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
March 31, 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 March 31, 1999, 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 -
March 31, 1999 and December 31, 1998 3
Statements of Operations -
Three Months Ended March 31, 1999 and 1998 4
Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 5
Statements of Partners' (Deficit) -
Three Months Ended March 31, 1999 and 1998 6
Notes to Financial Statements 7 - 20
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 21 - 24
----------
PART III: FINANCIAL DATA SCHEDULE
- ---------------------------------
</TABLE>
-2-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
BALANCE SHEETS
--------------
March 31, 1999 and December 31, 1998
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS
- ------
<S> <C> <C>
Property, at cost:
Land $ 848,015 $ 848,015
Buildings and improvements 9,011,311 9,009,386
Furniture and fixtures 439,647 439,647
----------------- -----------------
10,298,973 10,297,048
Less accumulated depreciation 5,720,387 5,607,242
----------------- -----------------
Property, net 4,578,586 4,689,806
Cash - 498,376
Escrow deposits 411,582 375,833
Accounts receivable, net of allowance for doubtful
accounts of $101,729 and $95,898, respectively 4,341 9,591
Accounts receivable - affiliates 158,168 78,416
Mortgage costs, net of accumulated
amortization of $139,825 and $92,078 81,163 128,910
Leasing commissions, net of accumulated amortization
of $6,279 and $5,117 1,020 -
Other assets 211,129 1,409
----------------- -----------------
Total Assets $ 5,445,989 $ 5,782,341
================= =================
LIABILITIES AND PARTNERS' (DEFICIT)
- -----------------------------------
Liabilities:
Cash overdraft $ 40,367 $ -
Mortgages payable 6,675,762 6,710,685
Accounts payable and accrued expenses 704,272 593,911
Accrued interest 9,188 -
Security deposits and prepaid rents 126,532 142,255
----------------- -----------------
Total Liabilities 7,556,121 7,446,851
----------------- -----------------
Losses of unconsolidated joint ventures
in excess of investment 866,904 883,135
----------------- -----------------
Minority interest in consolidated
joint venture 3,989 267,384
----------------- -----------------
Partners' (Deficit):
General partners (250,186) (245,206)
Limited partners (2,730,840) (2,569,823)
----------------- -----------------
Total Partners' (Deficit) (2,981,025) (2,815,029)
----------------- -----------------
Total Liabilities and Partners' (Deficit) $ 5,445,989 $ 5,782,341
================= =================
</TABLE>
See notes to financial statements
-3-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Income:
Rental $ 459,728 $ 476,467
Interest and other income 24,818 22,280
----------------- -----------------
Total income 484,546 498,747
----------------- -----------------
Expenses:
Property operations 468,402 344,325
Interest 147,414 121,204
Depreciation and amortization 161,282 115,634
Administrative:
To affiliates 52,131 43,697
Other 100,939 69,429
----------------- -----------------
Total expenses 930,168 694,289
----------------- -----------------
(Loss) income before allocated income (loss) from joint venture
and loss (income) allocated to minority interest (445,622) (195,542)
Allocated income from joint venture 16,231 47,465
Loss allocated to minority interest 263,395 8,607
----------------- -----------------
Net loss $ (165,996) $ (139,470)
================= =================
Loss per limited partnership unit $ (16.10) $ (13.53)
================= =================
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 CASH FLOWS
------------------------
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (165,996) $ (139,470)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 161,282 117,039
Loss from joint venture (16,231) (47,465)
Minority interest share of net loss (263,395) (8,607)
Changes in operating assets and liabilities:
Cash - security deposits - (438)
Escrow deposits (35,749) (57,575)
Accounts receivable 5,250 (7,813)
Leasing commissions (1,410) -
Other assets (209,720) 5,225
Accounts payable and accrued expenses 110,361 84,665
Accrued interest 9,188 (92)
Security deposits and prepaid rents (15,723) 3,534
----------------- -----------------
Net cash (used in) operating activities (422,143) (50,997)
----------------- -----------------
Cash flow from investing activities:
Capital expenditures (1,925) -
Accounts receivable - affiliates (79,752) -
----------------- -----------------
Net cash (used in) investing activities (81,677) -
----------------- -----------------
Cash flows from financing activities:
Cash overdraft 40,367 101,598
Accounts payable - affiliates - (11,425)
Principal payments on mortgages and notes (34,923) (39,176)
Mortgage costs - -
----------------- -----------------
Net cash provided by financing activities 5,444 50,997
----------------- -----------------
Decrease in cash (498,376) -
Cash - beginning of period 498,376 -
----------------- -----------------
Cash - end of period $ - $ -
================= =================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 138,226 $ 121,296
================= =================
</TABLE>
See notes to financial statements
-5-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
STATEMENTS OF PARTNERS' (DEFICIT)
---------------------------------
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
General Limited Partners
Partners
Amount Units Amount
------ ----- ------
<S> <C> <C> <C>
Balance, January 1, 1998 $ (173,828) 10,000 $ (1,455,038)
Net loss (4,184) - (135,286)
----------------- -------------- ------------------
Balance, March 31, 1998 $ (178,012) 10,000 $ (1,590,324)
================= ============== ==================
Balance, January 1, 1999 $ (245,206) 10,000 $ (2,569,823)
Net income (4,980) - (161,017)
----------------- -------------- ------------------
Balance, March 31, 1999 $ (250,186) 10,000 $ (2,730,840)
================= ============== ==================
</TABLE>
See notes to financial statements
-6-
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP II
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Three Months Ended March 31, 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 three months ended March
31, 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.
