UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 0-18146
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State of organization)
13-3244091
(IRS Employer Identification No.)
2 World Trade Center, New York, NY
(Address of principal executive offices)
10048
(Zip Code)
Registrant's telephone number, including area code: (212)
392-1054
Former name, former address and former fiscal year, if changed
since last report: not applicable
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30, October 31,
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $33,348,325 $
3,193,852
Real estate:
Land 5,374,399
11,803,399
Buildings and improvements 55,952,163
94,143,130
61,326,562
105,946,529
Accumulated depreciation 26,452,909
38,964,769
34,873,653
66,981,760
Real estate held for sale - 22,417,670
Investment in joint venture 2,646,111
2,694,918
Deferred leasing commissions, net 668,198
2,185,691
Other assets 1,325,476
2,845,165
$72,861,763
$100,319,056
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 898,633 $
1,121,405
Security deposits 160,564
192,459
Minority interests in joint ventures - 8,423,845
1,059,197
9,737,709
Partners' capital (deficiency):
General partners (5,199,503)
(5,078,043)
Limited partners ($1,000 per Unit, 177,023 Units issued)
77,002,069 95,659,390
Total partners' capital 71,802,566
90,581,347
$72,861,763
$100,319,056
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended April 30, 1997 and 1996
<CAPTION>
Three months ended Six
months ended
April 30, April 30,
1997 1996 1997 1996
<S> <C> <C> <C>
<C>
Revenues:
Rental $ 3,241,040 $3,713,713 $
7,481,956 $ 8,041,631
Gain on sales of real estate 16,968,609 -
16,968,609 -
Equity in earnings of joint venture 34,700
72,769 97,600 144,186
Interest and other 190,420 487,766
240,023 796,175
20,434,769 4,274,248
24,788,188 8,981,992
Expenses:
Property operating 1,314,549 1,550,920
2,913,594 3,027,924
Depreciation 463,194 1,221,116
1,207,201 2,540,136
Amortization 60,991 137,336
200,481 262,045
General and administrative 166,928 195,116
358,341 383,370
Loss on impairment of real estate - - -
11,870,000
2,005,662 3,104,488
4,679,617 18,083,475
Income (loss) before minority interest 18,429,107
1,169,760 20,108,571 (9,101,483)
Minority interest 2,282,329 146,683
2,425,949 305,105
Net income (loss) $16,146,778 $1,023,077
$17,682,622 $(9,406,588)
Net income (loss) allocated to:
Limited partners $16,015,449 $ 920,769
$17,397,709 $(8,465,929)
General partners 131,329 102,308
284,913 (940,659)
$16,146,778 $1,023,077
$17,682,622 $(9,406,588)
Net income (loss) per Unit of limited
partnership interest $90.47 $5.20
$98.28 $(47.82)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Six months ended April 30, 1997
<CAPTION>
Limited General
Partners Partners
Total
<S> <C> <C>
<C>
Partners' capital (deficiency)
at November 1, 1996 $ 95,659,390 $(5,078,043)
$ 90,581,347
Net income 17,397,709 284,913
17,682,622
Cash distributions (36,055,030) (406,373)
(36,461,403)
Partners' capital (deficiency)
at April 30, 1997 $ 77,002,069 $(5,199,503)
$ 71,802,566
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 17,682,622 $
(9,406,588)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,207,201
2,540,136
Amortization 200,481
262,045
Loss on impairment of real estate - 11,870,000
Minority interests in joint venture 2,425,949
305,105
Gain on sales of real estate (16,968,609)
- -
Equity in earnings of Taxter joint venture
(97,600) (144,186)
(Increase) decrease in operating assets:
Deferred leasing commissions (125,201)
(398,547)
Other assets (66,241)
332,159
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(123,839) (80,097)
Security deposits 8,837
(68,504)
Net cash provided by operating activities 4,143,600
5,211,523
Cash flows from investing activities:
Additions to real estate (138,480)
(2,180,510)
Proceeds from sales of real estate 73,346,016
10,769,096
Minority interest in proceeds from sale of real estate
(10,446,817) -
Distributions from Taxter joint venture 157,493
191,298
Investments in Taxter joint venture (11,086)
(27,095)
Net cash provided by investing activities 62,907,126
8,752,789
Cash flows from financing activities:
Cash distributions to partners (36,461,403)
(14,669,975)
Additional investment by minority interest 5,559
107,480
Minority interest in joint ventures' distributions
(440,409) (363,526)
Net cash used in financing activities
(36,896,253) (14,926,021)
Increase(decrease) in cash and cash equivalents 30,154,473
(961,709)
Cash and cash equivalents at beginning of period 3,193,852
7,424,199
Cash and cash equivalents at end of period $ 33,348,325 $
6,462,490
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
1. The
Partnership
Dean Witter Realty Income Partnership II, L.P.
