ITEM 1: BUSINESS
The Registrant, Realmark Property Investors Limited Partnership-VI B ("the Partnership"), is a Delaware limited partnership organized in 1987 pursuant to an Amended and Restated Certificate and Agreement 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").
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 November 11, 1988. The first interim closing took place on February 2, 1989, and the initial $2,134,300 of contributed capital was released to the Partnership at which time it began operations. The offering was concluded February 28, 1990 at which time the Partnership had raised $7,862,510, before deducting sales commissions and syndication costs.
The Partnership's primary business and its only industry segment is to own and operate income-producing real property for the benefit of its partners. As of December 31, 2001, the Partnership, through a limited liability, wholly-owned subsidiary company, owns a 144-unit apartment complex, known as Players Club North Apartments, located in Lutz, Florida. This property is currently being actively marketed for sale. On March 13, 2002, the Partnership entered into a $5,573,000 sale agreement with an unaffiliated entity, for the sale of Players Club. This sale, if closed, will result in a gain of approximately $3,300,000 to the Partnership for tax purposes; however, that doesn't necessarily mean that cash proceeds would be available for distribution in an amount equal to the gain. On August 16, 2001, the Partnership sold Fairway Club Apartments, a 192-unit apartment complex located in Greeneville, South Carolina. In addition, since 1992, the Partnership held an 11.5% interest in Realmark/Foxhunt Limited Partnership, a joint venture owning a 250 unit apartment complex in Kettering, Ohio. On March 1, 2001, the Foxhunt property was sold, as discussed in the notes to the financial statements and in management's discussion and analysis.
The business of the Partnership is not seasonal and it competes on the basis of rental rates and property operations with similar types of properties in vicinities in which the Partnership's properties are located. The Partnership has no real property investments located outside the United States. The Partnership does not segregate revenue or assets by geographic region, since, in management's view, such a presentation would not be significant to an understanding of the Partnership's business or financial results taken as a whole. As of December 31, 2001, 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, 2001 were employees of the Corporate General Partner or its affiliates.
The occupancy for each complex as of December 31 was as follows:
2001 2000 1999 ---- ---- ---- Fairway Club - 82% 86% Players Club 94% 97% 88%
The percent of total Partnership revenue generated by each complex for the last three years was as follows:
2001 2000 1999 ---- ---- ---- Fairway Club 40% 52% 55% Players Club 60% 48% 45%
This annual report contains certain forward-looking statements concerning the Partnership's current expectations as to future results. Words such as "believes", "forecasts", "intends", "possible", "expects", "estimates", "anticipates" or "plans" and similar expressions are intended to identify forward-looking statements. Such statements may not ultimately turn out to be accurate due to, among other things, economic or market conditions or the failure of the Partnership to sell an investment which is under contract.
ITEM 2:
ITEM 2: PROPERTIES
The following is the property owned by the Partnership at December 31, 2001:
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
As previously reported, the Partnership, as a nominal defendant, the General Partners of all of affiliated public partnerships, (the "Realmark Partnerships") and the officers and directors of the Corporate General Partner, as defendants, had been involved in a class action litigation at the state court level regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of Settlement (the "Settlement"). On October 4, 2001, the Court issued an "Order Preliminary Approving Settlement" (the "Hearing Order") and on November 29, 2001, the court issued an "Order and Final Judgment Approving Settlement and Awarding Fees and Expenses" and dismissing the complaints with prejudice. The Settlement provided, among other things, that all of the Realmark Partnerships' properties be disposed of. The General Partners will continue to have primary authority to dispose of the Partnerships' properties. If either (i) the General Partners have not sold or contracted to sell 50% of the Partnerships' properties (by value) by April 2, 2002 or (ii) the General Partners have not sold or contracted to sell 100% of the Partnerships' properties by September 29, 2002, then the primary authority to dispose of the Partnerships' properties will pass to a sales agent designated by plaintiffs' counsel and approved by the Court. As of April 2, 2002, the General Partners have contracted to sell more than 50% of the Partnerships' properties (by value).
