ITEM 1: BUSINESS - -----------------
The registrant, Realmark Property Investors Limited Partnership-II ("the Partnership"), is a Delaware limited partnership organized in 1982 pursuant to a First Amended and Restated Agreement and Certificate of Limited Partnership (the "Partnership Agreement"), under the Delaware Revised Uniform Limited Partnership Act. The Partnership's general partners are Realmark Properties, Inc. (the "Corporate General Partner"), a Delaware corporation, and Joseph M. Jayson (the "Individual General Partner").
The Registrant commenced the public offering of its limited partnership units, registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on September 3, 1982, and concluded the offering on August 31, 1983, having raised a total of $10,000,000 before sales commissions and expenses of the offering.
The Partnership's primary business is to own and operate income-producing real property for the benefit of its limited partners. The Partnership presently owns an office complex in Michigan (Northwind Office Park), and is a partner in three joint ventures. It has a 50% interest in Research Triangle Industrial Park Joint Venture and Research Triangle Land Joint Venture, both in Durham County, North Carolina; and an 88.5% interest in Foxhunt Apartments Joint Venture that owned a 250 unit apartment complex in Kettering, Ohio. The latter is a consolidated subsidiary and the property was sold on March 1, 2001. The interest in the Research Triangle Land Joint Venture was also sold in March 2001. All of the other properties are currently being actively marketed for sale. The Partnership sold the Colony of Kettering Apartments, located in Kettering, Ohio in December 1986 and Phase-I of Research Triangle Joint Venture in June 1987.
The business of the Partnership is not seasonal. The Partnership, as of December 31, 2000, did not directly employ any persons in a full-time position. All regular employees who rendered services on behalf of the Partnership through December 31, 2000 were employees of the Corporate General Partner or its affiliates.
For the year ended December 31, 2000, Foxhunt accounted for 66% of total Partnership revenue, with Northwind generating 34% of total revenue. In 1999 and 1998, approximately 72% of total Partnership revenue was generated by the Foxhunt Apartments, with the remaining 28% attributed to Northwind.
This annual report contains certain forward-looking statements concerning the Partnership's current expectations as to future results. Such forward-looking statements are contained in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. Words such as "believes", "forecasts", "intends", "possible", "expects", "estimates", "anticipates" or "plans" and similar expressions are intended to identify forward-looking statements.
ITEM 2:
ITEM 2: PROPERTIES - -------------------
As of December 31, 2000, the Partnership owned Northwind Office Park, an office complex located in East Lansing, Michigan. The property consists of five office buildings containing a total of 89,200 gross square feet, and 70,713 net rentable square feet. At December 31, 2000, Northwind was 90% occupied. The 1999 and 1998 year end occupancy rates were 86% and 67%, respectively.
There is a 9.75% first mortgage loan on the Northwind property with a balance of $245,000 at December 31, 2000, maturing in December 2002. The 9% second mortgage loan on the property had a balance of $165,000 at December 31, 2000 and matured in September 1995. While no extension of the due date has been granted and the balance is currently payable on demand, the Partnership continues to make monthly principal and interest payments on the loan.
The Foxhunt Apartments Joint Venture owns an apartment complex located in Kettering, Ohio consisting of 250 units on 14.7 acres of land. The 8.05% first mortgage loan on the property had a balance of $5.95 million at December 31, 2000 and matures in 2009.
The Research Triangle Industrial Park Joint Venture owns a 117,000 square foot office/warehouse distribution building in Raleigh, North Carolina. The building has been 100% occupied for several years. The first mortgage loan on the property had a balance of $5.34 million at December 31, 2000.
