ITEM 1: BUSINESS - ------- --------
The Registrant, Realmark Property Investors Limited Partnership IV (the "Partnership"), is a Delaware limited partnership organized in February 1985, pursuant to an Agreement and Certificate of Limited Partnership (the "Partnership Agreement"), under the Revised Delaware 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"). During 1988, Realmark Properties IV Associates ("Associates") and RPI Investors-IV, Inc. (formerly the "Corporate General Partner") were merged with Realmark Properties, Inc. (the "Corporate 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 April 22, 1985, and concluded the offering on June 22, 1986, having raised a total of $23,365,900 before deducting sales commissions and expenses of the offering.
The Partnership's primary business and its only industry segment is to own and operate income-producing real property for the benefit of its limited partners. As of December 31, 1998, the Partnership owns two (2) apartment complexes totaling 503 units. Each Partnership property is located in a relatively stable community with a solid base from which to draw residents. There remains however, strong competition from other complexes in the respective areas. See also item 7. Each of the apartment complexes are managed for the Partnership by Realmark Corporation, an affiliate of the General Partners.
The business of the Partnership is not seasonal. As of December 31, 1998, the Partnership did not directly employ any persons in a full-time position. All persons who regularly rendered services on behalf of the Partnership through December 31, 1998 were employees of the Corporate General Partner or its affiliates.
The Registrant's objectives are to acquire, operate and hold existing income-producing properties to (1) provide long-term capital appreciation, (2) provide cash distributions from operations, (3) provide investors with a diversified real estate portfolio, and (4) preserve and protect Partnership capital.
Occupancy for each complex as of December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ---- ---- ----
Woodbridge Manor Apartments 68% 77% 85% Creekside Apartments * 88% 90% Andover Park Apartments 81% 87% 92% Evergreen Terrace Apartments ** 89% 92% Chapelwood Estates - - 75% Airlane Office Warehouse * 90% 97% Lakeview Apartments (Joint Venture) * 49% 82%
* This property was sold during 1998.
** The mortgagor put this property into receivership during 1998 and foreclosed on the property in November 1998. No year-end occupancy is available.
ITEM 1: BUSINESS (Con't.) - ------- -----------------
The percentage of total Partnership revenue generated from each complex as of December 31, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ---- ---- ----
Woodbridge Manor Apartments 41% 25% 24% Creekside Apartments 7% 22% 21% Andover Park Apartments 31% 17% 18% Evergreen Terrace Apartments 8% 6% 6% Chapelwood Estates - 2% 4% Airlane Office Warehouse 3% 15% 14% Lakeview Apartments (Joint Venture) 10% 13% 13%
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 Conditions 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 - ------------------
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS - -------------------------
The Partnership is not a party to, nor is any of the Partnership's property the subject of, any material pending legal proceedings that would impact the future financial position and operations of the Partnership.
ITEM 4:
ITEM 4: SUBMISSION 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 established trading market for the units of Limited Partnership Interest of the Partnership and it is not anticipated that any will develop in the future.
The Partnership did not make any distributions for the years ended December 31, 1998, 1997 or 1996. See also Item 6.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS -------------
Liquidity and Capital Resources: - --------------------------------
The Partnership continues to incur cash flow deficits (excluding gains from property sales and extraordinary gains) and large losses from operations as has been noted in prior years. The Corporate General Partner and its affiliates have regularly advanced funds and/or not taken payment of fees otherwise entitled to whenever it was necessary to cover its shortfalls. The Corporate General Partner is under no obligation to make advances, and there is no assurance that such advances will continue. As of December 31, 1998, the Corporate General Partner (and affiliate) advances totaled $2,780,685, all of which is payable on demand and accruing interest at 11% per annum. Due to the operating shortfalls, the Partnership did not make any distributions in the years ended December 31, 1998, 1997 and 1996. Until such time as the Partnership can satisfy its obligations and repay the Corporate General Partner and affiliate advances, which is not expected to happen prior to the sale of the remaining properties in the Partnership, no distributions are anticipated.
