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
September 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 September 30, 1998, the issuer had 10,000 units of limited partnership
interest outstanding.
<PAGE>
<TABLE>
<CAPTION>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
INDEX
-----
PAGE NO.
--------
<S> <C>
PART I: FINANCIAL INFORMATION
- ------ ---------------------
Balance Sheets -
September 30, 1998 and December 31, 1997 3
Statements of Operations -
Three Months Ended September 30, 1998 and 1997 4
Statements of Operations -
Nine Months Ended September 30, 1998 and 1997 5
Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 6
Statements of Partners' (Deficit) -
Nine Months Ended September 30, 1998 and 1997 7
Notes to Financial Statements 8 - 21
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22 - 24
---------------------------------------------
</TABLE>
-2-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
BALANCE SHEETS
September 30, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
September 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 5,722,120 5,396,130
---------------- -----------------
Property, net 4,474,168 4,800,158
Cash 847,140 -
Cash - security deposits 73,214 70,895
Escrow deposits 720,000 277,566
Accounts receivable, net of allowance for doubtful
accounts of $87,694 and $49,139, respectively 17,006 2,846
Mortgage costs, net of accumulated
amortization of $103,150 and $96,854 254,505 242,460
Leasing commissions, net of accumulated amortization
of $6,157 and $5,117 2,042 3,082
Other assets 483 23,172
---------------- -----------------
Total Assets $ 6,388,558 $ 5,420,179
================ =================
LIABILITIES AND PARTNERS' (DEFICIT)
- ----------------------------------
Liabilities:
Cash overdraft $ - $ 151,190
Mortgages payable 6,780,255 5,343,052
Accounts payable and accrued expenses 845,345 457,535
Account payable - affiliates 82,129 76,669
Accrued interest 46,648 40,427
Security deposits and prepaid rents 118,121 70,884
---------------- -----------------
Total Liabilities 7,872,498 6,139,757
---------------- -----------------
Losses of unconsolidated joint ventures
in excess of investment 901,762 720,743
---------------- -----------------
Minority interest in consolidated
joint venture (232,110) 375,901
---------------- -----------------
Partners' (Deficit):
General partners (225,363) (215,242)
Limited partners (1,928,228) (1,600,980)
---------------- -----------------
Total Partners' (Deficit) (2,153,592) (1,816,222)
---------------- -----------------
Total Liabilities and Partners' (Deficit) $ 6,388,558 $ 5,420,179
================ =================
</TABLE>
See notes to financial statements
-3-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Three Months Ended September 30, 1998 and 1997
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 446,941 $ 494,733
Interest and other income 20,584 (4,200)
--------------- ---------------
Total income 467,525 490,533
--------------- ---------------
Expenses:
Property operations 491,081 246,732
Interest 171,037 122,228
Depreciation and amortization 356,457 47,408
Administrative:
Paid to affiliates 43,833 24,585
Other 82,103 33,712
--------------- ---------------
Total expenses 1,144,511 474,665
--------------- ---------------
(Loss) income before allocated (loss) income from joint
venture and loss (income) allocated to minority interest (676,986) 15,868
Allocated (loss) income from joint venture (13,575) 97,489
Loss (income) allocated to minority interest 447,530 (64,008)
--------------- ---------------
Net (loss) income $ (243,031) $ 49,349
=============== ===============
(Loss) income per limited partnership unit $ (23.57) $ 4.79
=============== ===============
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
------------------------
Nine Months Ended September 30, 1998 and 1997
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 1,398,341 $ 1,412,035
Interest and other income 80,750 42,726
---------------- -----------------
Total income 1,479,091 1,454,761
---------------- -----------------
Expenses:
Property operations 1,115,697 615,013
Interest 422,169 370,929
Depreciation and amortization 587,725 144,133
Administrative:
Paid to affiliates 128,662 131,171
Other 239,200 154,135
---------------- -----------------
Total expenses 2,493,453 1,415,381
---------------- -----------------
(Loss) income before allocated income from joint venture
and loss (income) allocated to minority interest (1,014,362) 39,380
Allocated income from joint venture 68,982 93,951
Loss (income) allocated to minority interest 608,011 (200,210)
---------------- -----------------
Net loss $ (337,370) $ (66,879)
================ =================
Loss per limited partnership unit $ (32.72) $ (6.49)
================ =================
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
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (337,370) $ (66,879)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 587,725 144,133
Income from joint venture (68,982) (93,951)
Minority interest share of net (loss) income (608,011) 200,210
Changes in operating assets and liabilities:
Cash - security deposits (2,319) (19,785)
Escrow deposits (442,434) (110,700)
Accounts receivable (14,160) (5,250)
Leasing commissions - -