The Research Triangle Land Joint Venture owns unencumbered land near the site of Research Triangle Industrial Park Joint Venture's building.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS - --------------------------
The Partnership, as a nominal defendant, the General Partners of the Partnership and the officers and directors of the Corporate General Partner, as defendants, were served with a Summons and Complaint on April 7, 2000 in a class and derivative lawsuit instituted by Ira Gaines and on August 8, 2000 in a class and derivative lawsuit instituted by Sean O'Reilly and Louise Homburger, each in Supreme Court, County of Erie, State of New York. In September 2000, the Court signed an order consolidating these lawsuits. The consolidated lawsuit alleges claims of mismanagement and improper use of partnership funds relating to the Realmark Partnerships. The consolidated lawsuit seeks declaratory relief, unspecified damages, a receiver, an order liquidating the partnership, punitive damages, attorneys' fees and related relief. The defendants deny any liability and intend to vigorously defend this lawsuit. Because of the early stage of this lawsuit and because there has been no discovery to date, legal counsel cannot render an opinion as to the likely outcome of this case.
ITEM 4:
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS - none. - ------ ----------------------------------------------------
PART II -------
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST - ------- -------------------------------------------------------------
There is currently no active trading market for the units of Limited Partnership Interest of the Partnership and it is not anticipated that any will develop in the future. As of December 31, 2000, there were 1,133 record holders of units of Limited Partnership Interest.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA - --------------------------------
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - ---------------------
Liquidity and Capital Resources: - --------------------------------
In 1998, the mortgage loan on the Foxhunt property was refinanced with a bridge loan that generated approximately $1.2 million of cash. The bridge loan was paid in 1999 with the proceeds from a ten year, 8.05% mortgage loan. The cash from this refinancing activity was used mainly to fund the 1998 and 1999 improvements to the Partnership's properties as described below. In 2000, cash was generated by operations; however, a significant portion of that positive flow reflects a large increase in real estate taxes payable.
Effective July 1, 1999, management began formally marketing Foxhunt Apartments for sale. On March 1, 2001, the Foxhunt property was sold for cash of $7,600,000. After satisfaction of the $5,942,000 mortgage loan on the property and payment of closing costs, the proceeds available amounted to approximately $1.1 million. That amount will be distributed to the Partnership and the minority interest after satisfying the remaining net liabilities of Foxhunt. A portion of the cash will be used by the Partnership to satisfy delinquent Northwind liabilities, primarily real estate taxes, and to complete improvements to the Northwind property.
The Partnership made no distributions to limited partners in 2000, 1999 or 1998. Future distributions will depend on the availability of cash after funding the costs of any necessary improvements to the Northwind property.
Results of Operations: - ----------------------
In 1998 and 1999, the Northwind complex underwent extensive capital improvements including carpeting, lights and paint in all common areas, new signage and the addition of a common conference center for use by all tenants. In addition, significant repairs and replacements were commenced at Foxhunt in 1998 and completed in 1999, including expenditures for carpeting common areas and a considerable number of apartments, structural repairs and replacement of appliances. As a result of these improvements, occupancy has improved and total rental income increased more than $200,000 in both 1999 and 2000.
In 1999, the Partnership's net loss was $477,000 less than the 1998 net loss, due to the aforementioned increase in rental income, as well as decreases in expense. The largest decrease was a 26% drop in interest expense due to the refinancing of Foxhunt's mortgage loan, including the 1998 write-off of a considerable portion of mortgage acquisition costs related to the refinanced Foxhunt mortgage. The fluctuations in depreciation expense are attributable to no depreciation being taken on its Northwind Office Complex in 1998 since this property was then deemed to be "held for sale". Northwind's depreciation resumed as of April 1, 1999; however, depreciation of Foxhunt ceased as of July 1, 1999, the effective date of the property being deemed "held for sale." The $100,000 decrease in property operating costs in 1999 is reflective of a lesser degree of improvements to the properties as compared to 1998.
