14
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, 1998
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
<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,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 696,795 $
1,741,456
Real estate:
Land 1,900,300
3,545,300
Buildings and improvements 13,003,931
30,377,786
14,904,231
33,923,086
Accumulated depreciation 4,616,538
12,757,533
10,287,693
21,165,553
Real estate held for sale - 13,506,748
Investment in joint venture 2,530,030
2,572,800
Deferred leasing commissions, net 182,949
628,834
Other assets 186,080
1,348,454
$13,883,547
$40,963,845
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 393,194 $
940,489
Security deposits 50,453
173,057
443,647
1,113,546
Partners' capital (deficiency):
General partners (5,460,884)
(5,353,586)
Limited partners ($1,000 per Unit, 177,023 Units issued)
18,900,784 45,203,885
Total partners' capital 13,439,900
39,850,299
$13,883,547
$40,963,845
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED INCOME STATEMENTS
Three and nine months ended July 31, 1998 and 1997
<CAPTION>
Three months ended Nine
months ended
July 31, July 31,
1998 1997 1998 1997
<S> <C> <C> <C>
<C>
Revenues:
Gains on sales of real estate $(30,545) $ -
$19,097,127 $16,968,609
Rental 359,079 1,895,730
2,359,208 9,377,686
Equity in earnings of joint venture 166,508 66,411
278,070 164,011
Interest and other 6,007 164,597
174,073 404,620
501,049 2,126,738
21,908,478 26,914,926
Expenses:
Property operating 100,677 756,691
906,458 3,670,285
Depreciation 111,938 523,515
437,606 1,730,716
Amortization 10,447 54,576
83,239 255,057
General and administrative 110,536 189,611
352,424 547,952
333,598 1,524,393
1,779,727 6,204,010
Income before minority interest 167,451 602,345
20,128,751 20,710,916
Minority interest - 31,893 -
2,457,842
Net income $167,451 $ 570,452
$20,128,751 $18,253,074
Net income allocated to:
Limited partners $147,652 $ 513,407
$20,025,589 $17,911,116
General partners 19,799 57,045
103,162 341,958
$167,451 $ 570,452
$20,128,751 $18,253,074
Net income per Unit of limited
partnership interest $ 0.83 $ 2.90 $
113.12 $ 101.18
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, 1998
<CAPTION>
Limited General
Partners Partners
Total
<S> <C> <C>
<C>
Partners' capital (deficiency)
at November 1, 1997 $ 45,203,885
$(5,353,586) $ 39,850,299
Net income 20,025,589
103,162 20,128,751
Cash distributions (46,328,690)
(210,460) (46,539,150)
Partners' capital (deficiency)
at July 31, 1998 $ 18,900,784
$(5,460,884) $ 13,439,900
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, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 20,128,751 $
18,253,074
Adjustments to reconcile net income to net cash provided
by operating activities:
Gains on sales real estate (19,097,127)
(16,968,609)
Depreciation 437,606
1,730,716
Amortization 83,239
255,057
Equity in earnings of Taxter joint venture
(278,070) (164,011)
Minority interest in joint venture -
2,457,842
(Increase) decrease in operating assets:
Deferred leasing commissions (179,947)
(143,534)
Other assets 417,545
75,772
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(488,013) (86,562)
Security deposits (119,347)
6,214
Net cash provided by operating activities
904,637 5,415,959
Cash flows from investing activities:
Proceeds from sale of real estate 44,589,521
73,346,016
Additions to real estate (320,509)
(761,793)
Distributions from Taxter joint venture 404,169
314,721
Investments in Taxter joint venture (83,329)
(64,741)
Minority interest in proceeds from sale of real estate
- - (10,446,817)
Net cash provided by investing activities
44,589,852 62,387,386
Cash flows from financing activities:
Cash distributions to partners (46,539,150)
(68,667,101)
Minority interest in joint ventures' distributions -
(440,409)
Additional investment by minority interest -
5,559
Net cash used in financing activities (46,539,150)
(69,101,951)
Decrease in cash and cash equivalents (1,044,661)
(1,298,606)
Cash and cash equivalents at beginning of period
1,741,456 3,193,852
Cash and cash equivalents at end of period $ 696,795 $
1,895,246
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
14.8% 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 per Unit of limited partnership interest amounts
are calculated by dividing net income 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 gains on sales of real estate,
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, 1997. Operating results of interim
periods may not be indicative of the operating results for
the entire year.
2. Sales of Real Estate
On December 3, 1997, the Partnership sold the Framingham
Corporate Center property for $26,050,000. The proceeds
from the sale, net of closing costs, of approximately
$25,300,000 were distributed 100% to the Limited Partners in
December 1997, representing a return of capital of $143.16
per Unit. The Partnership's gain on this sale of
approximately $11.0
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
million was allocated 100% to the Limited Partners in
accordance with the Partnership Agreement.