(the "Partnership") is a limited partnership
organized under the laws of the State of Delaware
in 1984. The Partnership's fiscal year ends on
October 31.
The financial statements include the accounts of
the Partnership and the Century Square and
Framingham Corporate Center joint ventures on a
consolidated basis. The equity method of
accounting has been applied to the Partnership's
15% interest in the Taxter Corporate Park property
because of the Partnership's continuing ability to
exert significant influence over Taxter.
The Partnership's records are maintained on the
accrual basis of accounting for financial
reporting and tax reporting purposes.
Net income (loss) per Unit of limited partnership
interest amounts are calculated by dividing net
income (loss) allocated to Limited Partners, in
accordance with the Partnership Agreement, by the
weighted average number of Units outstanding.
In the opinion of management, the accompanying
financial statements, which have not been audited,
include all adjustments necessary to present
fairly the results for the interim period. Except
for the losses on impairment of real estate in
1996 and gains on real estate sales in 1997 and
1996, such adjustments consist only of normal
recurring accruals.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
These financial statements should be read in
conjunction with the annual financial statements
and notes thereto included in the Partnership's
annual report on Form 10-K filed with the
Securities and Exchange Commission for the year
ended October 31, 1996. Operating results of
interim periods may not be indicative of the
operating results for the entire year.
2. Real Estate
In February 1997, the Partnership sold the United
Services Life property for $33,750,000. The
proceeds from the sale, net of closing costs, were
approximately $32,400,000.
On April 10, 1997, Century Square Venture (which
is owned 75% by the Partnership and 25% by Dean
Witter Realty Income Partnership I, L.P., an
affiliated public partnership) sold the Century
Square property for $41.5 million. The purchase
price was paid in cash at closing. The
Partnership received approximately $30.6 million,
representing its 75% share of the cash received by
Century Square Venture net of closing costs.
3. Related Party
Transactions
An affiliate of the Managing General Partner
provided property management services for three
and four properties in 1997 and 1996,
respectively. The Partnership incurred management
fees of approximately $115,000 and $126,000 for
the six months ended April 30, 1997 and 1996,
respectively.
Another affiliate of the Managing General Partner
performs administrative functions, processes
investor transactions and prepares tax information
for the Partnership. For the six months ended
April 30, 1997 and 1996, the Partnership incurred
approximately $207,000 and $248,000, respectively,
for these services.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
As of April 30, 1997, the affiliates were owed a
total of approximately $140,000 for these
services.
4. Litigation
Various public partnerships sponsored by Dean
Witter Realty Inc. (including the Partnership and
its Managing General Partner) are defendants in
purported class actions lawsuits pending in state
and federal courts. The complaints allege a
number of claims, including breach of fiduciary
duty, fraud and misrepresentation, and seek an
accounting of profits, compensatory and other
damages in an unspecified amount, possible
liquidation of the Partnership under a receiver's
supervision and other equitable relief. The
defendants are vigorously defending these actions.