Other assets 22,689 11,998
Accounts payable and accrued expenses 387,810 (60,232)
Accrued interest 6,221 (8,331)
Security deposits and prepaid rents 47,237 1,075
---------------- -----------------
Net cash (used in) operating activities (421,593) (7,712)
---------------- -----------------
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) 103,832
Accounts payable - affiliates 5,460 10,936
Principal payments on mortgages and notes 1,437,203 (116,276)
Mortgage costs (272,740) 2,099
---------------- -----------------
Net cash (used in) provided by financing activities 1,018,733 591
---------------- -----------------
Decrease in cash 847,140 (7,121)
Cash - beginning of period - 7,121
---------------- -----------------
Cash - end of period $ 847,140 $ -
================ =================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 415,948 $ 379,260
================ =================
</TABLE>
See notes to financial statements
-6-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF PARTNERS' (DEFICIT)
---------------------------------
Nine Months Ended September 30, 1998 and 1997
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
General Limited Partners
Partners
Amount Units Amount
------ ----- ------
<S> <C> <C> <C>
Balance, January 1, 1997 $ (210,366) 10,000 $ (1,443,328)
Net loss (2,006) - (64,873)
------------------ --------------- -----------------
Balance, September 30, 1997 $ (212,372) 10,000 $ (1,508,201)
================== =============== =================
Balance, January 1, 1998 $ (215,242) 10,000 $ (1,600,980)
Net income (10,121) - (327,248)
------------------ --------------- -----------------
Balance, September 30, 1998 $ (225,363) 10,000 $ (1,928,228)
================== =============== =================
</TABLE>
See notes to financial statements
-7-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Nine Months Ended September 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 nine months ended
September 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 September 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 nine months ended September
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 nine month
periods ended September 30, 1998 or 1997.
A summary of the combined assets, liabilities and equity of the joint
venture as of September 30, 1998 and December 31, 1997, and the results
of its operations for the nine month periods ended September 30, 1998
and 1997 are as follows:
-13-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
BALANCE SHEETS
--------------
September 30, 1998 and December 31, 1997
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 249,115 $ 1,127,231
Property, net of accumulated depreciation 1,707,705 1,798,721
Other assets 1,357,721 649,541
--------------- ---------------
Total Assets $ 3,314,541 $ 3,575,493
=============== ===============
LIABILITIES AND PARTNERS' (DEFICIT)
- ----------------------------------
Liabilities:
Notes payable $ 5,518,887 $ 5,558,723
Accounts payable - affiliates 5,341 -
Accounts payable and accrued expenses 225,649 90,069
--------------- ---------------
Total Liabilities 5,749,877 5,648,792
--------------- ---------------
Partners' (Deficit):
General partners (1,317,084) (1,136,064)
Other investors (1,118,253) (937,235)
--------------- ---------------
Total Partners' (Deficit) (2,435,336) (2,073,299)
--------------- ---------------
Total Liabilities and Partners' (Deficit) $ 3,314,541 $ 3,575,493
=============== ===============
</TABLE>
-14-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Nine Months Ended September 30, 1998 and 1997
---------------------------------------------
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Income:
Rental $ 796,401 $ 915,475
Interest and other income 590 34,551
--------------- ---------------
Total income 796,991 950,026
--------------- ---------------
Expenses:
Property operations 132,846 46,554
Interest 344,346 311,807
Depreciation and amortization 113,643 341,602
Administrative 68,193 62,161
--------------- ---------------
Total expenses 659,028 762,124
--------------- ---------------
Net income $ 137,963 $ 187,902
=============== ===============
Allocation of net income:
The Partnership $ 68,982 $ 93,951
RPILP II 68,981 93,951
--------------- ---------------
$ 137,963 $ 187,902
=============== ===============
</TABLE>
A reconciliation of the investments in Research Triangle Industrial Park Joint
Ventures:
<TABLE>
<CAPTION>
<S> <C>
Investment in Joint Venture at beginning of period $ (937,234)
Distributions (250,000)
Allocated income 68,982
---------------
Investment in Joint Venture at end of period $ (1,118,253)
===============
</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 September 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 (608,011)
----------
Balance, September 30, 1998 $(232,110)
==========
6. MORTGAGES PAYABLE
-----------------
Northwind Office Park
---------------------
A mortgage with a balance of $524,233 and $598,718 at September 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 $256,022 and $293,798 at September 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 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 (9.1875% at September 30,
1998). The loan may at any time during the two years be converted to a
thirty year fixed mortgage.
