18
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 July 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: 0-18150
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 13-3244091
(State of organization) (IRS Employer
Identification No.)
2 World Trade Center, New York, NY 10048
(Address of principal executive offices) (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
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, October 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,895,246 $
3,193,852
Real estate:
Land 5,374,399
11,803,399
Buildings and improvements 56,575,476
94,143,130
61,949,875
105,946,529
Accumulated depreciation 26,976,423
38,964,769
34,973,452
66,981,760
Real estate held for sale - 22,417,670
Investment in joint venture 2,608,949
2,694,918
Deferred leasing commissions, net 631,954
2,185,691
Other assets 1,183,463
2,845,165
$41,293,064
$100,319,056
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 967,803 $
1,121,405
Security deposits 157,941
192,459
Minority interests in joint ventures - 8,423,845
1,125,744
9,737,709
Partners' capital (deficiency):
General partners (5,299,812)
(5,078,043)
Limited partners ($1,000 per Unit, 177,023 Units issued)
45,467,132 95,659,390
Total partners' capital 40,167,320
90,581,347
$41,293,064
$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 nine months ended July 31, 1997 and 1996
<CAPTION>
Three months ended Nine
months ended
July 31, July 31,
1997 1996 1997 1996
<S> <C> <C> <C>
<C>
Revenues:
Rental $ 1,895,730 $4,005,360 $
9,377,686 $12,046,991
Gain on sales of real estate - -
16,968,609 -
Equity in earnings of joint venture 66,411
54,771 164,011 198,957
Interest and other 164,597 76,865
404,620 873,040
2,126,738 4,136,996
26,914,926 13,118,988
Expenses:
Property operating 756,691 1,525,754
3,670,285 4,553,678
Depreciation 523,515 1,222,714
1,730,716 3,762,850
Amortization 54,576 145,757
255,057 407,802
General and administrative 189,611 225,976
547,952 609,346
Loss on impairment of real estate - - -
11,870,000
1,524,393 3,120,201
6,204,010 21,203,676
Income (loss) before minority interest 602,345
1,016,795 20,710,916 (8,084,688)
Minority interest 31,893 144,169
2,457,842 449,274
Net income (loss) $ 570,452 $ 872,626
$18,253,074 $(8,533,962)
Net income (loss) allocated to:
Limited partners $ 513,407 $ 785,363
$17,911,116 $(7,680,566)
General partners 57,045 87,263
341,958 (853,396)
$ 570,452 $ 872,626
$18,253,074 $(8,533,962)
Net income (loss) per Unit of
limited partnership interest $ 2.90 $ 4.44
$ 101.18 $ (43.39)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Nine months ended July 31, 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 17,911,116
341,958 18,253,074
Cash distributions (68,103,374)
(563,727) (68,667,101)
Partners' capital (deficiency)
at July 31, 1997 $ 45,467,132
$(5,299,812) $ 40,167,320
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C>
<C>
Cash flows from operating activities:
Net income (loss) $ 18,253,074 $
(8,533,962)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,730,716
3,762,850
Amortization 255,057
407,802
Loss on impairment of real estate -
11,870,000
Minority interest in joint venture 2,457,842
449,274
Gain on sales of real estate (16,968,609)
- -
Equity in earnings of Taxter joint venture
(164,011) (198,957)
(Increase) decrease in operating assets:
Deferred leasing commissions (143,534)
(692,725)
Other assets 75,772
409,803
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(86,562) 72,258
Security deposits 6,214
(70,479)
Net cash provided by operating activities
5,415,959 7,475,864
Cash flows from investing activities:
Additions to real estate (761,793)
(4,404,895)
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 314,721
278,583
Investments in Taxter joint venture (64,741)
(57,619)
Net cash provided by investing activities
62,387,386 6,585,165
Cash flows from financing activities:
Cash distributions to partners (68,667,101)
(16,292,645)
Additional investment by minority interest 5,559
130,576
Minority interest in joint venture's distributions
(440,409) (656,900)
Net cash used in financing activities (69,101,951)
(16,818,969)
Decrease in cash and cash equivalents (1,298,606)
(2,757,940)
Cash and cash equivalents at beginning of period
3,193,852 7,424,199
Cash and cash equivalents at end of period $ 1,895,246 $
4,666,259
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, 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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
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, approximately
$32,400,000, were distributed 100% to the limited
partners in March, representing a return of capital of
$183 per unit.