It is impossible to predict the effect, if any,
the outcome of these actions might have on the
Partnership's financial statements.
5. Distributions
On March 10, 1997, the Partnership distributed
approximately $32,400,000 ($183.00 per Unit), the
net sales proceeds from the sale of the United
Services Life property. The distribution was paid
100% to the Limited Partners.
On May 28, 1997, the Partnership paid a cash
distribution of $8.00 per Unit. The cash
distribution aggregated $1,573,538, with
$1,416,184 distributed to the Limited Partners and
$157,354 distributed to the General Partners.
On May 28, 1997, the Partnership distributed
approximately $30,600,000 ($173.04 per Unit), the
net sales proceeds from the sale of the Century
Square property. The distribution was paid 100%
to the Limited Partners.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership raised $177,023,000 in a public
offering which was terminated in 1985. The
Partnership has no plans to raise additional
capital.
The Partnership purchased five properties (one
sold in May 1993, one sold in December 1995, one
sold in February 1997, and one sold in April 1997)
and made three investments in partnerships on an
all-cash basis. The Partnership's acquisition
program has been completed. No additional
investments are planned.
The economic expansion continues and has provided
for a rebound in the commercial property markets.
Employment growth has pushed up demand for office
space. The steady demand and the limited amount
of speculative office construction has resulted in
falling vacancies, rising rents and increasing
property values in many markets. In the retail
sector, a changing tenant base caused by the
domination of certain power center tenants coupled
with bankruptcies and major restructuring of other
tenants and reduced consumer spending continues to
result in higher vacancies and stagnant rents at
many retail properties.
The United Services Life office building was sold
for $33,750,000 on February 28, 1997. The
Partnership received cash at closing of
approximately $32,400,000, net of closing costs.
In accordance with the provisions of the
Partnership Agreement, the net sales proceeds
($183.00 per Unit) were distributed 100% to the
Limited Partners in March 1997 representing a
return of capital. During 1996 and the six months
ended April 30, 1997 the Partnership's aggregate
cash flow from operations from the property was
approximately $2,800,000 and $900,000,
respectively.
The Century Square office building was sold on
April 10, 1997. See Note 2 to the consolidated
financial statements. In accordance with the
provisions of the Partnership Agreement, the
Partnership's share of the net sales proceeds
($173.04 per Unit) was distributed 100% to the
Limited Partners on May 28, 1997, representing a
return of capital. The Partnership's cash flow
from this property (net of minority interest) was
approximately $2,930,000 in 1996 and $1,130,000
during the six months ended April 30, 1997.
Barring a change in circumstances, the Managing
General Partner currently expects to market for
sale the Partnership's remaining office properties
and the Pavilions at East Lake shopping center
during fiscal 1997 and 1998, with the objective of
completing sales of all of the Partnership's
properties by the end of 1998. However, there is
no assurance that the Partnership will be able to
achieve these objectives.
The Partnership's liquidity depends on the cash
flow from operations of its properties,
expenditures for building improvements and tenant
improvements and leasing commissions in connection
with the leasing of space. During the six months
ended April 30, 1997, all of the Partnership's
properties and its joint venture investment
generated positive cash flow from operations, and
the Partnership expects that they will continue to
do so in 1997.
The Partnership's liquidity is also affected by
the sale of Partnership properties. Because the
Partnership sold the United Services Life property
in February 1997 and the Century Square property
in April 1997, and expects to sell other
properties in 1997 and 1998, Partnership cash from
operations available for distribution will decline
during the remainder of 1997 and thereafter. As a
result of the absence of operating cash flow from
the United Services Life property, the Partnership
decreased its quarterly cash distribution from
$10.34 per Unit to $8 per Unit (a 5% rate on the
gross offering proceeds attributable to the
Partnership's remaining investments), beginning
with the second quarter distribution paid in May
1997.