The settlement also provided for the payment by the Partnerships of fees to the plaintiffs' attorneys. These payments, which are not calculable at this time but may be significant, are payable out of the proceeds from the sale of all of the properties owned by all of the Realmark Partnerships, following the sale of the last of these properties in each partnership. Plaintiffs' counsel will receive 15% of the amount by which the sales proceeds distributable to limited partners in each partnership exceeds the value of the limited partnership units in each partnership (based on the weighted average of the units' trading prices on the secondary market as reported by Partnership Spectrum for the period May through June 2001). In no event may the increase on which the fees are calculated exceed 100% of the market value of the units as calculated above.
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. Accordingly, information as to the market value of a unit at any given date is not available. As of December 31, 2001, there were 1,020 record holders of units of limited partnership interest.
The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make distributions of cash to its partners. The partnership agreement provides for the distribution to the partners of net cash flow from operations. In connection with the pending sale of the Partnership's last property (Item 3), it is anticipated that there will be no future distributions of net cash flow from operations. All future distributions of net cash from sales proceeds will be distributed, to the extent available, 100% to the Limited Partners until there has been a return of the Limited Partner's capital contribution plus an amount sufficient to provide a 7%, not compounded, return on their adjusted capital contributions for all years following termination of the offering of the units. It is anticipated that there will not be sufficient cash flow from the sale of the Partnership's last property to provide this return to the Limited Partners.
The gain on the sale of the properties will be allocated in the same proportions as distributions of distributable cash from sale proceeds (anticipated to be 100% to the Limited Partners). In the event there is no distributable cash from sale proceeds, taxable income will be allocated 87% to the Limited Partners and 13% to the General Partners. The above is subject to tax laws that were applicable at the time of the formation of the Partnership and may be adjusted due to subsequent changes in the Internal Revenue Code.
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:
Effective January 1, 2001, management began formally marketing all properties in the Partnership for sale. On August 16, 2001, the Partnership sold Fairway Club Apartments to an unaffiliated entity, for cash of $4,373,000 and a $327,000 note receivable from the purchaser. After satisfaction of the $2,567,000 mortgage loan on the property and payment of closing costs, the proceeds available amounted to approximately $1.85 million. The proceeds from the sale, along with the Partnerships existing cash position, enabled the partnership to make a distribution to the Limited Partners in the last quarter of 2001 of $2,600,000.
At December 31, 2001, the Partnership's cash position of approximately $340,000 is adequate to fund its anticipated recurring cash needs. While cash was used during 2000 and 1999 to fund operations and to fund capital improvements, adequate liquidity enabled the Partnership to also make a $189,756 distribution to partners in the fourth quarter of 2000. There was no distribution in 1999. In accordance with the settlement of the lawsuit (item 3), it is anticipated that with the sale of the remaining property, the Partnership may be in a position to make distributions to the Limited Partners. These distributions will be reduced by the amount of fees payable to the plaintiffs' legal counsel in connection with the settlement agreement (Item 3), any outstanding liabilities and any mortgage prepayment penalties incurred with regard to the sale of the Partnership's properties.
Limited Partners should be aware that it is possible that they will receive an allocation of income from gain on sale of properties on which they will be required to pay income taxes and there is no assurance that distributions from the sale of the properties will be sufficient to satisfy these obligations.
Except as described above and in the consolidated financial statements, the General Partner is not aware of any trends or events, commitments or uncertainties that may impact liquidity in a material way.
Results of Operations:
The results of operations of the Partnership, excluding equity in earnings from a joint venture and a gain on sale of property for the year ended December 31, 2001, produced a net loss of $95,795. The results compare to a net loss, excluding depreciation, of $5,018 in 2000 and a net loss of $167,539 in 1999.