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. On May 28, 1997, the Partnership distributed the
net sales proceeds ($173.04 per Unit) from the sale of
the Century Square property representing a return of
capital. The distribution was paid 100% to the Limited
Partners.
3. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for three properties in
1997 (subsequent to the sale of Century Square) and for
four properties in 1996. The Partnership incurred
management fees of approximately $151,000 and $183,000
for the nine months ended July 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 nine months ended July 31, 1997
and 1996, the Partnership incurred approximately
$302,000 and $369,000, respectively, for these
services.
As of July 31, 1997, the affiliates were owed a total
of approximately $152,000 for these services.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
4. Litigation
Various public partnerships sponsored by Dean Witter
Realty Inc. (including the Partnership and its Managing
General Partner) are defendants in purported class
action 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 Distribution
On August 27, 1997, the Partnership paid the third
quarter cash distribution of $5.51 per Unit. The cash
distribution aggregated $1,083,774, with $975,397
distributed to the Limited Partners and $108,377
distributed to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
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 (one sold in April 1997) on an all-cash
basis. The Partnership's acquisition program has been
completed. No additional investments are planned.
Most property types, except for retail. experienced
steady demand, declining vacancies and increasing
rents. Strong job growth, especially in the business
services and technology industries, and the modest
level of new construction, led to strong performance in
the office real estate sector. Vacancies in many
office markets are in the single digits and rents have
risen to levels that support new construction.
Favorable market fundamentals resulted in value
appreciation as investors bid for office properties.
Framingham Corporate Center and Glenhardie Corporate
Center I & II have a high occupancy level and are
located in relatively improved office markets. The
Partnership is, therefore, currently marketing the
Framingham property for sale and plans to market the
Glenhardie property for sale in the fourth quarter of
fiscal 1997. The Partnership's remaining office
property, Taxter Corporate Park, is located in
Westchester, New York where the vacancy level for
office properties is approximately 19%. As this market
continues to improve, the Partnership plans to market
the Taxter property for sale during fiscal 1998.
Overbuilding and retailer failures continued to pose a
challenge for many retail properties and there is still
an oversupply in many markets. Rental rates for retail
space were stagnant in 1996 and are not expected to
rise significantly in 1997. Many retail property
owners are investing additional capital to improve
their centers in order to differentiate them and
maintain a high occupancy level. At the Partnership's
retail property, Pavilions
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
at East Lake, re-development is complete. The
Partnership is marketing the vacant retail space at
this center, especially the second anchor space, and
currently plans to market this property for sale in
fiscal 1998.
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 nine months
ended July 31, 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 operations of this property (net of
minority interest) was approximately $2,930,000 in 1996
and $1,310,000 during the nine months ended July 31,
1997.
The Managing General Partner is currently marketing for
sale the Partnership's Framingham office property and
expects to marthe Glenhardie office property for sale
in the fourth quarter of fiscal 1997, and the Taxter
Corporate Park and the Pavilions at East Lake shopping
center during fiscal 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 nine months ended July 31, 1997, all
of the Partnership's properties and its joint venture
investment generated positive cash flow from
operations,
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
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 flows from the United Services Life and
Century Square properties, the Partnership decreased
its quarterly cash distribution from $10.34 to $8.00
per Unit during the second fiscal quarter, and to $5.51
per Unit (a 5% rate on the gross offering proceeds
attributable to the Partnership's remaining
investments) beginning with the third quarter
distribution paid in August 1997.
During the nine months ended July 31, 1997, excluding
proceeds and distribution amounts relating to property
sales, the Partnership's distributions to investors,
capital expenditures, leasing commissions and
contributions to its joint venture exceeded cash flow
from operations (net of minority interest) and
distributions received from its joint venture. This
shortfall was funded from cash reserves. 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 July 31, 1997, the Partnership has commitments to
fund capital expenditures of approximately $137,000,
primarily for tenant-related capital expenditures at
the Glenhardie (approximately $71,000) and Framingham
(approximately $48,000) 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").