During the quarter ended April 30, 1997, the
Partnership's cash flow from operations and
investing activities exceeded distributions to
partners and minority interest share of
distributions from the Century Square property.
During the remainder of 1997, the Partnership
expects that cash flow from operations (net of
minority interest share) and distributions
received from its joint venture investment will
exceed distributions to partners (other than
distributions of net proceeds from property
sales); the Partnership expects to fund a portion
of 1997 capital expenditures from cash reserves.
The Partnership believes cash reserves will be
sufficient for its future needs.
As of April 30, 1997, the Partnership has
commitments to fund capital expenditures of
approximately $470,000, primarily for tenant-
related capital expenditures at the Glenhardie
(approximately $240,000) and Pavilions at East
Lake (approximately $165,000) properties. These
expenditures will be funded from cash from
operations and cash reserves.
The decrease in real estate, real estate held for
sale, deferred leasing commissions, and other
assets is primarily due to the sales of the United
Services Life and Century Square office buildings
(the "Properties Sold").
Except as discussed above and in the consolidated
financial statements, the Managing General Partner
is not aware of any trends or events, commitments
or uncertainties that may have a material impact
on liquidity.
On May 28, 1997, the Partnership paid the second
quarter cash distribution of $8.00 per Unit. The
total distribution aggregated $1,573,538 with
$1,416,184 distributed to the Limited Partners and
$157,354 distributed to the General Partners.
Operations
Fluctuations in the Partnership's operating
results for the three- and six-month periods ended
April 30, 1997 compared to 1996 were primarily
attributable to the following:
No individual factor accounted for a significant
change in equity in earnings of joint venture, and
general and administrative expenses.
Rental revenue decreased by approximately $470,000
during the three-month period primarily due to a
reduction in revenues of approximately $1,120,000
related to the Properties Sold, partially offset
by an increase in revenues at the Partnership's
other properties. Rental revenue decreased during
the six-month period by approximately $1,350,000
due to the sale of the Wallkill Plaza shopping
center in December 1995 and the sales of the
Properties Sold in February 1997 and April 1997;
this decrease was offset by higher rental income
totaling approximately $790,000 at the
Partnership's other properties.
The gain on sales of real estate in 1997 is due to
the sales of the Properties Sold.
Interest and other income decreased by
approximately $297,000 during the three-month
period primarily due to lease termination income
of $290,000 paid in the second quarter 1996 for
tenant lease cancellations at the Framingham
property. Interest and other income decreased by
approximately $456,000 during the six-month period
because of interest earned on the cash proceeds
from the sale of Wallkill Plaza until such cash
was distributed to Limited Partners in March 1996,
and because of lease termination income of
approximately $390,000 paid in 1996 for tenant
lease cancellations at the Pavilions at East Lake
and Framingham properties. This was partially
offset by the interest earned on the cash proceeds
of the Properties Sold distributed to Limited
Partners in March and May 1997.
Property operating expenses decreased during the
three-month period primarily due to the sales of
the Properties Sold (approximately $170,000) and
decreased expenses at the Glenhardie property.
Property operating expenses decreased during the
six-month period ended April 30, 1997 primarily
due to the sale of Wallkill Plaza (approximately
$100,000) and the United Services Life property in
February 1997 (approximately $91,000) offset by
increased property expenses in the first quarter
(approximately $102,000) at Century Square.
Depreciation and amortization decreased primarily
due to the sales of the Properties Sold, and due
to lower depreciation primarily on the Framingham
Corporate Center due to the writedown of this
property in 1996.
In the first quarter of fiscal 1996, the
Partnership recorded losses on impairment of the
Framingham Corporate Center, Glenhardie Corporate
Center I and II and Pavilions at East Lake
properties totaling $11,870,000.
Minority interest increased due to the sale of the
Century Square property.