Management was successful in negotiating sales contracts on Airlanes Office/Warehouse, the Creekside Apartments and Lakeview Village Apartments,. The Airlanes Office/Warehouse Building(s) sold on February 12, 1998 for a sales price of $4,700,000, while the Creekside Apartments sold on March 18, 1998 for $5,075,000. The Lakeview Village Apartments were sold on December 29, 1998 for a sales price of $3,400,000. These sales were felt to be in the best interests of the Limited Partners. The sales resulted in a total gain for financial statement purposes totaling $3,509,473. In addition, the sale of the Lakeview Village Apartments resulted in an extraordinary gain from extinguishment of debt which amounted to $253,159 as the lender forgave a portion of the mortgage and/or accrued interest on the debt.
During 1998, Evergreen Apartments, located in Lansing, Michigan, was foreclosed on by the lender. The property was in default of its mortgage and management felt it was in the best interests of the Limited Partners to give this property back to the bank. As a result of the foreclosure, the bank took back the building and any personal property which the mortgage was secured by, they kept all escrow account balances and other deposits which were in their possession, and they forgave the mortgage and any accrued interest. The foreclosure resulted in an extraordinary gain of $224,712 for the year ended December 31, 1998.
Management has once again implemented a corrective action plan in response to the going concern consideration discussed in Note 12. These plans include the closer monitoring of expenses such as payroll and maintenance, which have typically been the expenses that have increased from year to year. Management, however, realizes that with the physical improvements needed at the properties, cutting expenses drastically is not very likely. More attention has to be centered on increasing revenues. Management must decrease vacancies and improve on its collection policies. This will be a major area of focus in the coming year. Management's plans also include increased efforts to sell the two remaining properties in the Partnership. Marketing efforts will include advertising in national newspapers, such as The Wall Street Journal, and mailing of sales packages and follow-up telephone calls to brokers. Management has received offers on these properties, but either the offers have been lower than what management feels the properties are worth in the current marketplace or the sales were subject to a number of contingencies and were eventually canceled by the buyer.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS (Con't.) ----------------------
Liquidity and Capital Resources (Con't.): - -----------------------------------------
Although at December 31, 1998 the Partnership was not in compliance with certain debt covenants, the General Partner(s) have been in contact with the lender(s) and have informed them of the covenants which they are not in compliance with. After discussing this issue with the lender(s), the General Partners do not expect there to be any material adverse repercussions from the lack of compliance.
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.
Results of Operations: - ----------------------
For the year ended December 31, 1998, the Partnership had net income of $1,933,837 or $74.98 per limited partnership unit. This Partnership had income from extraordinary gains due to the foreclosure on Evergreen Terrace Apartments by the mortgagee totaling $224,712 and from debt forgiveness totaling $253,159. Additionally, the Partnership sold three properties during 1998 resulting in a gain for financial statement purposes totaling $3,509,473. Before such gains, the loss incurred by the Partnership was $2,053,507 or $85.25 per limited partnership unit. For the year ended December 31, 1997, the Partnership incurred a net loss totaling $1,380,178; extraordinary income resulting from the foreclosure on Chapelwood Estates Apartments totaled $150,771 in 1997. For the year ended December 31, 1996, net income of $314,442 was recorded. Such income included extraordinary gains totaling $1,501,158 from extinguishment of debt by one of the lenders on the Sutton Park Apartments totaling $795,000 and from a fire at the Sutton Park Apartments which resulted in property destruction estimated at a net book value of $170,235, but for which insurance proceeds totaling $876,393 were received, resulting in a gain of $706,158.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS (Con't.) ----------------------
Results of Operations (Con't.): - -------------------------------
Partnership revenues for the year ended December 31, 1998 totaled $3,005,495, consisting of rental income of $2,766,367 and other income, which includes interest, laundry income, and other miscellaneous sources of income of $239,128. Rental income for the years ended December 31, 1997 and 1996 totaled $4,861,019 and $5,163,212, respectively. The primary reason for the decrease in total revenue when comparing the year ended December 31, 1998 to both 1997 and 1996 is that the Partnership sold two properties (one residential and one commercial property) at the beginning of 1998 which reported income for the full years of 1997 and 1996 (i.e., in 1997 these properties reported rental income of approximately $1,911,000 and other income of approximately $108,000; in 1996 these properties reported rental income of approximately $1,863,000 and other income of approximately $86,000). The decrease in rental revenue from that of the previous two years is also evidence of low occupancy levels at those residential properties in the Partnership throughout much of 1998. Occupancies at the two properties remaining in the Partnership at December 31, 1998 decreased significantly when compared to those of the two previous years, with the most significant decreases occurring when compared to 1996. Additionally, occupancies at Lakeview Apartments, which was sold in December 1998, and Evergreen Apartments, which was foreclosed on by the lender in November 1998, were extremely low up until the time of their disposal(s). As an example, Lakeview's occupancy dropped to approximately 60% just prior to its sale. In order to increase occupancies, management continued to offer incentive programs throughout the year. The other significant cause of the decrease in revenues was a large increase in bad debts at Woodbridge Manor Apartments (formerly Sutton Park Apartments) and Andover Park Apartments (formerly Willow Creek Apartments). Increasing occupancy, as well as decreasing delinquencies, continues to be the major focus of management. Tighter credit policies and attractive incentive programs will be management's means of reaching the income levels needed to improve the cash flow in the Partnership.