The Partnership sold the Glenhardie Corporate Center I and
II properties ("Glenhardie I and II") on April 1, 1998. As
part of the Purchase and Sale Agreement (the "Agreement"),
Dean Witter Realty Income Partnership III, L.P. and Dean
Witter Realty Income Partnership IV, L.P., affiliated public
partnerships, also sold certain other properties. The
aggregate negotiated sale price of the properties sold was
approximately $168 million, of which approximately $19.7
million was allocated in the Agreement to Glenhardie I and
II.
Pursuant to the Agreement, escrows were established for the
costs of certain building improvements and tenant
improvements (the "Improvements"). In addition to payment
of the purchase price, at closing, the Purchaser deposited
into these escrows approximately $3.9 million, of which
approximately $1.6 million relates to Glenhardie II. Any
balance remaining in the portion of the escrows relating to
Glenhardie II after the Improvements are completed will be
delivered to the Partnership. If the costs of Improvements
at Glenhardie II exceed the escrow established therefor, the
Partnership will be required to fund the excess costs.
The purchase price was paid in cash at closing. The
Partnership received proceeds, net of closing costs and
other deductions, of approximately $19.3 million.
Approximately $19.1 million of such proceeds were
distributed 100% to the Limited Partners ($107.85 per Unit)
on April 14, 1998, and the remaining proceeds were added to
the Partnership's cash reserves.
The Partnership's gain on this sale of approximately $8.1
million was allocated 100% to the Limited Partners in
accordance with the Partnership Agreement.
3. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for the Taxter Corporate Park,
Glenhardie I and II (sold April 1998), Framingham Corporate
Center (sold December 1997) and Century
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
Square (sold April 1997) properties. The Partnership
incurred management fees of approximately $45,000 and
$151,000 for the nine months ended July 31, 1998 and 1997,
respectively. These amounts are included in property
operating expenses.
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, 1998 and 1997, the Partnership
incurred approximately $225,000 and $302,000, respectively,
for these services. These amounts are included in general
and administrative expenses.
As of July 31, 1998, the affiliates were owed approximately
$16,000 for these services.
4. Litigation
Various public partnerships sponsored by Dean Witter Realty
Inc. (including the Partnership and its Managing General
Partner) were defendants in a class action lawsuit. On July
17, 1998, the Delaware Chancery Court granted the
defendants' motion to dismiss the complaint in the lawsuit.
The Plaintiffs have filed a notice of appeal from the
Court's order.
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 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 Sardis Crossing and Wallkill Plaza retail properties
were sold in fiscal years 1993 and 1996, respectively. In
fiscal year 1997, the United Olympic and Century Square
office buildings were sold in February 1997 and April 1997,
respectively. The Framingham Corporate Center and
Glenhardie Corporate Center I and II office buildings were
sold in the first and second fiscal quarters of 1998,
respectively. As a result of sales of properties in fiscal
years 1997 and 1998, Partnership cash flow from operations
decreased during the nine months ended July 31, 1998
compared to 1997.
The joint venture which owns the Taxter office property is
currently marketing the property for sale, and the Managing
General Partner will market the Pavilions at East Lake
shopping center for sale during the fourth fiscal quarter of
1998. However, there can be no assurance that these
properties will be sold.
The Partnership's liquidity is primarily affected by sales
of the Partnership's properties; as the properties are sold,
the Partnership has fewer income-producing investments and
Partnership cash from operations decreases. The Partnership
also requires less cash reserves to fund capital
expenditures and leasing commissions. Generally, future cash
distributions will be paid from proceeds from sales of the
Taxter and Pavilions at East Lake properties and cash
reserves.
During the nine months ended July 31, 1998, all of the
Partnership's remaining properties generated positive cash
flow from operations, and it is anticipated that the Taxter
and Pavilions at East Lake properties will continue to do so
during the period the Partnership continues to own its
interests in them.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
During the nine months ended July 31, 1998, the Partnership
incurred capital expenditures and leasing commissions of
approximately $500,000, primarily at the Glenhardie
properties.
During the nine months ended July 31, 1998, the
Partnership's distributions to partners (excluding
distributions of sales proceeds), capital expenditures and
investments in the Taxter joint venture exceeded its cash
flow from operations and distributions from the Taxter joint
venture. This deficiency was funded from Partnership cash
reserves.
As of July 31, 1998, the Partnership has commitments to fund
approximately $475,000 of capital expenditures at the
Pavilions at East Lake property and $40,000, its share of
capital expenditures and leasing commissions at the Taxter
property. The Partnership may also be required to fund
certain costs at the Glenhardie properties (see Note 2 to
the consolidated financial statements).