If the sale of Fairway Club Apartments had occurred on January 1, 2000, the results for the year ended December 31, 2000 would have been a net loss, excluding depreciation, of $65,408, resulting from decreases in revenue and expense of $1,031,000 and $971,000, respectively. If the sale of Fairway Club Apartments had occurred on January 1, 1999, the results for the year ended December 31, 1999 would have been net income, excluding depreciation, of $59,632, resulting from decreases in revenue and expense of $946,000 and $1,173,000, respectively. For the year ended December 31, 2001, net income would have been $29,000, resulting from decreases in revenue and expense of $628,000 and $754,000, respectively.
Inflation has been consistently low during the periods presented in the consolidated financial statements and, as a result, has not had a significant effect on the operations of the Partnership or its properties.
2001 as compared to 2000
Rental income decreased 20% for the year ended December 31, 2001 as compared to 2000. Excluding Fairway Club Apartments (the "Sold Asset") rental income increased approximately 3% due to increased occupancy during the year at Players Club. Other income, excluding the Sold Asset, increased by approximately $14,000 in 2001 due to an increase in termination fees charged to tenants.
Total expenses, excluding the operations of the Sold Asset, decreased approximately 15% for the year ended December 31, 2001. Property operations decreased approximately $31,000 due primarily to a decrease in water expense at Players Club. Depreciation expense, excluding the Sold Asset, decreased due to Players Club being held for sale and no depreciation expense being taken in 2001. Other administrative expense, excluding the Sold Asset, decreased approximately 23% due to decreased legal fees at the Partnership level. Administrative expense to affiliated parties, excluding the Sold Asset, increased approximately $11,000 because of an allocation revision and an increase in management fees as a result of higher occupancy. Interest expense remained consistent from 2001 to 2000.
2000 as compared to 1999
In 2000, excluding the Sold Asset, rental income increased approximately 5% due to the increase in occupancy at Players Club from 88% at December 31, 1999 to 97% at December 31, 2000. Other income decreased approximately $42,000 due to decreased fees and forfeitures.
Total expenses, excluding the Sold Asset, increased approximately 14% for the year ended December 31, 2000 as compared to 1999. Property operations expense increased approximately $85,000 due primarily to an increase in repair and contract work at Players Club. Depreciation expense, excluding the Sold Asset, increased approximately $10,000 due to the addition of fixed assets. Other administrative expenses, excluding the Sold Asset, increased approximately $54,000 due to increased professional fees and advertising. Administrative expense to affiliated parties, excluding the Sold Asset, increased approximately $9,500 due to increased management fees as a result of higher occupancy.
Joint Venture
The Foxhunt Joint Venture generated net income of $30,165 in 2000 as compared to a 1999 net loss of $470,672. The decrease in the loss was primarily the result of increased rental income of approximately $26,000, a decrease in interest and other income of $35,000, and a decrease in property operations, interest and depreciation expenses of approximately $510,000. The latter decreased approximately $109,000 in 2000 since the Foxhunt property became the subject of a formal plan of disposal on July 1, 1999. The Foxhunt property was sold on March 1, 2001 resulting in a gain on sale of property in the amount of $4,760,295, which resulted in a distribution to the Partnership from the joint venture of $646,577 for the year ended December 31, 2001.
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
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 December 31, 2001, 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 63, 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 39 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 39 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 20 years, Mr. Jayson and an affiliate have also engaged in developmental drilling for gas and oil.
Judith P. Jayson, age 61, 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 30 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, 2001. 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, more than 5% of the units of limited partnership interests of the partnership, except for affiliates of the General Partners that own 4046.2 units of limited partnership interest amounting to approximately 5.2% of the Partnership interest at December 31, 2001. The General Partners and the executive officers of the Corporate General Partner, as of December 31, 2001, owned 21 units of limited partnership interest. The General Partners and affiliates will receive their proportionate share, as limited partners, of any distributable proceeds from the sale of the properties.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The properties of the Partnership's subsidiaries 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
(a) Consolidated Financial Statements Page ---- Independent Auditor's Report Consolidated Balance Sheets as of December 31, 2001 and 2000 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Partners' Equity for the years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE
(i) Schedule III - Real Estate and Accumulated Depreciation
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
2. Plan of acquisition, reorganization, arrangement, liquidation, or succession
(a) Stipulation of Settlement Agreement dated August 29, 2001 is filed herewith.