-7-
<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.
-8-
<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.
-9-
<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.
-10-
<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.
-11-
<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 three month
periods ended March 31, 1999 or 1998.
A summary of the combined assets, liabilities and equity of the joint
venture as of March 31, 1999 and December 31, 1998, and the results of
its operations for the three month periods ended March 31, 1999 and 1998
are as follows:
-12-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
BALANCE SHEETS
--------------
March 31, 1999 and December 31, 1998
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 855,505 $ 688,674
Property, net of accumulated depreciation 1,647,027 1,677,366
Other assets 765,864 846,731
----------------- -----------------
Total Assets $ 3,268,396 $ 3,212,771
================= =================
LIABILITIES AND PARTNERS' (DEFICIT)
- -----------------------------------
Liabilities:
Notes payable $ 5,433,256 $ 5,504,596
Accounts payable - affiliates 8,718 -
Accounts payable and accrued expenses 852,041 106,256
----------------- -----------------
Total Liabilities 6,294,015 5,610,852
----------------- -----------------
Partners' (Deficit):
The Partnership (1,413,395) (1,099,626)
RPILP VI-A (1,612,224) (1,298,455)
----------------- -----------------
Total Partners' (Deficit) (3,025,619) (2,398,081)
----------------- -----------------
Total Liabilities and Partners' (Deficit) $ 3,268,396 $ 3,212,771
================= =================
</TABLE>
-13-
<PAGE>
RESEARCH TRIANGLE INDUSTRIAL PARK JOINT VENTURES
------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Three Months Ended March 31, 1999 and 1998
------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Income:
Rental $ 265,029 $ 289,403
Interest and other income 75 218
----------------- -----------------
Total income 265,104 289,621
----------------- -----------------
Expenses:
Property operations 34,666 24,704
Interest 144,913 115,521
Depreciation and amortization 35,310 37,881
Administrative 17,753 16,585
----------------- -----------------
Total expenses 232,642 194,691
----------------- -----------------
Net income $ 32,462 $ 94,930
================= =================
Allocation of net income:
The Partnership $ 16,231 $ 47,465
Other investors 16,231 47,465
----------------- -----------------
$ 32,462 $ 94,930
================= =================
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 16,231
-----------------
Investment in Joint Venture at end of period $ (1,413,395)
=================
</TABLE>
-14-
<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 March 31, 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 (263,395)
-----------
Balance, March 31, 1999 $ 3,989
===========
6. MORTGAGES PAYABLE
-----------------
Northwind Office Park
---------------------
A mortgage with a balance of $469,506 and $550,734 at March 31, 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 $206,256 and $267,438 at March 31, 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.
-15-
<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 (8.50% at March 31, 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 August 31, 1999.
A mortgage with a balance of $4,487,727 at March 31, 1998, 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
---- ------
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.
-16-
<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 $675,762, 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 $24,000 and $23,700 for the three months ended
March 31, 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 three months
ended March 31, 1999 and 1998.
Accounts receivable - affiliates amounted to $158,168 at March 31, 1999.
This balance is accruing interest at the rate of 11% per annum and is
payable on demand.
Accounts payable - affiliates amounted to $67,038 at March 31, 1998.
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 $1,140 for both the three months ended March
31, 1999 and 1998, respectively.
-17-
<PAGE>
RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
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.
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.
-18-
<PAGE>
INCOME TAXES (CONTINUED)
------------------------
The reconciliation of net loss for the three month periods ended March
31, 1999 and 1998 as reported in the statements of operations, and as
would be reported for tax purposes respectively, is as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Net loss -
Statement of operations $ (165,996) $ (139,470)
(Add to) deduct from:
Difference in depreciation 19,450 (113,145)
Difference in amortization of
loan discount - -
Allowance for doubtful accounts 10,350 7,813
Other ( 33,000) -
Difference in depreciation -
Joint Ventures ( 41,000) 38,152
------------- -------------
Net (loss) for tax purposes $ (210,196) $ ( 206,650)
============= =============
</TABLE>
-19-
<PAGE>
INCOME TAXES (CONTINUED)
------------------------
The reconciliation of partner's (deficit) at March 31, 1999 and December
31, 1998 as reported in the balance sheets, and as reported for tax
purposes, is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Partner's (Deficit) - balance sheet $ (2,981,025) $ (2,815,029)
Add to (deduct from):
Accumulated difference in
depreciation (3,614,969) (3,634,419)
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 97,473 87,123
Other ( 393,478) ( 360,478)
Difference in Investment
in Joint Venture 441,913 482,913
--------------- --------------
Partner's (Deficit) - tax return $ (4,669,633) $ (4,459,437)
=============== ==============
</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 three month period
ended March 31, 1999. 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, however market conditions in East Lansing, Michigan continue
to make it difficult to compete with newer, more updated office buildings which
have been built in the same area. 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. 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.