Partnership expenses for the year ended December 31, 1998 totaled $5,067,279, a decrease over the expenses of the years ended December 31, 1997 and 1996 when expenses totaled $6,755,566 and $6,759,234, respectively. Once again, the primary reason for the decrease in total expenses is attributed to there being less properties reporting expenses in the Partnership. For the years ended December 31, 1997 and 1996, expenses related to the two properties which were sold at the beginning of 1998 (i.e., Creekside Apartments and Airlanes Office/Warehouse) totaled approximately $2,130,000 and $2,016,000, respectively. The majority of the remaining decrease is attributable to a large decrease in depreciation expense. No depreciation was taken during the year ended December 31, 1998 since the properties were considered to be "held for sale" (see Note 3 to the financial statements). Other administrative operations expenses increased even though the Partnership had less properties in 1998 as compared to the two previous years. A large portion of this increase is attributable to higher advertising and legal expenses. The advertising is a direct result of the decrease in occupancy, while the increase in legal expense is related to the increased delinquencies.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS (Con't.) ----------------------
Results of Operations (Con't.): - -------------------------------
The Partnership expects to continue incurring higher than "normal" property operations expenses in the near future as a considerable amount of capital improvement work is still necessary to make the remaining properties more attractive to new tenants. The work planned includes interior and exterior painting and woodwork, replacing of carpeting and appliances at several of the complexes, and structural work such as repairs to roofs and decks/patios. Although this work is necessary in order to increase rental revenue(s) generated in the Partnership, management continues to keep in mind that expenditures must be closely monitored so as not to worsen the cash flow situation of the Partnership.
For the year ended December 31, 1998, the tax basis income was $3,048,632 or $126.56 per limited partnership unit compared to a tax loss of $1,127,838 or $46.82 per unit for the year ended December 31, 1997 and a tax loss of $522,104 or $21.67 per limited partnership unit for the year ended December 31, 1996. The Partnership agreement provides for the taxable income or losses to be allocated 97% to the Limited Partners and 3% to the General Partners, and in accordance with this and the Internal Revenue Code, the loss for the year ended December 31, 1998 was allocated in this fashion.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------
The Partnership does not have investments in instruments which are subject to market risk (e.g., derivatives, options or other interest sensitive instruments).
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ----------------------------------------------------
Listed under Item 14 of the report.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE. ---------------------
None.
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 March 1, 1999, are listed below. Each director is subject to election on an annual basis.
Joseph M. Jayson, President and Director of Realmark Properties, Inc. and Judith P. Jayson, Vice President and Director of Realmark Properties, Inc., are married to each other.
The Director 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 60, is Chairman and Director and sole stockholder of J.M. Jayson & 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 President and Director of Realmark Corporation and Realmark Properties, Inc., wholly owned subsidiaries of J.M. Jayson & 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 is a member of the Investment Advisory Board of the Corporate General Partner. Mr. Jayson has been engaged in the real estate business for the last 36 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 36 years been engaged in various aspects of real estate brokerage and investment. He brokered residential properties from 1962 to 1964, commercial and 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, in forming over 30 real estate related limited partnerships. For the past seventeen years, Mr. Jayson and J.M. Jayson & Company, Inc. and an affiliate have also engaged in developmental drilling for gas and oil.