In 2000, the results of operations improved more than $400,000, again as a result of increased rental income in excess of $200,000. Over 90% of that increase is attributable to Northwind. where occupancy rose to 90% at December 31, 2000. Other income decreased because of less nonrecurring income than that realized in the previous two years, primarily reimbursements by tenants of build out costs. While property operating costs increased at Northwind in 2000 as improvement projects continued, there were dramatic decreases at Foxhunt in most categories of repairs and replacements. The net result was a $150,000 decrease in these expenses. Interest expense also decreased in 2000, from $709,000 in 1999 to $582,000, as the result of a reduction of more than $100,000 in mortgage acquisition cost amortization. Administrative expenses increased in 2000 primarily due to higher professional fees.
The Research Triangle Industrial Park Joint Venture had steadily increasing net income during each of the years ended December 31, 2000, 1999 and 1998, as the project is fully occupied and expenses are under control. Thus the partnership's 50% equity in the Venture's net income has also increased during the three year period. Concurrent with the successful results, the Partnership received cash distributions from the Venture of $135,000 in 2000, $330,000 in 1999 and $250,000 in 1998.
The Foxhunt Joint Venture incurred significant net losses in 1999 and 1998, thus generating a credit to the Partnership's income in those years in the form of the minority interest in the Venture. Since Foxhunt had net income in 2000, the minority interest in that income resulted in a charge to the Partnership's 2000 income.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------
The Partnership invests only in short term money market instruments, in amounts in excess of daily working cash requirements. The rates of earnings on those investments increase or decrease in line with the general movement of interest rates. The mortgage loans on the Partnership's properties are fixed rate and therefore, are not subject to market risk.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
Listed under Item 14 of this report.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - --------------------
As reported on Form 8-K, filed with the Securities and Exchange Commission on January 19, 2000 and amended on February 3, 2000, April 17, 2000 and May 2, 2000, incorporated herein by reference in their entirety: (i) Deloitte & Touche LLP notified the Partnership on January 11, 2000 that its relationship as the principal accountants to audit the Partnership's financial statements had ceased; and (ii) effective January 28, 2000, the Partnership engaged Toski, Schaefer & Co., P.C. as its independent accountants.
PART III --------
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -----------------------------------------------------------
The Partnership, as an entity, does not have any directors or officers. The Individual General Partner of the Partnership is Joseph M. Jayson. The directors and executive officers of Realmark Properties, Inc., the Partnership's Corporate General Partner, as of December 31, 2000, are listed below. Each director is subject to election on an annual basis.
Joseph M. Jayson and Judith P. Jayson are married to each other.
The Directors and Executive Officers of the Corporate General Partner and their principal occupations and affiliations during the last five years or more are as follows:
Joseph M. Jayson, age 62, is Chairman, Director and sole stockholder of J. M. Jayson and Company, Inc. and certain of its affiliated companies: U.S. Apartments LLC, Westmoreland Capital Corporation, Oilmark Corporation and U.S. Energy Development Corporation. In addition, Mr. Jayson is Chairman of Realmark Corporation, Chairman, President and Treasurer of Realmark Properties, Inc., wholly-owned subsidiaries of J. M. Jayson and Company, Inc. and co-general partner of Realmark Property Investors Limited Partnership, Realmark Property Investors Limited Partnership-II, Realmark Property Investors Limited Partnership-III, Realmark Property Investors Limited Partnership-IV, Realmark Property Investors Limited Partnership-V, Realmark Property Investors Limited Partnership-VI A, and Realmark Property Investors Limited Partnership-VI B. Mr. Jayson has been in the real estate business for the last 38 years and is a Certified Property Manager as designated by the Institute of Real Estate Management ("I.R.E.M."). Mr. Jayson received a B.S. Degree in Education in 1961 from Indiana University , a Masters Degree from the University of Buffalo in 1963, and has served on the Educational Faculty of the Institute of Real Estate Management. Mr. Jayson has for the last 38 years been engaged in various aspects of real estate brokerage and investment. He brokered residential properties from 1962 to 1964, commercial investment properties from 1964 to 1967, and in 1967 left commercial real estate to form his own investment firm. Since that time, Mr. Jayson and J. M. Jayson & Company, Inc. have formed or participated in various ways with forming over 30 real estate related limited partnerships. For the past 19 years, Mr. Jayson and an affiliate have also engaged in developmental drilling for gas and oil.
