership
bought out RPILP VI-A's interest and decreased RPILP VI-B's ownership
interest to 11.5%. The net loss of the joint venture from the date of
inception through June 30, 1998 has been allocated to the minority
interests in accordance with the agreements and has been recorded as a
reduction of their capital contributions.
A reconciliation of the minority interests share in the Foxhunt Joint
Venture is as follows:
Balance, January 1, 1998 $ 375,901
Allocated loss (160,481)
----------
Balance, June 30, 1998 $ 215,420
==========
6. MORTGAGES PAYABLE
-----------------
Northwind Office Park
---------------------
A mortgage with a balance of $543,093 and $620,864 at June 30, 1998 and
1997, respectively, bearing interest at 9.75%. The mortgage provides
for annual principal and interest payments of $147,660, payable in
equal monthly installments with the remaining balance due December
2002.
A mortgage with a balance of $270,260 and $299,171 at June 30, 1998 and
1997, respectively, bearing interest at 9.00%. The mortgage provides
for annual principal and interest payments of $57,936, payable in equal
monthly installments with the remaining balance originally due
September 1995. The Partnership has not been granted an extension and
therefore the loan is currently callable on demand.
-16-
<PAGE>
MORTGAGES PAYABLE (CONTINUED)
----------------------------
Foxhunt Apartments
------------------
A mortgage with a balance of $4,482,579 and $4,513,643 at June 30, 1998
and 1997, respectively, bearing interest at 9.00%. Annual principal and
interest payments of $436,296 are due in equal monthly installments
until maturity in March 2027.
The aggregate maturities of the mortgages for each of the next five
years and thereafter are as follows:
Year Amount
---- ------
1998 $ 406,913
1999 141,220
2000 155,328
2001 170,847
2002 168,047
Thereafter 4,300,697
------------
TOTAL $ 5,343,052
============
The mortgages and note are secured by substantially all of the
properties of the Partnership.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value of certain financial instruments. The fair value of
cash, accounts receivable, deposits held in trust, accounts payable,
accrued expenses, accounts payable - affiliates and deposit liabilities
approximate the carrying value due to the short-term nature of these
instruments.
The fair value of the mortgages payable of Northwind, with carrying
values of $543,093 and $270,260, cannot be determined because it is
uncertain if comparable mortgages could be obtained in the current
market due to the poor occupancy at Northwind. The fair value of the
mortgage payable of Foxhunt, with a carrying value of $4,482,579, is
believed to approximate its carrying value since a new mortgage was
obtained in July 1998.
-17-
<PAGE>
8. RELATED PARTY TRANSACTIONS
--------------------------
Management fees for the management of Partnership properties are paid
to an affiliate of the General Partner. The management agreement
provides for 5% of gross monthly rental receipts of the complex to be
paid as fees for administering the operations of the property. These
fees totaled $47,886 and $47,596 for the six months ended June 30, 1998
and 1997, respectively.
According to the terms of the Partnership agreement, the general
partners are entitled to receive a Partnership management fee equal to
7% of net cash flow (as defined in the Partnership agreement), 2% of
which is subordinated to the limited partners having received an annual
cash return equal to 7% of their adjusted capital contributions. No
such fee has been paid or accrued by the Partnership for the six months
ended June 30, 1998 and 1997.
Accounts payable - affiliates amounted to $28,270 and $12,914 at June
30, 1998 and 1997, respectively. This balance is payable on demand.
Computer service charges for the Partnership are paid or accrued to an
affiliate of the General Partner. The fee is based upon the number of
apartment units and totaled $2,280 for both the six months ended June
30, 1998 and 1997, respectively.
Pursuant to the terms of the partnership agreement, the Corporate
General Partner charges the Partnership for reimbursement of certain
costs and expenses incurred by the corporate general partner and its
affiliates in connection with the administration of the Partnership.
These charges were for the Partnership's allocated share of such costs
and expenses as payroll, legal, rent, depreciation, printing, mailing,
travel and communication costs related to Partnership accounting,
partner communication and relations, and property marketing.
Partnership accounting and portfolio management fees, investor services
fees and brokerage fees are allocated based on total assets, number of
partners and number of units, respectively.
The general partners are also allowed to collect a property disposition
fee upon the sale of acquired properties. This fee is not to exceed the
lesser of 50% of amounts customarily charged in arm's-length
transactions by others rendering similar services for comparable
properties or 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. Fees earned on the sale of Colony
of Kettering and Research Phase I are approximately $115,500 and
$315,000, respectively. These amounts will not be recorded as
Partnership liabilities until such time as payment becomes probable.
