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 January 31, 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
Page 1 of 14 <PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
[CAPTION]
<TABLE>
January 31, October 31,
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,188,203 $ 3,193,852
Real estate:
Land 5,374,399 11,803,399
Buildings and improvements 55,852,858 94,143,130
61,227,257 105,946,529
Accumulated depreciation 25,989,715 38,964,769
35,237,542 66,981,760
Real estate held for sale 53,434,820 22,417,670
Investment in joint venture 2,659,208 2,694,918
Deferred leasing commissions, net 2,166,208 2,185,691
Other assets 2,781,749 2,845,165
$ 99,467,730 $100,319,056
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 811,458 $ 1,121,405
Security deposits 194,383 192,459
Minority interests in joint ventures 8,378,496 8,423,845
9,384,337 9,737,709
Partners' capital (deficiency):
General partners (5,127,839) (5,078,043)
Limited partners ($1,000 per Unit,
177,023 Units issued) 95,211,232 95,659,390
Total partners' capital 90,083,393 90,581,347
$ 99,467,730 $100,319,056
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31, 1997 and 1996
[CAPTION]
<TABLE>
1997 1996
<S> <C> <C>
Revenues:
Rental $4,240,916 $ 4,327,918
Equity in earnings of joint venture 62,900 71,417
Interest and other 49,603 308,409
4,353,419 4,707,744
Expenses:
Property operating 1,599,045 1,477,004
Depreciation 744,007 1,319,020
Amortization 139,490 124,709
General and administrative 191,413 188,254
Loss on impairment of real estate - 11,870,000
2,673,955 14,978,987
Income (loss) before minority interest 1,679,464 (10,271,243)
Minority interest 143,620 158,422
Net income (loss) $1,535,844 $(10,429,665)
Net income (loss) allocated to:
Limited partners $1,382,260 $ (9,386,699)
General partners 153,584 (1,042,966)
$1,535,844 $(10,429,665)
Net income (loss) per Unit of limited
partnership interest $7.81 $(53.03)
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Three months ended January 31, 1997
[CAPTION]
<TABLE>
<S>
Limited General
Partners Partners Total
Partners' capital (deficiency) <C> <C> <C>
at November 1, 1996 $95,659,390 $(5,078,043) $90,581,347
Net income 1,382,260 153,584 1,535,844
Cash distributions (1,830,418) (203,380) (2,033,798)
Partners' capital (deficiency)
at January 31, 1997 $95,211,232 $(5,127,839) $90,083,393
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 31, 1997 and 1996
[CAPTION]
<TABLE>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,535,844 $(10,429,665)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 744,007 1,319,020
Amortization 139,490 124,709
Loss on impairment of real estate - 11,870,000
Minority interests in joint ventures'
operations 143,620 158,422
Equity in earnings of Taxter joint venture (62,900) (71,417)
(Increase) decrease in operating assets:
Deferred leasing commissions (120,007) (167,788)
Other assets 63,416 142,197
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities (309,947) 63,937
Security deposits 1,924 (28,345)
Net cash provided by operating activities 2,135,447 2,981,070
Cash flows from investing activities:
Additions to real estate (16,939) (698,667)
Distributions from Taxter joint venture 104,963 113,675
Investments in Taxter joint venture (6,353) (15,154)
Proceeds from disposition of real estate held for sale - 10,769,096
Net cash provided by investing activities 81,671 10,168,950
Cash flows from financing activities:
Cash distributions to partners (2,033,798) (1,966,922)
Additional investment by minority interest - 96,319
Minority interest in joint ventures' distributions (188,969) (193,625)
Net cash used in financing activities (2,222,767) (2,064,228)
(Decrease) increase in cash and cash equivalents (5,649) 11,085,792
Cash and cash equivalents at beginning of period 3,193,852 7,424,199
Cash and cash equivalents at end of period $ 3,188,203 $ 18,509,991
Supplemental disclosure of non-cash investing activities:
Reclassification of real estate held for sale:
Real estate, at cost
Land $ 6,429,000
Buildings and improvements 38,307,211
Accmulated depreciation (13,719,061)
Real estate held for sale $ 31,017,150
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
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
loss on impairment of real estate in 1996, such adjustments consist
only of normal recurring accruals.