Judith P. Jayson, age 60, is currently Vice President and a Director of Realmark Properties, Inc. She is also a Director of the property management affiliate, Realmark Corporation. Mrs. Jayson has been involved in property management for the last 29 years and has extensive experience in the hiring and training of property management personnel and in directing, developing and implementing property management systems and programs. Mrs. Jayson, prior to joining the firm in 1973, taught business in the Buffalo, New York High School System. Mrs. Jayson graduated from St. Mary of the Woods College in Terre Haute, Indiana, with a degree in Business Administration.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION - -------------------------------
No direct remuneration was paid or payable by the Partnership to directors and officers (since it has no directors or officers), nor was any direct remuneration paid or payable by the Partnership to directors or officers of Realmark Properties, Inc., the Corporate General Partner and sponsor, for the year ended December 31, 2000. The Corporate General Partner and its affiliate, Realmark Corporation, are entitled to fees and to certain expense reimbursements with respect to Partnership operations, as set forth in item 13 hereof and in the notes to the consolidated financial statements.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -----------------------------------------------------------------------
No person is known to the Partnership to own of record or beneficially, except for an affiliate of the General Partners that owns approximately 5.16%, more than 5% of the Units of Limited Partnership Interests of the Partnership at December 31, 2000. The General Partners, as of December 31, 2000, owned no Units of Limited Partnership Interest.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------
The Partnership's properties are managed by Realmark Corporation, an affiliate of the Partnership's corporate general partner, for a fee of generally 5% of annual net rental income of the properties. Realmark Corporation and the corporate general partner are also reimbursed for disbursements made on behalf of the Partnership. Those transactions are further described, and quantified, in the note to the consolidated financial statements entitled "Related Party Transactions".
ITEM 14:
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K - ---------------------------------------------------------------------------
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K - none -------------------
(c) Exhibits --------
4. Instruments defining the rights of security holders, including indentures
(a) First Amended and Restated Agreement and Certificate of Limited Partnership filed with the Registration Statement of the Registrant Form S-11, filed September 30, 1982 and subsequently amended, incorporated herein by reference.
10. Material contracts
(a) Property Management Agreement with Realmark Corporation included with the Registration Statement of the Registrant as filed and amended to date incorporated herein by reference.
(c) Property sales agreement with unrelated third-party included with 1996 third quarter Form 10-Q incorporated herein by reference
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
By: /s/ Joseph M. Jayson April 2, 2001 ------------------------------------- ------------- JOSEPH M. JAYSON, Date Individual General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: REALMARK PROPERTIES, INC. Corporate General Partner
/s/ Joseph M. Jayson April 2, 2001 ------------------------------------- --------------- JOSEPH M. JAYSON, Date President, Treasurer and Director
/s/ Judith P. Jayson April 2, 2001 ------------------------------------- --------------- JUDITH P. JAYSON, Date Vive President and Director
INDEPENDENT AUDITOR'S REPORT ----------------------------
The Partners Realmark Property Investors Limited Partnership-II:
We have audited the accompanying consolidated balance sheets of Realmark Property Investors Limited Partnership-II and Subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, partners' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the index at Item 14. These consolidated financial statements and the financial statement schedule are the responsibility of the General Partners. Our responsibility is to express an opinion on the consolidated financial statements and the consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realmark Property Investors Limited Partnership-II as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in note 8 to the consolidated financial statements, the Partnership, is involved in a class and derivative lawsuit. The lawsuit alleges claims of mismanagement and improper use of partnership funds by the general partners of the Partnership. The lawsuit seeks, among other things, the liquidation of the Partnership. The possible effect of this contingency is not presently determinable and, therefore, the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
TOSKI, SCHAEFER & CO., P.C. Williamsville, New York March 23, 2001
INDEPENDENT AUDITORS' REPORT
To the Partners of Realmark Property Investors Limited Partnership II:
