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, 1999 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, 1999, the issuer had 10,000 units of limited partnership
interest outstanding.
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
PART I: FINANCIAL INFORMATION
- ------- ---------------------
Balance Sheets -
September 30, 1999 and December 31, 1998 3
Statements of Operations -
Three Months Ended September 30, 1999 and 1998 4
Statements of Operations -
Nine Months Ended September 30, 1999 and 1998 5
Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 6
Statements of Partners' (Deficit) -
Nine Months Ended September 30, 1999 and 1998 7
Notes to Financial Statements 8 - 20
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------- FINANCIAL CONDITION AND RESULTS OF
----------------------------------
OPERATIONS 21 - 24
----------
PART III: FINANCIAL DATA SCHEDULE 27
- --------- -----------------------
</TABLE>
-2-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
BALANCE SHEETS
--------------
September 30, 1999 and December 31, 1998
----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
ASSETS
- ------
<S> <C> <C>
Property, at cost:
Land $ 848,015 $ 848,015
Buildings and improvements 9,026,133 9,009,386
Furniture and fixtures 439,647 439,647
------------ ------------
10,313,795 10,297,048
Less accumulated depreciation 5,946,678 5,607,242
------------ ------------
Property, net 4,367,117 4,689,806
Cash 66,493 498,376
Escrow deposits 45,273 375,833
Accounts receivable, net of allowance for doubtful
accounts of $141,265 and $95,898, respectively -- 9,591
Accounts receivable - affiliates 148,244 78,416
Mortgage costs, net of accumulated
amortization of $235,319 and $92,078 25,769 128,910
Leasing commissions, net of accumulated amortization
of $7,059 and $5117 240 --
Other assets 3,332 1,409
------------ ------------
Total Assets $ 4,656,468 $ 5,782,341
============ ============
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgages payable $ 6,609,484 $ 6,710,685
Accounts payable and accrued expenses 444,969 593,911
Accrued interest 9,188 --
Security deposits and prepaid rents 129,010 142,255
------------ ------------
Total Liabilities 7,192,651 7,446,851
------------ ------------
Losses of unconsolidated joint ventures
in excess of investment 794,921 883,135
------------ ------------
Minority interest in consolidated
joint venture (201,089) 267,384
------------ ------------
Partners' Deficit:
General partners (254,656) (245,206)
Limited partners (2,875,359) (2,569,823)
------------ ------------
Total Partners' Deficit (3,130,015) (2,815,029)
------------ ------------
Total Liabilities and Partners' Deficit $ 4,656,468 $ 5,782,341
============ ============
</TABLE>
See notes to financial statements
-3-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Three Months Ended September 30, 1999 and 1998
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Income:
Rental $ 524,136 $ 446,941
Interest and other income 39,878 20,584
----------- -----------
Total income 564,014 467,525
----------- -----------
Expenses:
Property operations 439,119 491,081
Interest 134,195 171,037
Depreciation and amortization 161,282 356,457
Administrative:
To affiliates 25,693 43,833
Other 69,721 82,103
----------- -----------
Total expenses 830,010 1,144,511
----------- -----------
Loss before allocated income (loss) from joint
venture and loss allocated to minority interest (265,996) (676,986)
Allocated income (loss) from joint venture 34,260 (13,575)
Loss allocated to minority interest 164,037 447,530
----------- -----------
Net loss $ (67,699) $ (243,031)
=========== ===========
Loss per limited partnership unit $ (6.57) $ (23.57)
=========== ===========
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, 1999 and 1998
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Income:
Rental $ 1,480,748 $ 1,398,341
Interest and other income 89,043 80,750
----------- -----------
Total income 1,569,791 1,479,091
----------- -----------
Expenses:
Property operations 1,159,777 1,115,697
Interest 423,840 422,169
Depreciation and amortization 483,847 587,725
Administrative:
To affiliates 148,290 128,662
Other 225,710 239,200
----------- -----------
Total expenses 2,441,464 2,493,453
----------- -----------
Loss before allocated income from joint venture
and loss allocated to minority interest (871,673) (1,014,362)
Allocated income from joint venture 88,214 68,982
Loss allocated to minority interest 468,473 608,011
----------- -----------
Net loss $ (314,986) $ (337,369)
=========== ===========
Loss per limited partnership unit $ (30.55) $ (32.72)
=========== ===========
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, 1999 and 1998
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (314,986) $ (337,370)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 483,847 587,725
Income from joint venture (88,214) (68,982)
Minority interest share of net loss (468,473) (608,011)
Changes in operating assets and liabilities:
Cash - security deposits -- (2,319)
Escrow deposits 330,560 (442,434)
Accounts receivable 9,591 (14,160)
Leasing commissions (2,182) --
Other assets (1,923) 22,689
Accounts payable and accrued expenses (148,942) 387,810
Accrued interest 9,188 6,221
Security deposits and prepaid rents (13,245) 47,237
----------- -----------
Net cash used in operating activities (204,779) (421,594)
----------- -----------
Cash flow from investing activities:
Accounts receivable - affiliates (69,828) --
Capital acquisitions (16,747) --
Distributions from joint venture -- 250,000
----------- -----------
Net cash provided by investing activities (86,575) 250,000
----------- -----------
Cash flows from financing activities:
Cash overdraft -- (151,190)
Accounts payable - affiliates -- 5,460
Principal payments on mortgages and notes (101,201) 1,437,203
Mortgage costs (39,328) (272,740)
----------- -----------
Net cash (used in) provided by financing activities (140,529) 1,018,733
----------- -----------
(Decrease) increase in cash (431,883) 847,139