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 Held for Sale
In December 1996, the Partnership agreed to sell the United Services
Life property for $33,750,000. The proceeds from the sale, net of
closing costs, were approximately $32,400,000.
In February 1997, the partnership which owns the Century Square
office building (which is owned 75% by the Partnership and 25% by
Dean Witter Realty Income Partnership I, L.P., an affiliated
partnership) agreed to sell the building for $41,500,000. Closing
of the sale is expected to occur in the third quarter of fiscal
1997. At January 31, 1997, the carrying value of the property
(approximately $31.0 million) has been reclassified to real estate
held for sale.
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 $58,000 and $68,000 for the three months ended January
31, 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 three months
ended January 31, 1997 and 1996, the Partnership incurred
approximately $112,000 and $127,000, respectively, for these
services.
As of January 31, 1997, the affiliates were owed a total of
approximately $122,000 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. Subsequent Distributions
On February 27, 1997, the Partnership paid a cash distribution of
$10.34 per Unit. The cash distribution aggregated $2,033,798, with
$1,830,418 distributed to the Limited Partners and $203,380
distributed to the General Partners.
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 building. The distribution was paid
100% to the Limited Partners.
<PAGE>
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, and one sold in February 1997) and made three
investments in partnerships (the sole property held by one of the
partnerships is currently under contract to be sold) on an all-cash
basis. The Partnership's acquisition program has been completed.
No additional investments are planned.
In most regions of the country, continued restraint of new office
construction and steady leasing have reduced office supply in office
markets, and, in certain areas, rental rates are rising. Some
office markets are faring better than others. Currently, vacancy is
approximately 8% in the Boston suburban market, the location of
Framingham Corporate Center, and 12% in suburban Philadelphia, the
location of the Glenhardie Corporate Center buildings. Vacancy in
the overall office market in Westchester County, New York, the
location of Taxter Corporate Park, is approximately 24%. Office
properties in the West are benefiting from expansion by the
entertainment, high-technology and telecommunications industries;
however, Pasadena, California, the location of the Century Square
building, continues to be negatively impacted by corporate mergers
and consolidations. 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 have resulted in higher vacancies and
stagnant rents at many retail properties.
The closing of the sale of the United Services Life office building
occurred on February 28, 1997. The Partnership received
approximately $32,400,000, net of closing costs. In accordance with
the provisions of the Partnership Agreement, the net sales proceeds
(approximately $183.00 per Unit) were distributed 100% to the
Limited Partners in March 1997. In the first quarter of fiscal
1997, the Partnership's cash flow from operations of the building
was approximately $760,000.
In February 1997, the partnership which owns the Century Square
office building agreed to sell the building for $41,500,000. The
Partnership's share of the sales proceeds, net of closing costs, is
expected to be approximately $29.7 million (after minority interest
share). The Partnership's cash flow from this property (net of
minority interest) was approximately $2,930,000 in 1996 and $683,000
during the first quarter of 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 fiscal year
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 quarter ended January 31, 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 expects to sell other
properties in fiscal 1997, 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 will
decrease 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 payable May 1997.
During the quarter ended January 31, 1997, the Partnership's cash
flow from operations and investing activities approximated the sum
of 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 January 31, 1997, the Partnership has commitments to fund
capital expenditures of approximately $250,000, primarily for
tenant-related capital expenditures at the Glenhardie property.
These expenditures will be funded from cash from operations and cash
reserves.
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 February 27, 1997, the Partnership paid the first quarter cash
distribution of $10.34 per Unit. The total distribution aggregated
$2,033,798 with $1,830,418 distributed to the Limited Partners and
$203,380 distributed to the General Partners.
