UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 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 its charter)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of 40
PART I.
ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Income Partnership II,
L.P. (the "Partnership"), is a limited partnership formed in
September 1984 under the Uniform Limited Partnership Act of
the State of Delaware for the purpose of investing primarily
in income-producing office, industrial and retail
properties.
The Managing General Partner of the Partnership is Dean
Witter Realty Income Properties II Inc. (the "Managing
General Partner"), a Delaware corporation which is wholly-
owned by Dean Witter Realty Inc. ("Realty"). The Associate
General Partner is Dean Witter Realty Income Associates II,
L.P. (the "Associate General Partner"), a Delaware limited
partnership, the general partner of which is Dean Witter
Realty Income Associates II Inc., a wholly-owned subsidiary
of the Managing General Partner. The Managing General
Partner manages and controls all aspects of the business of
the Partnership. The terms of transactions between the
Partnership and its affiliates are set forth in Note 8 to
the Consolidated Financial Statements in Item 8 and in Item
13 below.
The Partnership issued 177,023 units of limited partnership
interest (the "Units") with gross proceeds from the offering
of $177,023,000. The offering has been terminated and no
additional Units will be sold.
The proceeds from the offering were used to make equity
investments in five office properties and three retail
properties which were acquired without mortgage debt. One
property was sold in fiscal 1993, one in fiscal 1996, two in
fiscal 1997, and one subsequent to fiscal year-end 1997.
The properties are described in Item 2 below.
The Partnership currently plans to market for sale its
remaining properties during fiscal 1998, with the objective
of completing sales of such properties by the end of 1998.
There is no assurance that the Partnership will be able to
achieve these objectives.
The Partnership considers its business to include one
industry segment, investment in real property. Financial
information regarding the Partnership is in the
Partnership's consolidated financial statements in Item 8
below.
The Partnership's real property investments are subject to
competition from similar types of properties in the
vicinities in which they are located. Further information
regarding competition and market conditions where the
Partnership's properties are located is set forth in Item 7,
"Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The Partnership has no employees.
All of the Partnership's business is conducted in the United
States.
ITEM 2. PROPERTIES
The Partnership's principal offices are located at Two World
Trade Center, New York, New York 10048. The Partnership has
no other offices.
As of October 31, 1997, the Partnership owned directly or
through a partnership interest the following four property
interests, none of which is encumbered by mortgage debt.
Generally, the leases pertaining to the properties provide
for pass-throughs to the tenants of their pro-rata share of
certain operating expenses. In the opinion of the Managing
General Partner, all of the properties are adequately
covered by insurance.
<TABLE>
<CAPTION>
Year Acquisition Net Rentable
Type of
Completed/ Cost Area
Ownership of Land
Property and Location Acquired ($000) (000 sq. ft.)
and Improvements
<C> <C> <C> <C> <C>
Framingham Corporate Center3 1984/1985,92 $16,073 166
95% general part-
Framingham, MA
Office building nership
interest1
Glenhardie Corporate Center 1979,82/1985 $17,792 126
Fee interest
I and II
Valley Forge, PA
Two office buildings
Pavilions at East Lake, 1986,1996/1986 $19,300 164
Fee interest
Atlanta, GA
Shopping center
Office building
Taxter Corporate Park 1987,88/1986,88 $7,659 345
14.8% general
Westchester county, NY
partnership
Two office buildings interest2
</TABLE>
1. The Managing General Partner owns the remaining 5%
general partnership interest.
2. Dean Witter Realty Income Partnership III, L.P. and Dean
Witter Realty Income Partnership IV, affiliates of the
Partnership, own the remaining 44.6% and 40.6% general
partnership interest, respectively.
3. Sold on December 3, 1997 (see Note 10 to the Consolidated
Financial Statements).
Each property was built with on-site parking facilities.
In fiscal 1997, the Partnership sold the United Services
Life Building located in Bellevue, Washington and the
Century Square office building located in Pasadena,
California. On December 3, 1997, the Partnership sold the
Framingham Corporate Center located in Framingham,
Massachusetts.
An affiliate of the Partnership is the property manager for
Taxter Corporate Park, Framingham Corporate Center and the
co-property manager for the Glenhardie Corporate Center.
Further information relating to the Partnership's properties
is included in Item 7 and footnotes 4, 5 and 6 to the
consolidated financial statements included in Item 8 below.
ITEM 3. LEGAL PROCEEDINGS
On December 27, 1995, a purported class action lawsuit (the
"Grigsby Action") naming various public real estate
partnerships sponsored by Realty (including the Partnership
and its Managing General Partner and Associate General
Partner), Realty, Dean Witter Reynolds Inc. ("DWR") and
others as defendants was filed in Superior Court in
California. The complaint alleged fraud, negligent
misrepresentation, intentional and negligent breach of
fiduciary duty, unjust enrichment and related claims and
sought compensatory and punitive damages in unspecified
amounts and injunctive and other equitable relief. The
defendants removed the case to the United States District
Court for the Southern District of California. Pursuant to
an order of the U.S. District Court for the Southern
District of California entered May 24, 1996, the Grigsby
Action was transferred to the U.S. District Court for the
Southern District of New York.