A summary of the markets in which the
Partnership's properties are located and the
performance of each property is as follows:
The vacancy rate in the office market in
Framingham, Massachusetts, a suburb of Boston and
the location of Framingham Corporate Center,
remained at approximately 8% during the second
fiscal quarter. The expansion by engineering,
software, financial consulting and health care
companies continues to fuel demand for office
space in this area, and rental rates are rising.
During the second quarter of 1997, occupancy at
the property increased slightly from 94% to 97%.
The Partnership expects that rental rates on
renewals and new leases will continue to increase
at the property in the near future. No
significant leases at the property are scheduled
to expire before 2000. The Partnership plans to
market the property for sale during the third
fiscal quarter of 1997.
The overall vacancy level in the office market in
Westchester County, New York, the location of
Taxter Corporate Park remained at approximately
24% in the second fiscal quarter, and the vacancy
level in the west Westchester market in which the
building is located also remained at approximately
15%. It is unlikely that the vacant space will be
absorbed in the market for several years.
However, during the second quarter of 1997,
occupancy at the property remained at 99%. No
leases for a significant amount of space expire
before 2001.
The vacancy rate in Valley Forge, Pennsylvania,
the location of the Glenhardie property, remained
at 12% during the second quarter of 1997. During
the first quarter of 1997, occupancy at the
property decreased from 100% to 81% as USERS, Inc.
vacated its space (for approximately 27% of the
property's space) early. The Partnership re-
leased 9% of the property's space in the first
quarter to an existing tenant and re-leased the
remaining space (approximately 18%) during the
second quarter to Allstate Insurance Co. at a
higher rental rate. Occupancy at the property is
currently 100%. Leases on approximately 10% and
44% of the space expire during the remainder of
1997 and in 1998, respectively.
Century Square office building located in
Pasadena, California was 100% leased during the
second quarter of 1997. The property was sold on
April 10, 1997. See Note 2 to the consolidated
financial statements.
The Pavilions at East Lake shopping center is
located in a suburb of Atlanta which currently has
a vacancy rate of 5%. Rental rates in this market
are stable. During the second quarter of 1997,
occupancy at the property remained at
approximately 78%. Shopper traffic has increased
at the property as a result of the new lease with
Kroger, and Kroger's presence at the property
continues to enable the Partnership to increase
rental rates on new leases. No significant leases
expire until 2016.
Inflation
Inflation has been consistently low during the
periods presented in the financial statements and,
as a result, has not had a significant effect on
the operations of the Partnership or its
properties.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
An exhibit index has been filed as part
of this Report on Page E1.
b) Reports on Form 8-K.
- Report dated February 27, 1997
reporting the Partnership's sale
of the United Services Life
property.
- Report dated April 7, 1997 of the
Valuation per Unit of Limited
Partnership interest at October
31, 1996.
- Report dated April 10, 1997 reporting
the Partnership's sale of its interest
in the Century Square property.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dean Witter Realty
Income
Partnership II, L.P.
By: Dean Witter Realty
Income
Properties II Inc.
Managing General Partner
Date: June 16, 1997 By: /s/E.
Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: June 16, 1997 By:
/s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
Dean Witter Realty Income Partnership II, L.P.
Quarter Ended April 30, 1997
Exhibit Index
Exhibit
No. Description
27 Financial Data Schedule
E1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1997
<CASH> 33,348,325
<SECURITIES> 0
<RECEIVABLES> 296,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,861,763<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 71,802,566<F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,059,197<F3>
<SALES> 0
<TOTAL-REVENUES> 24,788,188<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,105,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,682,622
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,682,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,682,622
<EPS-PRIMARY> 98.28<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $34,873,653, investment in joint venture of $2,646,111, net
deferred leasing commissions of $668,198 and other assets of $1,029,113.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$898,633, and other liabilities of $160,564.
<F4>Total revenue includes gain on sales of real estate of $16,968,609, rent
of $7,481,956, equity in earnings of joint venture of $97,600, and interest
and other revenues of $240,023.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