In order to increase cash reserves to fully fund its
potential liability for capital expenditures and leasing
commissions and other Partnership cash requirements, the
Partnership did not pay its third quarter distribution in
August 1998.
Other assets, deferred leasing commissions, accounts payable
and accrued liabilities and security deposits decreased in
1998 as a result of sales of properties.
On December 23, 1997, the Partnership distributed
approximately $25,342,000 ($143.16 per Unit), the net
proceeds from the sale of the Framingham property. The
distribution was paid 100% to the Limited Partners.
On April 14, 1998, the Partnership distributed approximately
$19,092,000 ($107.85 per Unit) of the net proceeds of
$19,282,000 from the sale of the Glenhardie properties. The
distribution was paid 100% to the Limited Partners, and the
remaining sales proceeds were added to 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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Operations
Fluctuations in the Partnership's operating results for the
three- and nine-month periods ended July 31, 1998 compared
to 1997 were primarily attributable to the following:
In 1998, the gains on sales of real estate resulted from the
sales of the Framingham Corporate Center and Glenhardie
properties. In 1997, the gains on sales of real estate
resulted from the sale of the United Olympic and the Century
Square properties.
During the nine months ended July 31, 1998, rental income,
property operating expenses, depreciation expense and
amortization expense decreased as a result of the sales of
the United Olympic, Century Square, Framingham Corproate
Center and Glenhardie properties.
During the three months ended July 31, 1998, rental income,
property operating expenses, depreciation expense and
amortization expense decreased as a result of the sales of
the Framingham Corporate Center and Glenhardie properties.
Interest and other income decreased during the three- and
nine-month periods ended July 31, 1998 primarily because the
Partnership's interest earned in 1997 on the proceeds from
the sale of the Century Square and United Olympic properties
(until such proceeds were distributed to Limited Partners)
exceeded interest earned in 1998 on the proceeds from the
sale of properties.
There was no minority interest share of income in 1998
because the joint venture which owned the Century Square
property sold the property in 1997.
No individual factor accounted for a significant change in
equity in earnings of the Taxter joint venture and general
and administrative expenses from 1997 to 1998.
A summary of the markets in which the Partnership's
properties are located and the performance of each property
is as follows:
Recently, the overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park, decreased from 17% to 14%; however, the
vacancy level in the west Westchester sub-market
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
in which the building is located increased from 9% to 13%.
Market rental rates are currently stable and there is little
new construction in this market. During the nine months
ended July 31, 1998, occupancy at the property remained at
100%. Leases aggregating approximately 11% and 31% of the
property's space are scheduled to expire in 1999 and 2001,
respectively.
The Pavilions at East Lake shopping center is located in a
suburb of Atlanta where the market vacancy rate is currently
8%. Rental rates in this market are stable and there is
little new construction. During the third quarter of 1998,
occupancy at the property increased to approximately 79%.
In July 1998, the Partnership signed a new 15-year lease,
for approximately 10% of the property's space, with a
subsidiary of Ace Hardware Corporation; this lease is
effective October 1998.
During the nine months ended July 31, 1998, the Pavilions at
East Lake property incurred rental revenues, property
operating expenses, depreciation expense and amortization
expense of approximately $1,048,000, $299,000, $323,000 and
$33,000, respectively.
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 1. Legal Proceedings
On July 17, 1998, the Delaware Chancery Court
granted the defendants' motion to dismiss the
complaint in the Consolidated Action. The
plaintiffs filed a notice of appeal from the
Chancery Court's order on August 14, 1998.
Item 6. Exhibits & 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.
None.
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 14, 1998 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: September 14, 1998 By: /s/Charles M. Charrow
Charles M. Charrow
Controller
(Principal Financial and
Accounting Officer)
Dean Witter Realty Income Partnership II, L.P.
Quarter Ended July 31, 1998
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-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 696,795
<SECURITIES> 0
<RECEIVABLES> 29,162
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,883,547<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 13,439,900<F2>
<TOTAL-LIABILITY-AND-EQUITY> 13,883,547<F3>
<SALES> 0
<TOTAL-REVENUES> 21,908,478<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,779,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,128,751
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,128,751
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,128,751
<EPS-PRIMARY> 113.12<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $10,287,693, investment in joint venture of $2,530,030, net
deferred leasing commissions of $182,949 and other assets of $156,918.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $393,194
and other liabilities of $50,453.
<F4>Total revenue includes rent of $2,359,208, gains on sales of real estate
of $19,097,127, equity in earnings of joint venture of $278,070 and other
revenues of $174,073.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