Cash - beginning of period 498,376 --
----------- -----------
Cash - end of period $ 66,493 $ 847,139
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 414,652 $ 415,948
=========== ===========
</TABLE>
See notes to financial statements
-6-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF PARTNERS' (DEFICIT)
---------------------------------
Nine Months Ended September 30, 1999 and 1998
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
General Limited Partners
Partners
Amount Units Amount
------ ----- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 $ (215,242) 10,000 $(1,600,980)
Net loss (10,121) -- (327,248)
----------- ----------- -----------
Balance, September 30, 1998 $ (225,363) 10,000 $(1,928,228)
=========== =========== ===========
Balance, January 1, 1999 $ (245,206) 10,000 $(2,569,823)
Net loss (9,450) -- (305,536)
----------- ----------- -----------
Balance, September 30, 1999 $ (254,656) 10,000 $(2,875,359)
=========== =========== ===========
</TABLE>
See notes to financial statements
-7-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Nine Months Ended September 30, 1999 and 1998
---------------------------------------------
(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, 1999 and 1998 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.
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. This joint venture is not consolidated in the Partnership's
financial statements because the Partnership is not the majority owner.
-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.
Comprehensive Income
--------------------
The Partnership has adopted Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income. SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is defined as "the change in equity of a business
during a period from transactions and other events and circumstances
from non-owner sources". Other than net income (loss), the Partnership
has no other sources of comprehensive income.
-10-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Segment Information
-------------------
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information establishes standards for the way public business
enterprises report information about operating segments in annual
financial statements. The Partnership's only operating segment is the
ownership and operation of income- producing real property for the
benefit of its limited partners.
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.
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.
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 $136,000.
-11-
<PAGE>
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.
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.
-12-
<PAGE>
INVESTMENT IN JOINT VENTURES (CONTINUED)
----------------------------------------
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.
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
period ended September 30, 1999 or 1998.
A summary of the combined assets, liabilities and equity of the joint
venture as of September 30, 1999 and December 31, 1998, and the results
of its operations for the nine month periods ended September 30, 1999
and 1998 are as follows:
-13-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
BALANCE SHEETS
--------------
September 30, 1999 and December 31, 1998
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 188,668 $ 688,674
Property, net of accumulated depreciation 1,601,436 1,677,366
Other assets 1,061,505 846,731
----------- -----------
Total Assets $ 2,851,609 $ 3,212,771
=========== ===========
LIABILITIES AND PARTNERS' (DEFICIT)
- -----------------------------------
Liabilities:
Notes payable $ 5,407,476 $ 5,504,596
Accounts payable - affiliates 162,068 --
Accounts payable and accrued expenses 163,717 106,256
----------- -----------
Total Liabilities 5,733,261 5,610,852
----------- -----------
Partners' (Deficit):
General partners (1,341,412) (1,099,626)
Other investors (1,540,241) (1,298,455)
----------- -----------
Total Partners' (Deficit) (2,881,653) (2,398,081)
----------- -----------
Total Liabilities and Partners' (Deficit) $ 2,851,609 $ 3,212,771
=========== ===========
</TABLE>
-14-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Nine Months Ended September 30, 1999 and 1998
---------------------------------------------
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Income:
Rental $746,554 $796,401
Interest and other income 11,212 590
-------- --------
Total income 757,766 796,991
-------- --------
Expenses:
Property operations 90,824 132,846
Interest 336,482 344,346
Depreciation and amortization 101,072 113,643
Administrative 52,959 68,193
-------- --------
Total expenses 581,337 659,028
-------- --------
Net income $176,429 $137,963
======== ========
Allocation of net income:
The Partnership $ 88,215 $ 68,982
RPILP II 88,214 68,981
-------- --------
$176,429 $137,963
======== ========
A reconciliation of the investments in Research Triangle Industrial Park Joint
Ventures:
Investment in Joint Venture at beginning of period $(1,099,626)
Distributions (330,000)
Allocated income 88,215
-----------
Investment in Joint Venture at end of period $(1,341,412)
===========
</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, 1999 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, 1999 $ 267,384
Allocated loss (468,473)
----------
Balance, September 30, 1999 $ (201,089)
==========
6. MORTGAGES PAYABLE
-----------------
Northwind Office Park
---------------------
A mortgage with a balance of $442,331 and $524,233 at September 30,
1999 and 1998, 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 $161,020 and $256,022 at September 30,
1999 and 1998, 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 (8.6875% at September
30, 1999). The loan may at any time during the two years be converted
to a thirty year fixed mortgage. Management is currently working on
refinancing this loan and expects to have permanent financing by
November 16, 1999. An extension on this mortgage was granted until
November 16, 1999.