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
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 August 27, 1997, the Partnership paid the third
quarter cash distribution of $5.51 per Unit. The total
distribution aggregated $1,083,774 with $975,397
distributed to the Limited Partners and $108,377
distributed to the General Partners.
Operations
Fluctuations in the Partnership's operating results for
the three- and nine-month periods ended July 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, and general and
administrative expenses.
Rental revenue decreased during the three-month period
primarily due to a reduction in revenues of
approximately $2.4 million related to the Properties
Sold, partially offset by an increase in revenues at
the Partnership's other properties. Rental revenue
decreased during the nine-month period by approximately
$2,670,000 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 (due to
rental rate and occupancy increases) totaling
approximately $1,090,000 at the Framingham ($510,000),
Pavilions at East Lake ($457,000) and Glenhardie
Corporate Center ($127,000) properties.
The gain on sales of real estate in 1997 is due to the
sales of the Properties Sold.
Interest and other income increased by approximately
$90,000 during the three-month period primarily due to
interest earned on cash proceeds from the sale of
Century Square until such cash was distributed to
Limited Partners on May 28, 1997. Interest and other
income decreased by approximately $470,000 during the
nine-month period, however, due to the absence in 1997
of a) interest earned
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
on the cash proceeds from the sale of Wallkill Plaza
until such cash was distributed to Limited Partners in
March 1996, and b) lease termination income of
approximately $390,000 received in 1996 for tenant
lease cancellations at the Pavilions at East Lake and
Framingham properties. These decreases were 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. Property operating expenses decreased
during the nine-month period primarily due to the sale
of Wallkill Plaza (approximately $100,000), and the
Properties Sold (approximately $824,000) offset by
increased property expenses at the Framingham property
(approximately $148,000).
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, decreased to approximately
5% during the second fiscal quarter. The expansion by
engineering, software, financial consulting and health
care companies has fueled demand for office space in
this area, and rental rates continue to increase.
During the third quarter of 1997, occupancy at the
property decreased from 97% to 95%. No significant
leases at the property are scheduled to expire before
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
2000. The Partnership is currently marketing the
property for sale.
The overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park, decreased to approximately 19% in the
third fiscal quarter, and the vacancy level in the west
Westchester market in which the building is located
decreased to approximately 11%. It is unlikely that
the vacant space will be absorbed in the market for
several years. However, during the third quarter of
1997, occupancy at the property increased from 99% to
100%. No leases for a significant amount of space
expire before 2001. The Partnership plans to market
the property for sale during fiscal 1998.
The vacancy rate in Valley Forge, Pennsylvania, the
location of the Glenhardie property, remained at less
than 12% during the third quarter of 1997. Occupancy at
the property remained at 100%. Leases on approximately
44% of the space expire during 1998. The Partnership
plans to market the property for sale in the fourth
quarter of fiscal 1997.
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 remain stable.
During the third 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 has enabled the Partnership to increase rental
rates on new leases. No significant leases expire
until 2016. The Partnership plans to market the
property for sale during fiscal 1998.
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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
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.
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: September 12, 1997 By: /s/E. Davisson Hardman,
Jr.
E. Davisson Hardman, Jr.
President
Date: September 12, 1997 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
Dean Witter Realty Income Partnership II, L.P.
Quarter Ended July 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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,895,246
<SECURITIES> 0
<RECEIVABLES> 175,732
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,293,064<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 40,167,320<F2>
<TOTAL-LIABILITY-AND-EQUITY> 41,293,064<F3>
<SALES> 0
<TOTAL-REVENUES> 26,914,926<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,661,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,253,074
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,253,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,253,074
<EPS-PRIMARY> 101.18<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $34,973,452, investment in joint venture of $2,608,949, net
deferred leasing commissions of $631,954 and other assets of $1,007,731.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$967,803, and other liabilities of $157,941.
<F4>Total revenue includes gain on sales of real estate of $16,968,609, rent
of $9,377,686, equity in earnings of joint venture of $164,011, and interest
and other revenues of $404,620.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