Research Triangle Office Complex has maintained stable, high occupancy levels,
while Northwind Office Park continues, as in the prior year, to struggle with
lower than expected occupancies. Foxhunt Apartments experienced an increase in
occupancy during the first quarter of 1999, and management feels with the
improvements completed, and those yet to be completed at the property, occupancy
should continue to improve.
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 General Partners are currently working on permanent financing for the
Foxhunt Apartments which was refinanced with a one-year bridge loan in July
1998. The current bridge loan calls for interest only payments for one year and
matures August 1, 1999.
-21-
<PAGE>
Liquidity and Capital Resources (continued):
- -------------------------------------------
There were no distributions for the three month periods ended March 31, 1999 and
1998. 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 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 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 take
three months. 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
September 30, 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.
-22-
<PAGE>
Results of Operations:
- ----------------------
For the quarter ended March 31, 1999, the Partnership's net loss reported was
$165,996 or $16.10 per limited partnership unit. Net loss for the quarter ended
March 31, 1998 amounted to $139,470 or $13.53 per unit.
Partnership revenue for the quarter ended March 31, 1999 totaled $484,546, a
decrease of approximately $14,000 from the 1998 amount of $498,747. Total rental
revenue decreased approximately $16,700, while interest and other income
increased approximately $2,500. The decrease in rental revenue during the
quarter is primarily attributed to increased concessions resulting from lower
than expected (and usually obtained) economic occupancy at Foxhunt Apartments.
The concessions offered at this complex more than doubled between the three
months ended March 31, 1999 and 1998 when they totaled approximately $60,000 and
$29,000, respectively. Management feels the concessions offered at Foxhunt
Apartments have been successful as occupancy has increased from January 1, 1999
when it was approximately 86% to approximately 93% at March 31, 1999. The
vacancy and bad debt amounts between the three months ended March 31, 1999 and
1998 remained virtually unchanged. 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 quarter ended March 31, 1999, Partnership expenses amounted to $930,168,
increasing by in excess of $235,000 from the 1998 quarter amount of $694,289. A
large increase in property operations expenditures was noted; continued
increases were incurred in payroll and related expenses and repairs and
maintenance at the Foxhunt Apartments as management continues to make physical
improvements to the property in preparation of an anticipated sale sometime in
the near future. 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. Additionally, increased repairs, maintenance and
replacement expenses were incurred at Northwind Office Complex as management is
doing considerable physical improvements to this property (note: most are not of
a capitalizable nature). Such improvements include, but are not limited to, new
hallway carpeting and fresh paint in all buildings. Total administrative
expenses for the quarter ended March 31, 1999 increased approximately $40,000
from the same three month period in the previous year. The majority of this
increase was seen in other administrative expenses; specifically, 1) increased
advertising expenses for Northwind and Foxhunt were incurred in an attempt to
increase occupancy; 2) increased model expenses at both Northwind and Foxhunt
resulted from management's decision to set up various models to show to
potential renters; and 3) increased signage expense was incurred at Northwind as
management replaced old signs with newer, updated signs throughout the office
complex. Increased interest expense was primarily the result of the increased
principal balance on the Foxhunt mortgage.
-23-
<PAGE>
Results of Operations (continued):
- ----------------------------------
The Research Triangle Industrial Park Joint Venture generated net income of
$32,462 for the three month period ended March 31, 1999 with 50% or $16,231 of
the income allocated to each joint venturer. The joint venture generated net
income of $94,930 for the three month period ended March 31, 1998 with one-half
being allocated to each venturer.
For the three months ended March 31, 1999, the Partnership generated a tax loss
of $210,196 or $20.39 per limited partnership unit. The tax loss for the first
three months of 1998 totaled $206,650 or $20.05 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 July 29, 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 three months ended March 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 106,070
<ALLOWANCES> 101,729
<INVENTORY> 0
<CURRENT-ASSETS> 785,220
<PP&E> 10,298,973
<DEPRECIATION> 5,720,387
<TOTAL-ASSETS> 5,445,989
<CURRENT-LIABILITIES> 880,359
<BONDS> 6,675,762
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,445,989
<SALES> 0
<TOTAL-REVENUES> 484,546
<CGS> 0
<TOTAL-COSTS> 650,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,414
<INCOME-PRETAX> (165,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165,996)
<EPS-BASIC> (16.10)
<EPS-DILUTED> 0
</TABLE>