We have audited the accompanying statements of operations, partners' deficit and cash flows of Realmark Property Investors Limited Partnership II (the Partnership) for the year ended December 31, 1998. Our audit also included the financial statement schedule listed in the index at Item 14. These financial statements and the financial statement schedule are the responsibility of the General Partner. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of the Partnership for the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying financial statements and financial statement schedule have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 10 to those financial statements, the Partnership's recurring losses from operations and its partners' deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 10 to those financial statements. Those financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche LLP Buffalo, New York April 12, 1999
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II AND SUBSIDIARY
Consolidated Balance Sheets December 31, 2000 and 1999
See accompanying notes to consolidated financial statements
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II AND SUBSIDIARY
Consolidated Statements of Operations Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II AND SUBSIDIARY
Consolidated Statements of Partners' Equity Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II AND SUBSIDIARY
Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998
See accompanying notes to consolidated financial statements
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998
(1) Formation and Operation of Partnership - -------------------------------------------
Realmark Property Investors Limited Partnership-II (the Partnership) is a Delaware limited partnership formed on March 25, 1982, to invest in a diversified portfolio of income producing real estate investments.
In 1982 and 1983, the Partnership sold, through a public offering, 10,000 units of limited partnership interest. The general partners are Realmark Properties, Inc. (the corporate general partner) and Joseph M. Jayson (the individual general partner) who is the sole shareholder of J.M. Jayson & Company, Inc. Realmark Properties, Inc. is a wholly-owned subsidiary of J.M. Jayson & Company, Inc.
Under the partnership agreement, the general partners and their affiliates can receive compensation for services rendered, and reimbursement for expenses incurred on behalf of the Partnership (note 6). The partnership agreement also provides that distribution of funds, revenues, and costs and expenses arising from partnership activities, exclusive of any sale or refinancing activities, are to be allocated 97% to the limited partners and 3% to the general partners.
(2) Summary of Significant Accounting Policies - -----------------------------------------------
(a) Basis of Accounting and Consolidation -----------------------------------------
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and include the accounts of the Partnership and its subsidiary, Realmark/Foxhunt Limited Partnership which owns and operates the Foxhunt Apartments, a 250 unit apartment complex located in Dayton, Ohio, acquired in 1984 for $5,702,520. The Partnership also owns Northwind Office Park.
In consolidation, all intercompany accounts and transactions have been eliminated.
(b) Estimates ------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
(c) Property and Equipment ---------------------------
Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, from 5 to 25 years. Significant improvements are capitalized, while expenditures for maintenance and repairs and replacements are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation and gains and losses are reflected in the statements of operations.
The Partnership and its ventures' policy is to consider a property to be held for sale or disposition when the Partnership or venture has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term or the Partnership or venture has concluded that it may dispose of the property by no longer funding operating deficits or debt service requirements of the property thus allowing the lender to realize upon its security. Any properties identified as "held for sale of disposition" are no longer depreciated.
(d) Cash and Equivalents ------------------------
Cash and equivalents include money market accounts and any highly liquid debt instruments purchased with a maturity of three months or less.
(e) Deferred Mortgage Costs ---------------------------
Costsincurred in obtaining mortgage financing are deferred and amortized using the straight-line method over the life of the respective mortgages.
(f) Unconsolidated Joint Ventures ---------------------------------
The Partnership's investment in Research Triangle Industrial Park West Associates Joint Venture and Research Triangle Land Joint Venture are unconsolidated joint ventures which are accounted for on the equity method. These joint ventures are not consolidated in the Partnership's financial statements because the Partnership is not the majority owner.
(g) Minority Interest in Consolidated Joint Venture ---------------------------------------------------
The minority interest in a consolidated joint venture formed to operate Foxhunt Apartments is stated at the amount of capital contributed by the minority investor adjusted for its share of joint venture losses and distributions.