-18-
<PAGE>
9. INCOME TAXES
------------
No provision has been made for income taxes since the income or loss of
the Partnership is to be included in the tax returns of the individual
partners.
The tax returns of the Partnership are subject to examination by
federal and state taxing authorities. Under federal and state income
tax laws, regulations and rulings, certain types of transactions may be
accorded varying interpretations and, accordingly, reported Partnership
amounts could be changed as a result of any such examination.
The reconciliation of net loss for the six month periods ended June 30,
1998 and 1997 as reported in the statements of operations, and as would
be reported for tax purposes respectively, is as follows:
June 30, June 30,
1998 1997
---- ----
Net loss -
Statement of operations $ ( 94,340) $ (116,228)
(Add to) deduct from:
Difference in depreciation 57,500 ( 39,490)
Difference in amortization of
loan discount - -
Allowance for doubtful accounts ( 33,634) 13,780
Other ( 62,870) -
Difference in depreciation -
Joint Ventures 34,659 57,790
------------ -------------
Net (loss) for tax purposes $ ( 98,685) $ ( 84,148)
============ =============
-19-
<PAGE>
INCOME TAXES (CONTINUED)
------------------------
The reconciliation of partner's (deficit) at June 30, 1998 and December
31, 1997 as reported in the balance sheets, and as reported for tax
purposes, is as follows:
June 30, December 31,
1998 1997
---- ----
Partner's (Deficit) - balance sheet $ (1,910,562) $ (1,816,222)
Add to (deduct from):
Accumulated difference in
depreciation (3,866,709) (3,712,220)
Accumulated amortization
of discounts on mortgage
payables 1,208,424 1,208,424
Syndication fees 1,133,176 1,133,176
Gain on sale of property ( 561,147) ( 561,147)
Allowance for doubtful
accounts 126,789 45,741
Other ( 102,558) ( 228,298)
Difference in Investment
in Joint Venture 636,280 647,808
------------- ------------
Partner's (Deficit) - tax return $ (3,336,307) $ (3,282,738)
============= ============
10. SUBSEQUENT EVENTS
-----------------
In July 1998, the mortgage on the Foxhunt Apartments was successfully
refinanced and the old mortgage was paid off in full. No significant
gain or loss on the refinancing occurred.
The new loan has a principal balance of $6,000,000 and a two year term
in which interest only payments are to be made at a rate equivalent to
350 basis points over the thirty-day LIBOR rate. The loan may at any
time during the two years be converted to a thirty year fixed mortgage.
-20-
<PAGE>
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Liquidity and Capital Resources
- -------------------------------
Although the Partnership continues to operate with a net loss for the six month
period ended June 30, 1998, there are definite signs of improvement as compared
to the same six month period in the previous year. Rental income has increased
approximately 4% from the six month period ended June 30, 1998 as compared to
the same period in 1997 due to management's continued efforts to increase both
occupancies and collections. Management must now concentrate heavily on putting
into place controls over expenses, such as closer monitoring of payroll,
maintenance expenses and other operating expenses, which increased significantly
between the six month periods ended June 30, 1998 and 1997. Fox Hunt Apartments
and Research Triangle Office Complex have maintained stable, if not increased,
occupancies, while Northwind Office Park continues, as in the prior year, to
struggle with lower than expected occupancies. The General Partners continue to
send out packages to lenders to refinance the Northwind property at a lower
interest rate than is currently being paid, but with the low occupancy, there is
no guaranty that they will be successful. Management also continues to market
the properties in the Partnership for sale through the use of major media
sources, such as the Wall Street Journal, but it is believed that occupancies
must be stabilized and physical improvements must be completed to both Foxhunt
and Northwind to otherwise enhance the value of the portfolio for both the
possible refinancing or sale of properties.
The Partnership made no distributions during the six month periods ended June
30, 1998 or 1997, and the General Partner does not anticipate making any
distributions until the cash flow from the properties improves and necessary
capital improvements to the properties have been completed.
The General Partners successfully refinanced the mortgage on Foxhunt Apartments
in July 1998. The new mortgage calls for interest only payments for two years,
so management feels the additional cash flow from not making principal payments
will help the Partnership complete the needed capital improvements at the
properties.
Results of Operations:
- ---------------------
For the quarter ended June 30, 1998, the Partnership's net income reported was
$45,131 or $4.38 per limited partnership unit. Net loss for the quarter ended
June 30, 1997 amounted to $73,877 or $7.17 per unit. For the six month period
ended June 30, 1998, the net loss was $94,340 or $9.15 per limited partnership
unit as compared to $116,228 or $11.27 per limited partnership unit for the six
month period ended June 30, 1997.