A mortgage with a balance of $0 and $4,506,071 at September 30, 1998 and
1997, respectively, bearing interest at 9.00%. Annual principal and
interest payments of $436,296 were due in equal monthly installments
until maturity in March 2027. The mortgage on this property was
refinanced during July 1998 and as a result this mortgage was paid in
full. No significant gain or loss on the refinancing occurred.
The aggregate maturities of the mortgages for each of the next five
years and thereafter are approximately as follows:
Year Amount
---- ------
1998 $ 310,766
1999 54,745
2000 6,060,000
2001 65,000
2002 289,744
Thereafter 0
--------------
TOTAL $ 6,780,255
==============
The mortgages and note are secured by substantially all of the
properties of the Partnership.
-17-
<PAGE>
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 total
carrying values of $780,255, 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 $6,000,000, is
believed to approximate its carrying value since a new mortgage was
obtained in July 1998.
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 $72,077 and $66,594 for the nine months ended September 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 nine months
ended September 30, 1998 and 1997.
Accounts payable - affiliates amounted to $82,129 and $10,935 at
September 30, 1998 and 1997, respectively. This balance is accruing
interest at the rate of 11% per annum and 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 $3,420 for both the nine months ended
September 30, 1998 and 1997, respectively.
-18-
<PAGE>
RELATED PARTY TRANSACTIONS (CONTINUED)
-------------------------------------
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.
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.
-19-
<PAGE>
INCOME TAXES (CONTINUED)
-----------------------
The reconciliation of net loss for the nine month periods ended
September 30, 1998 and 1997 as reported in the statements of operations,
and as would be reported for tax purposes respectively, is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Net loss -
Statement of operations $ (337,370) $ ( 66,879)
(Add to) deduct from:
Difference in depreciation 86,250 ( 59,000)
Difference in amortization of
loan discount - -
Allowance for doubtful accounts ( 50,000) 20,000
Other ( 94,000) -
Difference in depreciation -
Joint Ventures 51,000 87,000
----------- --------------
Net (loss) for tax purposes $ (344,120) $ ( 18,879)
=========== ==============
</TABLE>
-20-
<PAGE>
INCOME TAXES (CONTINUED)
-----------------------
The reconciliation of partner's (deficit) at September 30, 1998 and
December 31, 1997 as reported in the balance sheets,
and as reported for tax purposes, is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Partner's (Deficit) - balance sheet $ (2,153,592) $ (1,816,222)
Add to (deduct from):
Accumulated difference in
depreciation (3,625,970) (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 ( 4,259) 45,741
Other ( 322,298) ( 228,298)
Difference in Investment
in Joint Venture 698,808 647,808
-------------- ------------
Partner's (Deficit) - tax return $ (3,626,858) $ (3,282,738)
============== ============
</TABLE>
-21-
<PAGE>
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership continued to operate with a net loss for the nine month period
ended September 30, 1998. Rental income has been fairly consistent when compared
to the previous year. Management continues to put forth great effort to increase
both occupancies and collections. Controlling expenses through closer monitoring
of payroll, maintenance expenses and other operating expenses, which increased
significantly between the nine month periods ended June 30, 1998 and 1997
continues to be the major focus of management. Research Triangle Office Complex
has maintained stable, if not increased, occupancy, while Northwind Office Park
continues, as in the prior year, to struggle with lower than expected
occupancies. Foxhunt Apartments experienced a decrease in occupancy during the
quarter ended September 30, 1998, but management feels with the new financing in
place and escrow dollars set aside for capital improvements, that the property's
occupancy should now begin to increase again due to physical improvements being
done at the property. 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 nine month periods ended
September 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.