A mortgage with a balance of $4,482,579 at June 30, 1998, 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
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 four
years and thereafter are as follows:
Year Amount
---- ------
1999 $ 6,345,472
2000 116,118
2001 127,959
2002 121,136
-----------
TOTAL $ 6,710,685
===========
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.
-17-
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
-----------------------------------------------
The fair value of the mortgages payable of Northwind, with carrying
values of $$442,331and $161,020, 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 approximately $72,571 and $71,829 for the nine months
ended September 30, 1999 and 1998, 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, 1999 and 1998.
Accounts receivable - affiliates amounted to $148,244 at September 30,
1999. This balance is payable on demand.
Accounts payable - affiliates amounted to $28,270 at September 30,
1998. This balance is payable on demand.
Computer service charges for the Partnership are paid or accrued to an
affiliate of the General Partner based, in part, upon the number of
apartment units and complexes. Such amounts totaled approximately
$3,420 for both the six months ended September 30, 1999 and 1998,
respectively.
Partnership accounting and portfolio management fees, investor services
fees and brokerage fees are allocated based on total assets, the number
of partners, and number of units, respectively. In addition to the
above, other property specific expenses, such as payroll, benefits,
etc. are charged to property operations on the Statement of Operations.
-18-
<PAGE>
RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
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.
The reconciliation of net loss for the nine month periods ended
September 30, 1999 and 1998 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,
1999 1998
---- ----
<S> <C> <C>
Net loss -
Statement of operations $(314,986) $(337,369)
(Add to) deduct from:
Difference in depreciation 58,350 86,250
Difference in amortization of
loan discount -- --
Allowance for doubtful accounts 31,050 (50,000)
Other (99,000) (94,000)
Difference in depreciation -
Joint Ventures (123,000) 51,000
--------- ---------
Net (loss) for tax purposes $(447,586) $(344,119)
========= =========
</TABLE>
-19-
<PAGE>
INCOME TAXES (CONTINUED)
------------------------
The reconciliation of partner's (deficit) at June 30, 1999 and December
31, 1998 as reported in the balance sheets, and as reported for tax
purposes, is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Partner's (Deficit) - balance sheet $(3,062,316) $(2,153,592)
Add to (deduct from):
Accumulated difference in
depreciation (3,614,969) (3,625,970)
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 118,173 (4,259)
Other (459,478) (322,298)
Difference in Investment
in Joint Venture 400,913 698,808
----------- -----------
Partner's (Deficit) - tax return $(4,837,224) $(3,626,858)
=========== ===========
</TABLE>
-20-
<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, 1999. As stated in previous management discussions,
management continues to put forth great effort to increase occupancies,
primarily at the Northwind Office Complex. Management continues to aggressively
market this property in local rental guides and newspapers in search of tenants.
Management's plans for marketing the space in this office park include re-naming
the complex and installing all new signage, new carpeting and fresh coats of
paint and/or wall covering in all hallways, new lights in all hallways, all new
bathrooms and the setting up of a common conference center available for use by
all tenants. The approximate cost of all renovations is expected to be $300,000
and the work should be completed by the end of 1999 (note: the signage work and
the common conference center are already completed). Northwind's cash flow
shortages have caused it to fall behind by over two years in the payment of its
real estate taxes. One of Northwind's outstanding mortgages came due in
September 1995, and to date management has been unable to refinance the debt.
The mortgage holder continues to accept payments of principal and interest,
although the mortgage holder is unwilling to grant a formal extension, therefore
placing the debt in technical default. 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.
The Partnership made no distributions during the nine month periods ended
September 30, 1999 or 1998, 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 Partnership has
been using its cash to complete necessary capital improvements (both
capitalizable and non-capitalizable) and deferred and routine maintenance at the
properties in the Partnership.
The General Partners successfully refinanced the mortgage on Foxhunt Apartments
in July 1998. The current bridge loan calls for interest only payments for one
year and matures August 1, 1999. Management received an extension on this loan
until November 16, 1999. The mortgage will have permanent financing by that
date.