-21-
<PAGE>
Results of Operations (continued):
- ----------------------------------
Partnership revenue for the quarter ended June 30, 1998 totaled $512,819, an
increase of slightly over $32,000 from the 1997 amount of $480,587. Total rental
revenue increased almost $30,000, while interest and other income increased a
modest $2,568. The increase in rental revenue during the quarter can be
attributed to continued increased economic occupancy levels and improved
collections at Foxhunt Apartments. Research Triangle Industrial Park continues
to add financial strength to the Partnership as it maintains high occupancy due
to the demand in its location for commercial office space. For the six month
period ended June 30, 1998, Partnership revenue totaled $1,011,566 as compared
to $964,228 for the same period in the previous year.
For the quarter ended June 30, 1998, Partnership expenses amounted to $654,653,
increasing by just in excess of $162,000 from the 1997 quarter amount. Much of
the large increase can be attributed to a substantial increase in depreciation
between the two periods; due to accounting pronouncements which exist,
depreciation was halted during the period in 1997 when a sales contract existed
on Foxhunt Apartments. For the six month period ended June 30, 1998, Partnership
expenses increased by over $408,000 from the same period in 1997. Again, a major
portion of this increase is attributed to an increase in depreciation between
the two periods. A large increase in property operations expenditures should
also be noted; in this area, specifically, increases were noted in payroll and
related expenses (approximately $6,400) and repairs and maintenance
(approximately $138,000) at the Foxhunt Apartments. The increase in repairs and
maintenance items is attributable to increased improvements being done at the
property, mostly in the form of new carpeting and appliances. There was also an
increase of almost $11,000 or approximately 18% in utility costs at Fox Hunt.
Management is looking into ways to control utility costs through means such as
changing all lighting fixtures to more energy efficient ones. Real estate taxes
for Foxhunt decreased slightly, while contracted service costs and insurance
costs remained fairly constant between the six month periods ended June 30, 1998
and 1997. Payroll and related costs at Northwind remained virtually unchanged
between the two six month periods, while increases were incurred in contracted
service costs and utility costs. Administrative expenses for both the quarter
ended June 30, 1998 and the six months in the previous year then ended remained
very consistent.
The Research Triangle Industrial Park Joint Venture generated net income of
$165,112 for the six month period ended June 30, 1998 with 50% or $82,556 of the
income allocated to each joint venturer. The joint venture generated a slight
net loss of $7,075 for the six month period ended June 30, 1997 with one-half
being allocated to each venturer.
-22-
<PAGE>
Results of Operations (continued):
- ----------------------------------
For the six months ended June 30, 1998, the Partnership generated a tax loss of
$98,685 or $9.57 per limited partnership unit. The tax loss for the first six
months of 1997 totaled $84,148 or $8.16 per unit.
-23-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
Item 1 - Legal Proceedings
- --------------------------
The Partnership is not a party to, nor are any of the Partnership's properties
subject to any material pending legal proceedings other than ordinary, routine
litigation incidental to the Partnership's business.
Items 2, 3, 4 and 5
- -------------------
Not applicable.
Item 6 - Exhibits and reports on Form 8-K
- -----------------------------------------
None.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements 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 August 11, 1998
-------------------------- ------------------------
Joseph M. Jayson, Date
Individual General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed 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 August 11, 1998
------------------------------ ------------------------
Joseph M. Jayson, Date
President and Director
/s/ Joseph M. Jayson August 11, 1998
------------------------------ ------------------------
Michael J. Colmerauer Date
Secretary
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Realmark Property Investors Limited Partnership
II for the six months ended June 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 71,531
<SECURITIES> 0
<RECEIVABLES> 73,771
<ALLOWANCES> 66,506
<INVENTORY> 0
<CURRENT-ASSETS> 470,527
<PP&E> 10,196,288
<DEPRECIATION> 5,622,421
<TOTAL-ASSETS> 5,288,041
<CURRENT-LIABILITIES> 799,063
<BONDS> 5,295,932
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,288,041
<SALES> 0
<TOTAL-REVENUES> 1,011,566
<CGS> 0
<TOTAL-COSTS> 1,105,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,132
<INCOME-PRETAX> (94,340)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,340)
<EPS-PRIMARY> (9.15)
<EPS-DILUTED> 0
</TABLE>