(b) Order and Final Judgment Approving Settlement and Awarding Fees and Expenses dated November 29, 2001 is filed herewith.
4. Instruments defining the rights of security holders, including indentures
(a) Amended and Restated Certificate and Agreement of Limited Partnership filed with the Registration Statement of the Registrant Form S-11, filed September 30, 1987 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.
(b) Property sales agreement with an unrelated third-party included with the Partnership's report on Form 8-K on August 31, 2001 is incorporated herein by reference.
(c) Property sales agreement with an unrelated third party dated March 13, 2002 is filed herewith.
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 VI-B
By: /s/ Joseph M. Jayson April 15, 2002 ------------------------------------ ------------------ 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 15, 2002 ------------------------------------ ------------------ JOSEPH M. JAYSON, Date President, Treasurer and Director
/s/ Judith P. Jayson April 15, 2002 ------------------------------------ ------------------ JUDITH P. JAYSON, Date Vice President and Director
INDEPENDENT AUDITOR'S REPORT ----------------------------
The Partners Realmark Property Investors Limited Partnership - VI B:
We have audited the accompanying consolidated balance sheets of Realmark Property Investors Limited Partnership - VI B and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, partners' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 financial statement schedule based on our audits.
We conducted our audits 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 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 - VI B and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. 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 7 to the consolidated financial statements, the Partnership settled a class and derivative lawsuit in which it was involved. As a result of this settlement, the Partnership is currently in the process of winding up its operations and disposing of its investments. It is anticipated that this process will take place within the next twelve months.
TOSKI, SCHAEFER & CO., P.C. Williamsville, New York March 25, 2002, except for Note 7, as to which the date is April 2, 2002
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2001 and 2000
See accompanying notes to consolidated financial statements
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31, 2001, 2000, and 1999
See accompanying notes to consolidated financial statements
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Consolidated Statements of Partners' Equity Years Ended December 31, 2001, 2000, and 1999
See accompanying notes to consolidated financial statements
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 2001, 2000, and 1999
See accompanying notes to consolidated financial statements.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2001, 2000, and 1999
(1) Formation and Operation of Partnership
Realmark Property Investors Limited Partnership - VI B (the Partnership) is a Delaware limited partnership formed on September 21, 1987, to invest in a diversified portfolio of income producing real estate investments.
In 1989 and 1990, the Partnership sold, through a public offering, 78,625.1 units of limited partnership interest for $7,862,510. The General Partners are Realmark Properties, Inc. (the Corporate General Partner) and Joseph M. Jayson (the Individual General Partner) who is the sole stockholder 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 5).
(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 in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Partnership and its two subsidiaries, that are wholly-owned:
(1) Realmark-Players, LLC that owns Players Club North, a 144 unit apartment complex located in Lutz, Florida, acquired in 1991 for $3,007,000.
(2) Realmark-Villa, LLC that owned Fairway Club, a 192 unit apartment complex located in Greeneville, South Carolina, acquired in 1991 for $3,100,000. On August 16, 2001 Fairway Club was sold.
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.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(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, 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 consolidated statements of operations.
The Partnership reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In determining whether there is an impairment of long-lived assets, the Partnership compares the sum of the expected future net cash flows (undiscounted and without interest charges) to the carrying amount of the assets. At December 31, 2001, no impairment in value has been recognized.
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 or disposition" are no longer depreciated. The Partnership's remaining property is held for sale in 2001.
(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 mortgage.
(f) Joint Ventures
The Partnership's minority interests in joint ventures are accounted for on the equity method.