Judith P. Jayson, age 59, is currently Vice-President and 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 27 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. Mrs. Jayson is the wife of Joseph M. Jayson, the Individual General Partner.
Michael J. Colmerauer, 40, is Secretary and in-house legal counsel for J.M. Jayson & Company, Inc., Realmark Corporation, Realmark Properties, Inc. and other companies affiliated with the General Partners. He received a Bachelor's Degree (BA) from Canisius College in 1980 and a Juris Doctors (J.D.) from the University of Tulsa in 1983. Mr. Colmerauer is a member of the American and Erie County Bar Association and has been employed by the Jayson group of companies for the last 15 years.
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) for its fiscal years ended December 31, 1998, 1997 or 1996; 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 years ended December 31, 1998, 1997 or 1996.
The following table sets forth for the years ended December 31, 1998, 1997 and 1996 the compensation paid by the Partnership, directly or indirectly, to affiliates of the General Partners:
The Corporate General Partner is entitled to a continuing Partnership Management Fee equal to 7% of net cash flow (as defined in the Partnership Agreement), of which 2% is subordinated to the receipt by the Limited Partners of a non-cumulative annual cash return equal to 7% of the average of their adjusted Capital Contributions (as defined in the Partnership Agreement). The Corporate General Partner is paid its 5% Partnership Management Fee annually as cash flow allows. The 2% subordinated fee will not be paid or accrued until such time as the Limited Partners have received their 7% return and payment of the fee becomes probable. The General Partners are also entitled to 3% of Distributable Cash (as defined in the Partnership Agreement) and to certain expense reimbursements with respect to Partnership operations.
Net income or loss and proceeds arising from a sale or refinancing shall be distributed first to the limited partners in amounts equivalent to a 7% return on the average of their adjusted capital contributions, then an amount equal to their capital contributions, then an amount equal to an additional 5% of the average of their adjusted capital contributions, then to all partners in an amount equal to their respective positive capital balances and, finally, in the ratio of 87% to the limited partners and 13% to the general partners.
The General Partners are also allowed to collect a property disposition fee upon 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. Since these conditions have not been met no fees have been recorded or paid on the sale of the Gold Key II apartment complex in 1990 and the Airlane Office Warehouse, Creekside Apartments, and Lakeview Village Apartments in 1998.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------------------
No person owns of record or beneficially more than five percent (5%) of the units of Limited Partnership Interests of the Partnership. Except for the General Partner's Interest in the Partnership ($3,000 initial capital contribution), the General Partners, as of December 31, 1998, owned no units of Limited Partnership Interest.
Affiliates of the General Partners own of record or beneficially 23.1 units of Limited Partnership Interest constituting approximately .10% of the total Partnership Interest.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: - -------- -----------------------------------------------
(a) Transactions with Management and Others. ---------------------------------------
During 1998, no transactions occurred between the Partnership and those in the management of Realmark Properties, Inc. All transactions between the Partnership and Realmark Properties, Inc. (the Corporate General Partner) and any other affiliated organization are described in Item 11 of this report and in Note 6 to the Financial Statements.
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
(c) Exhibits --------
4. Instruments defining the rights of security holders, including indentures
(a) Certificate of Limited Partners filed with the Registration Statement of the Registrant Form S-11, filed February 14, 1985, and subsequently amended incorporated herein by reference.
(b) Partnership Agreement included with the Registration Statement of the Registrant as filed and amended to date 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.
(b) Joint Venture Agreement with Realmark Property Investors Limited Partnership VI B as filed and amended to date incorporated herein by reference.
27. Financial Data Schedule
(a)Schedule is included herewith.
INDEPENDENT AUDITORS' REPORT
The Partners Realmark Property Investors Limited Partnership-IV:
We have audited the accompanying balance sheets of Realmark Property Investors Limited Partnership-IV as of December 31, 1998 and 1997, and the related statements of operations, partners' deficit, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 14.