(h) Rental Income -----------------
Rental income is recognized on the straight line method over the period of the leases. The outstanding leases with respect to rental properties owned are for periods of no more than one year for residential properties and no more than five years for commercial properties. Delinquent residential property rent is not recorded.
(i) Per Unit Data -----------------
Per limited partnership unit is based on the weighted average number of limited partnership units outstanding for the year.
(j) Fair Value of Financial Instruments ----------------------------------------
The fair value of the Partnership's financial instruments approximated their carrying values at December 31, 2000.
(k) Income Taxes ----------------
No income taxes are included in the consolidated financial statements since the taxable income or loss of the Partnership is reportable by the partners on their income tax returns. At December 31, 2000, net assets for financial reporting purposes were $2,113,000 more than the tax bases of the net assets.
(l) Segment Information -----------------------
The Partnership's operating segments all involve the ownership and operation of income-producing real property and are aggregated into one reporting segment.
(m) Accounting Changes and Developments ----------------------------------------
The Financial Accounting Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 133 - "Accounting for Derivative Instruments and Hedging Activities" which establishes revised accounting and reporting standards for derivative instruments and for hedging activities. In June 1999, the FASB deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. Management believes that SFAS No. 133 will not have a material effect on the Partnership's financial statements.
(n) Reclassifications ---------------------
Reclassifications have been made to certain 1999 and 1998 balances to conform them to the 2000 presentation.
(3) Disposal of Rental Property - --------------------------------
Since 1992, Partnership has held an 88.5% interest in a consolidated joint venture, Realmark/Foxhunt Limited Partnership ("Foxhunt"). The Partnership acquired its interest by transferring to Foxhunt beneficial title to an apartment complex property in Ohio. The 11.5% minority interest in Foxhunt is owned by Realmark Property Investors Limited Partnership VI-B, a publicly held entity affiliated with the Partnership through common general partners.
On March 1, 2001, the property was sold to an unaffiliated entity, for $7,600,000. After satisfaction of the $5,942,000 mortgage loan on the property and payment of closing costs, the proceeds available to the venturers were approximately $1.1 million.
On a pro forma basis, if the sale of the Foxhunt property had occurred on December 31, 2000, that balance sheet would have shown: an increase in cash and equivalents from $.2 to $1.3 million; decreases in property of $2.4 million and in mortgage loans of $5.95 million; and an increase in minority interest and partnership capital totaling $4.65 million.
If the property had been sold on January 1, 2000, the pro forma results of operations for the year ended December 31, 2000 would have been a net loss of $151,000 ($15.10 per limited partnership unit) resulting from decreases in revenue and expense of $1,501,000 and $1,471,000, respectively and the elimination of the minority interest. All of the foregoing pro forma operating data is unaudited, excludes the gain on the disposition of the property and simply reflects the elimination of Foxhunt's operating accounts and minority interest from the consolidated historical results.
In 1998, the Partnership entered into a plan to dispose of the property of Northwind Office Park with a carrying amount of $2,159,032 at December 31, 1998. Northwind Office Park incurred a net loss of $115,275 for the year ended December 31, 1998. Effective April 1, 1999, management discontinued its formal plan to dispose of the property. Depreciation expense, not recorded during the disposal period, for the years ended December 31, 2000, 1999 and 1998 totaled approximately $212,000, $124,000 and $158,000, respectively.
(4) Investments in Joint Ventures - ----------------------------------
(a) Unconsolidated Joint Ventures ---------------------------------
The Partnership has a 50% interest in a joint venture with Realmark Property Investors Limited Partnership-II (RPILP-II), an entity affiliated through common general partners. The venture owns and operates the Research Triangle Industrial Park West, an office/warehouse facility located in Research Triangle Park, North Carolina. The joint venture agreement provides that any income, loss, gain, cash flow, or sale proceeds be allocated 50% to the Partnership and 50% to RPILP-II.