(g) Rental Income
Rental income is recognized as earned according to the terms of the leases that are generally for periods of one year or less, payable monthly. Delinquent rents are not recorded.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(h) Per Unit Data
Per limited partnership unit data is based on the weighted average number of limited partnership units outstanding for the year.
(i) Fair Value of Financial Instruments
The fair value of the Partnership's financial instruments approximated their carrying values at December 31, 2001.
(j) Income Allocation and Distributable Cash Flow
The partnership agreement provides that income not arising from sale and refinancing activities and all partnership losses are to be allocated 97% to the Limited Partners and 3% to the General Partners. Partnership income arising from sale or refinancing activities is allocated in the same proportion as distributions of distributable cash from sale proceeds. In the event there is no distributable cash from sale proceeds, taxable income will be allocated 87% to the Limited Partners and 13% to the General Partners. The above is subject to tax laws that were applicable at the time of the formation of the Partnership and may be adjusted due to subsequent changes in the Internal Revenue Code.
The partnership agreement also provides for the distribution to the partners of net cash flow from operations. In connection with the pending sale of the Partnership's last property (note 7), it is anticipated that there will be no future distributions of net cash flow from operations. Sale or refinancing proceeds are distributed to the extent available, 100% to the Limited Partners until there has been a return of the Limited Partner's capital contribution plus an amount sufficient to provide a 7%, not compounded, return on their adjusted capital contributions for all years following the termination of the offering of the units. It is anticipated that there will not be sufficient cash flow from the sale of the Partnership's last property to provide this return to the Limited Partners.
(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, 2001, net assets for financial reporting purposes were $113,000 less 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) Recent Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under these new standards, all acquisitions subsequent to June 30, 2001 must be accounted for under the purchase method of accounting and purchased goodwill is no longer amortized over its useful life.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(m) Recent Pronouncements, Continued
Rather, goodwill will be subject to a periodic impairment test based upon its fair value.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting standards for recognition and measurement of a liability for the costs of asset retirement obligations. Under SFAS 143, the costs of retiring an asset will be recorded as a liability when the retirement obligation arises, and will be amortized to expense over the life of the asset.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and discontinued operations.
The Partnership is currently evaluating the impact of these pronouncements to determine the effect, if any, they may have on the consolidated financial position and results of operations. The Partnership is required to adopt each of these standards in the first quarter of 2002.
(3) Disposal of Rental Property
On August 16, 2001, the Partnership sold Fairway Club Apartments to an unaffiliated entity, for cash of $4,373,000 and a $327,000 note from the purchaser, and recognized a related gain on the sale amounting to $1,851,531. The note bears interest at the rate of 7% annually through December 31, 2001 and 8% annually, thereafter, until December 31, 2002, when all principal and accrued interest shall be due and payable.
In 2001, management entered into a plan to dispose of its one remaining property. The carrying value of the assets of Players Club was $2,063,632 at December 31, 2001, and the property generated net income of $154,371 during the year then ended. Depreciation expense, not recorded during the disposal period, for the year ended December 31, 2001 totaled approximately $116,000.
(4) Mortgage Loans Payable
Mortgage loans payable are as follows:
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(4) Mortgage Loans Payable, Continued
The aggregate maturities of the mortgages for each of the five years following 2001 and thereafter, assuming principal payments are not accelerated, are as follows:
2002 $ 28,749 2003 31,284 2004 34,043 2005 37,044 2006 40,311 Thereafter 2,449,304 -----------
$ 2,620,735 ===========
(5) Investment in Joint Venture
The Partnership has an 11.5% interest in a joint venture with Realmark Property Investors Limited Partnership-II (RPILP-II), an entity affiliated through common general partners. The venture owned and operated the Foxhunt Apartments, Dayton, Ohio. The joint venture agreement provided that any income, loss, gain, cash flow, or sale proceeds be allocated 88.5% to RPILP-II and 11.5% to the Partnership. In July 1999, the venturers developed a plan to dispose of Foxhunt Apartments. Accordingly, no depreciation of the apartments has been recorded since then. On March 1, 2001, the apartment complex was sold to an unaffiliated entity, for $7,600,000 resulting in a net gain to the joint venture for financial reporting purposes of approximately $4,760,000, after considering costs of the sale. The net proceeds realized by the venture were approximately $1.1 million.