-21-
<PAGE>
Liquidity and Capital Resources (continued):
- ---------------------------------------------
The Partnership has conducted a review of its computer systems to identify the
systems that could be affected by the "year 2000 issue" and has substantially
developed an implementation plan to resolve such issues. The year 2000 issue is
the result of computer programs being written using two digits rather than four
digits to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Management has discussed with outside independent computer
consultants its readiness for the Year 2000. The majority of the software in use
is either "2000 compliant" or will be with little adaptation and at no
significant cost per information provided by their software providers.
Management has also engaged a computer firm to re-write its tax software making
it Year 2000 compliant. This work began May 1, 1999 and is expected to be
complete by December 1, 1999. Management has a complete inventory of its
computers and feels that the cost of replacing those which will not be "2000
compliant" will be relatively minor (i.e., most likely under $20,000).
Non-informational systems have also been evaluated and management feels that
there will be little, if any, cost to preparing these for the Year 2000 (i.e.,
most likely under $20,000). Management expects to be fully Year 2000 compliant
with all testing done by December 1, 1999. The Partnership is working on a
contingency plan in the unlikely event that its systems do not operate as
planned. It is management's belief that in the unlikely event that its
informational systems do not operate as planned in the year 2000, all records
could be maintained manually until the problems with its systems are resolved.
Management feels that its external vendors, suppliers and customers, for the
most part, will be unaffected by the Year 2000 as most do not rely on
information systems in their businesses.
Results of Operations:
- ----------------------
For the quarter ended September 30, 1999, the Partnership's net loss reported
was $67,699 or $6.57 per limited partnership unit. The net loss for the quarter
ended September 30, 1998 amounted to $243,031 or $23.57 per unit. For the nine
month period ended September 30, 1999, the net loss was $314,986 or $30.55 per
limited partnership unit as compared to $337,369 or $32.72 per limited
partnership unit for the nine month period ended September 30, 1998.
-22-
<PAGE>
Results of Operations (continued):
- ----------------------------------
Partnership revenue for the quarter ended September 30, 1999 totaled $564,014,
an increase of slightly over $96,000 from the 1998 amount of $467,525. Total
rental revenue increased almost $77,000, while interest and other income
increased approximately $19,000. 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
nine month period ended September 30, 1999, Partnership revenue totaled
$1,569,791 as compared to $1,479,091 for the same period in the previous year.
For the quarter ended September 30, 1999, Partnership expenses amounted to
$830,010, decreasing approximately $314,500 from the 1998 quarter amount of
$1,144,511. Much of the large decrease can be attributed to a substantial
decrease in property operations between the two periods. For the nine month
period ended September 30, 1999, Partnership expenses decreased by approximately
$52,000 from the same period in 1998; for the nine months ended September 30,
1999 and 1998, total expenses for the Partnership were $2,441,464 and
$2,493,453, respectively. A major portion of this increase is attributed to a
decrease 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, 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, painting and appliances. Repairs,
maintenance and deferred costs at Northwind also increased significantly between
the two six month periods due to the renovation work being done at the property.
Additionally, payroll at Northwind more than doubled (i.e., from approximately
$41,000 to approximately $87,000) when comparing the nine months ended September
30, 1999 and 1998. Administrative expenses paid to other than affiliates for
both the nine months ended September 30, 1999 and the same nine months in the
previous year remained very consistent. Administrative expenses paid/accrued to
affiliates increased by approximately $20,000 or 16% between the nine months
ended September 30, 1999 and 1998. No one particular expense in this area was
responsible for the increase, but in total, they resulted in the increase.
The Research Triangle Industrial Park Joint Venture generated net income of
$176,429 for the nine month period ended September 30, 1999 with 50% or $88,215
of the income allocated to each joint venturer. The joint venture generated net
income of $137,963 for the nine month period ended September 30, 1998 with
one-half being allocated to each venturer.
-23-
<PAGE>
Results of Operations (continued):
- ----------------------------------
For the nine months ended September 30, 1999, the Partnership generated a tax
loss of $503,530 or $48.84 per limited partnership unit. The tax loss for the
first six months of 1998 totaled $334,920 or $33.38 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 December 22, 1999
--------------------- -----------------
Joseph M. Jayson, Date
Individual General Partner and
Principal Financial Officer
-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 six months ended June 30, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 66,493
<SECURITIES> 0
<RECEIVABLES> 289,509
<ALLOWANCES> 141,265
<INVENTORY> 0
<CURRENT-ASSETS> 263,342
<PP&E> 10,313,795
<DEPRECIATION> 5,946,678
<TOTAL-ASSETS> 4,656,468
<CURRENT-LIABILITIES> 583,167
<BONDS> 6,609,484
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,656,468
<SALES> 0
<TOTAL-REVENUES> 1,569,791
<CGS> 0
<TOTAL-COSTS> 1,884,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 423,840
<INCOME-PRETAX> (314,986)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314,986)
<EPS-BASIC> (30.55)
<EPS-DILUTED> 0
</TABLE>