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 building. The distribution was paid
100% to Limited Partners.
Operations
Fluctuations in the Partnership's operating results for the three-
month period ended January 31, 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, property operating expenses, amortization
expense and general and administrative expenses from 1996 to 1997.
Rental revenue decreased in 1997 compared to 1996 by approximately
$369,000 because of the sale of the Wallkill Plaza shopping center
in December 1995. This decrease was partially offset by higher
rental income at the Partnership's other properties; no individual
property accounted for a material increase.
Interest and other income was higher in 1996 than 1997 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 $100,000
paid by A&P in 1996 for canceling its lease at Pavilions at East
Lake.
Depreciation decreased in 1997 compared to 1996 by approximately
$336,035 because no depreciation was taken on the United Services
Life property in 1997 prior to its sale and due to lower
depreciation at Framingham Corporate Center and Glenhardie Corporate
Center I and II due to the writedown of these properties 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
totalling $11,870,000.
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,
has recently increased to approximately 8%. The Partnership
believes that this increase in vacancy is temporary because
expansion by engineering, software, financial consulting and health
care companies is fueling demand for office space in this area, and
rental rates are rising. During the first quarter of 1997,
occupancy at the property decreased slightly from 97% to 94%. 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
2001.
The overall vacancy level in the office market in Westchester
County, New York, the location of Taxter Corporate Park is currently
24%, and the vacancy level in the west Westchester market in which
the building is located is 15%. The Partnership believes it is
unlikely that the vacant space will be absorbed in the market for
several years. However, during the first quarter of 1997, occupancy
at the property remained at 99%. Leases aggregating approximately
14% of the property's space expire in 1998.
The vacancy rate in Valley Forge, Pennsylvania, the location of the
Glenhardie property, has recently decreased from 16% to 12%. During
the first quarter of 1997, occupancy of 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 is
in negotiations with a replacement tenant for the remaining vacant
space. The Partnership expects its will release all of the USERS'
space at a higher rental rate. Leases on approximately 10% and 44%
of the space expire during the remainder of 1997 and in 1998,
respectively.
In Pasadena, California, the location of the Century Square office
building, the overall office market vacancy rate is approximately
15%. However, Century Square remained 100% leased during the first
quarter. The leases of the property's largest tenant, Countrywide
Credit (which occupies 84% of the property's space), expire in 2010.
Countrywide is negotiating to sublease an additional 9% of the
property's space from an existing tenant. No other tenants occupy
more than 10% of the property. As described above, the partnership
which owns the property has agreed to sell it.
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 first quarter of 1997, occupancy
at the property increased to 78%. Shopper traffic has increased at
the property as a result of the new lease with Kroger, and Kroger's
presence at the property is enabling the Partnership to increase
rental rates on new leases. No significant leases expire in the
near future.
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.<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dean Witter Realty Income
Partnership II, L.P.
By: Dean Witter Realty Income
Properties II Inc.
Managing General Partner
Date: March 17, 1997 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: March 17, 1997 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and Accounting
Officer)
<PAGE>
Dean Witter Realty Income Partnership II, L.P.
Quarter Ended January 31, 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> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 3,188,203
<SECURITIES> 0
<RECEIVABLES> 2,319,422
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,467,730<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 90,083,393<F2>
<TOTAL-LIABILITY-AND-EQUITY> 99,467,730<F3>
<SALES> 0
<TOTAL-REVENUES> 4,353,419<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,817,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,535,844
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,535,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,535,844
<EPS-PRIMARY> 7.81<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $35,237,542, real estate held for sale of $53,434,820,
investment in joint venture of $2,659,208, net deferred leasing commissions
of $2,166,208 and other assets of $462,327.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$811,458, minority interest in joint venture of $8,378,496, and other
liabilities of $194,383.
<F4>Total revenue includes rent of $4,240,916, equity in earnings of joint
venture of $62,900, and interest and other revenues of $49,603.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