The following financial information of the joint venture is presented on a historical-cost basis. The equity ownership was determined based upon the cash contributed to the joint venture by the Partnership as a percentage of the general partners' estimate of the fair market value of the apartment complex and other net assets at the date of inception.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(5) Investment in Joint Ventures, Continued
Balance Sheet Information, Continued ------------------------------------
Operating Information ---------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(5) Investment in Joint Ventures, Continued
A reconciliation of the Partnership's investment in the Foxhunt Joint Venture follows:
(6) Related Party Transactions
Transactions with General Partners
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 consolidated statements of operations. Receivables from affiliated parties are payable on demand and bear interest at 11%.
Property Disposition Fees
According to the terms of the partnership agreement, 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 described have not been met, no disposition fees have been paid or accrued on properties sold in prior years.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
(7) Settlement of Lawsuit
As previously reported, the Partnership, as a nominal defendant, the General Partners of the Partnership and of affiliated public Partnerships (the "Realmark Partnerships") and the officers and directors of the Corporate General Partner, as defendants, had been involved in a class action litigation at the state court level regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of Settlement (the "Settlement"). On October 4, 2001, the Court issued an "Order Preliminary Approving Settlement" (the "Hearing Order") and on November 29, 2001, the court issued an "Order and Final Judgment Approving Settlement and Awarding Fees and Expenses" and dismissing the complaints with prejudice. The Settlement provided, among other things, that all of the Realmark Partnerships' properties be disposed of. The General Partners will continue to have primary authority to dispose of the Partnerships' properties. If either (i) the General Partners have not sold or contracted to sell 50% of the Partnerships' properties (by value) by April 2, 2002 or (ii) the General Partners have not sold or contracted to sell 100% of the Partnerships' properties by September 29, 2002, then the primary authority to dispose of the Partnerships' properties will pass to a sales agent designated by plaintiffs' counsel and approved by the Court. As of April 2, 2002, the General Partners have contracted to sell more than 50% of the Partnerships' properties (by value).
The settlement also provided for the payment by the Partnerships of fees to the plaintiffs' attorneys. These payments, which are not calculable at this time but may be significant, are payable out of the proceeds from the sale of all of the properties owned by all of the Realmark Partnerships, following the sale of the last of these properties in each partnership. Plaintiffs' counsel will receive 15% of the amount by which the sales proceeds distributable to Limited Partners in each partnership exceeds the value of the limited partnership units in each partnership (based on the weighted average of the units' trading prices on the secondary market as reported by Partnership Spectrum for the period May through June 2001). In no event may the increase on which the fees are calculated exceed 100% of the market value of the units as calculated above.
(8) Subsequent Event
On March 13, 2002, the Partnership entered into a $5,573,000 sale agreement with an unaffiliated entity, for the sale of Players Club. This sale, if closed, will result in a gain of approximately $3,300,000 to the Partnership.
(RESTUBBED TABLE)
* In accordance with Statement of Financial Accounting Standards No. 121, no depreciation was recorded during the disposal period, January 1, 2001 through December 31, 2001.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - VI B AND SUBSIDIARIES Real Estate and Accumulated Depreciation December 31, 2001, 2000, and 1999
(1) Cost for Federal income tax purposes is $3,097,879.
(2) A reconciliation of the carrying amount of land and buildings as of December 31, 2001, 2000 and 1999 follows:
(3) A reconciliation of accumulated depreciation for building and improvements for the years ended December 31, 2001, 2000, and 1999 is as follows:
(4) Balance applies entirely to buildings and improvements. (5) Sale of Foxhunt Apartments in 2001. (6) Sale of Fairway Club Apartments in 2001.