-22-
<PAGE>
Results of Operations:
- ---------------------
For the quarter ended September 30, 1998, the Partnership's net loss reported
was $243,031 or $23.57 per limited partnership unit. Much of the loss incurred
during this quarter was the result of a large write-off of mortgage acquisition
costs upon the refinancing of Foxhunt Apartments (i.e., the previously
capitalized costs upon originally financing the property were fully written off
and the new costs were capitalized); the write-off amounted to in excess of
$240,000. Net income for the quarter ended September 30, 1997 amounted to
$49,349 or $4.79 per unit. For the nine month period ended September 30, 1998,
the net loss was $337,370 or $32.72 per limited partnership unit as compared to
$66,879 or $6.49 per limited partnership unit for the nine month period ended
September 30, 1997.
Partnership revenue for the quarter ended September 30, 1998 totaled $467,525, a
decrease of slightly over $23,000 from the 1997 amount of $490,533. Total rental
revenue decreased almost $48,000, while interest and other income increased
almost $25,000. The decrease in rental revenue during the quarter can be
primarily attributed to decreased economic occupancy levels 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 nine month period ended
September 30, 1998, Partnership revenue totaled $1,479,091 as compared to
$1,454,761 for the same period in the previous year.
For the quarter ended September 30, 1998, Partnership expenses amounted to
$1,144,511, increasing by in excess of $669,000 from the 1997 quarter amount.
Much of the large increase can be attributed to 1) 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; and 2) the increased amortization expense
recorded upon the refinancing of Foxhunt Apartments, as described previously.
For the nine month period ended September 30, 1998, Partnership expenses
increased by over $1,000,000 from the same period in 1997. Again, a major
portion of this increase is attributed to an increase in depreciation and
amortization between the two periods. A large increase in property operations
expenditures should also be noted; as was noted last quarter, increases were
incurred in payroll and related expenses and repairs and maintenance 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. Administrative expenses for the quarter
ended September 30, 1998 increased over $82,000 from the nine months in the
previous year; specifically, an increase in advertising expense for Northwind in
an attempt to increase occupancy made up almost 23% of this increase.
-23-
<PAGE>
Results of Operations (continued):
- ---------------------------------
The Research Triangle Industrial Park Joint Venture generated net income of
$137,963 for the nine month period ended September 30, 1998 with 50% or $68,982
of the income allocated to each joint venturer. The joint venture generated net
income of $187,902 for the nine month period ended September 30, 1997 with
one-half being allocated to each venturer.
For the nine months ended September 30, 1998, the Partnership generated a tax
loss of $344,120 or $33.38 per limited partnership unit. The tax loss for the
first nine months of 1997 totaled $18,879 or $1.83 per unit.
-24-
<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.
-25-
<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 November 12, 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 November 12, 1998
---------------------- -----------------
Joseph M. Jayson, Date
President and Director
/s/ Michael J. Colmerauer November 12, 1998
--------------------------- -----------------
Michael J. Colmerauer Date
Secretary
-26-
<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 nine months ended September 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 847,140
<SECURITIES> 0
<RECEIVABLES> 104,700
<ALLOWANCES> 87,694
<INVENTORY> 0
<CURRENT-ASSETS> 1,657,843
<PP&E> 10,196,288
<DEPRECIATION> 5,722,120
<TOTAL-ASSETS> 6,388,558
<CURRENT-LIABILITIES> 1,092,243
<BONDS> 6,780,255
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,388,558
<SALES> 0
<TOTAL-REVENUES> 1,479,091
<CGS> 0
<TOTAL-COSTS> 1,816,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 422,169
<INCOME-PRETAX> (337,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337,370)
<EPS-PRIMARY> (32.72)
<EPS-DILUTED> 0
</TABLE>