A summary of the assets, liabilities and partners' equity of Research Triangle Joint Venture as of December 31, 2000 and 1999 and the results of its operations for the years ended December 31, 2000, 1999 and 1998 is as follows.
A reconciliation of the losses in excess of investment in Research Triangle Industrial Park Joint Venture follows:
Since 1992, the Partnershiphas had a 50% interest in the Research Triangle Land Joint Venture. The only activity of the venture has been the payment of administrative costs, which have been funded by capital contributions. The Partnership's share of expenses was approximately $5,000 in each of 2000, 1999 and 1998. The Partnership's equity in the venture was $216,491 at both December 31, 2000 and 1999, which is included in losses of unconsolidated joint ventures in excess of investment on the balance sheet. In March 2001, the interest in this venture was sold for $242,000.
(b) Minority Interest in Consolidated Joint Venture - ----------------------------------------------------
A reconciliation of the minority interest share in the Foxhunt Joint Venture is as follows:
(5) Mortgages Payable - ----------------------
Mortgage loans payable are as follows:
The aggregate maturities of mortgages for each of the five years following 2000 and thereafter, assuming principal payments are not accelerated, are as follows:
(6) Related Party Transactions - -------------------------------
The corporate general partner and its affiliates earn fees, principally for property and partnership management and are reimbursed for services rendered to the Partnership, as provided for in the partnership agreement. A summary of those items follows:
In addition to the above, other property specific expenses such as payroll, benefits, etc. are charged to property operations on the Partnership's statements of operations. Receivables from affiliated parties are payable on demand and bear interest at 11%.
Loan Placement Fees - -------------------
In connection with the refinancing of the mortgage payable for the Foxhunt Apartments, the Partnership incurred loan placement fees of $60,000 in each of 1999 and 1998. The fee is calculated as 1% of the mortgage loan amount and is payable to an affiliate of the general partners. No such fees were paid during the year ended December 31, 2000.
(7) Leases - -----------
All residential property rental agreements are for a duration of one year or less. In connection with the operation of Northwind, a commercial property, the Partnership has entered into numerous operating leases with terms from 1 to 5 years. Future rentals to be received on noncancelable operating leases with terms of more than one year are as follows:
2001 $ 694,166 2002 478,125 2003 253,895 2004 69,703 2005 15,745 ===========
(8) Contingencies -----------------
(a) Litigation -------------
The Partnership, as a nominal defendant, the General Partners of the Partnership and the officers and directors of the Corporate General Partner, as defendants, were served with a Summons and Complaint on April 7, 2000 in a class and derivative lawsuit instituted by Ira Gaines and on August 8, 2000 in a class and derivative lawsuit instituted by Sean O'Reilly and Louise Homburger, each in Supreme Court, County of Erie, State of New York. In September 2000, the Court signed an order consolidating these lawsuits. The consolidated lawsuit alleges claims of mismanagement and improper use of partnership funds relating to the Realmark Partnerships. The consolidated lawsuit seeks declaratory relief, unspecified damages, a receiver, an order liquidating the partnership, punitive damages, attorneys' fees and related relief. The defendants deny any liability and intend to vigorously defend this lawsuit. Because of the early stage of this lawsuit and because there has been no discovery to date, legal counsel cannot render an opinion as to the likely outcome of this case. The possible effect of this contingency is not presently determinable and, therefore, the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(b) Accounts Payable and Accrued Expenses -----------------------------------------
Included in accounts payable and accrued expenses on the balance sheet as of December 31, 2000 are delinquent taxes and interest on Northwind Office Park for the years 1997 through 2000, totaling approximately $327,000. The result of these delinquencies could be substantial penalties or the potential loss of the property. A range of total loss is not estimable at December 31, 2000. On February 28, 2001, the 1997 delinquent taxes and interest, totaling $92,558, were paid.
(4) Balance applies entirely to buildings.