On February 14, 1996, a purported class action lawsuit (the
"Schectman Action") naming various public real estate
partnerships sponsored by Realty (including the Partnership
and its Managing General Partner), Realty, Dean Witter,
Discover & Co. ("DWD") and DWR as defendants was filed in
the Chancery Court of Delaware for New Castle County (the
"Delaware Chancery Court"). On February 23, 1996, a
purported class action lawsuit (the "Dosky Action") naming
various public real estate partnerships sponsored by Realty
(including the Partnership and its Managing General
Partner), Realty, DWD, DWR and others as defendants was
filed in the Delaware Chancery Court. On February 29, 1996,
a purported class action lawsuit (the "Segal Action") naming
various public real estate partnerships sponsored by Realty
(including the Partnership and its Managing General
Partner), Realty, DWR, DWD and others as defendants was
filed in the Delaware Chancery Court. On March 13, 1996, a
purported class action lawsuit (the "Young Action") naming
the partnership, other unidentified limited partnerships,
DWD, DWR and others as defendants was filed in the Circuit
Court for Baltimore City in Baltimore, Maryland. The
defendants removed the Young Action to the United States
District Court for the District of Maryland.
Thereafter, the Schectman Action, the Dosky Action and the
Segal Action were consolidated in a single action (the
"Consolidated Action") in the Delaware Chancery Court. The
Young Action was dismissed without prejudice. The
plaintiffs in the Young Action and the Grigsby Action joined
the Consolidated Action. The Grigsby Action remains stayed
indefinitely subject to being reopened for good cause.
On October 7, 1996, the plaintiffs in the Consolidated
Action filed a First Consolidated and Amended Class Action
Complaint naming various public real estate partnerships
sponsored by Realty (including the Partnership and its
Managing General Partner), Realty, DWD, DWR and others as
defendants. This complaint alleges breach of fiduciary duty
and seeks an accounting of profits, compensatory damages in
an unspecified amount, possible liquidation of the
Partnership under a receiver's supervision and other
equitable relief. The defendants filed a motion to dismiss
this complaint on December 10, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year to a vote of Unit holders.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
An established public trading market for the Units does not
exist, and it is not anticipated that such a market will
develop in the future. Accordingly, information as to the
market value of a Unit at any given date is not available.
However, the Partnership does allow its limited partners
(the "Limited Partners") to transfer their Units if a
suitable buyer can be located.
As of January 5, 1998, there were 25,322 holders of limited
partnership interests.
The Partnership is a limited partnership and, accordingly,
does not pay dividends. It does, however, make quarterly
distributions of cash to its partners. Pursuant to the
partnership agreement, distributable cash, as defined, is
paid 90% to the Limited Partners and 10% to the general
partners (the "General Partners").
The Partnership paid cash distributions during the year
ended October 31, 1997 aggregating $390.23 per Unit
(including $356.04 per Unit from proceeds from the sales of
the United Services and Century Square properties). Total
distributions amounted to $69,752,177, with $69,079,686
distributed to the Limited Partners and $672,491 distributed
to the General Partners. The distributions of proceeds of
the sales of the United Services and Century Square
properties was paid 100% to the Limited Partners. The
Partnership paid quarterly cash distributions during the
year ended October 31, 1996 aggregating $99.24 per Unit
(including $60.65 per Unit from the proceeds from the sale
of the Wallkill Plaza property). Total distributions
amounted to $18,326,385, with $17,567,356 distributed to the
Limited Partners and $759,029 distributed to the General
Partners. The distribution from the proceeds of the sale of
the Wallkill Plaza shopping center was paid 100% to the
Limited Partners.
On November 25, 1997, the Partnership paid a 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.
On December 23, 1997 the Partnership paid a cash
distribution of $143.16 per Unit of proceeds from the sale
of Framingham Corporate Center. The distribution aggregated
$25,342,613 and was paid entirely to the Limited Partners.
The Partnership anticipates making regular distributions to
its partners in the future. Future cash distribution levels
will fluctuate based on cash flow generated by the
Partnership's remaining properties and proceeds received
from property sales.
Sale or financing proceeds will be distributed, to the
extent available, first, to each Limited Partner, until
there has been a return of the Limited Partner's capital
contribution plus cumulative distributions of distributable
cash and sale or financing proceeds in an amount sufficient
to provide a 9% cumulative annual return on the Limited
Partner's adjusted capital contribution. Thereafter, any
remaining sale or financing proceeds will be distributed 85%
to the Limited Partners and 15% to the General Partners
after the Managing General Partner receives a brokerage fee,
if earned, of up to 3% of the selling price of any equity
investment.
Taxable income generally is allocated in the same
proportions as distributions of distributable cash or sale
or financing proceeds (except that the General Partners must
be allocated at least 1% of taxable income from sales or
financings). In the event there is no distributable cash or
sale or financing proceeds, taxable income is allocated 90%
to the Limited Partners and 10% to the General Partners.
Any tax loss will be allocated 90% to the Limited Partners
and 10% to the General Partners.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial
data for the Partnership:
<TABLE>
<CAPTION>
For the years ended October 31,
19971 1996 1995 1994
1993
<S> <C> <C> <C> <C> <C>
Total revenues $29,219,973 $ 17,414,607 $
18,474,708 $ 18,995,554 $ 15,392,848
Net income (loss) $19,021,129 $ (7,812,706)2 $
(1,079,686)3 $ 3,961,466 $ 747,5524
Net income (loss)
per Unit of
limited partner-
ship interest $ 105.21 $ (39.72) $
(8.25) $ 20.14 $ 4.25
Cash distributions5,6
paid per Unit of
limited partner-
ship interest $ 390.23 $ 99.24 $
40.00 $ 30.00 $ 29.52
Total assets at
October 31 $40,963,845 $100,319,056
$126,318,743 $138,218,448 $142,002,243
</TABLE>
1. Revenues and net income include $17.2 million
gains on sales of the United Services Life Building and
the Century Square office building. See Note 4 to the
Consolidated Financial Statements.
2. Includes $11.9 million loss on impairment
recorded for the Framinghanm Corporate Center, Glenhardie
Corporate Center I and II and Pavilions at East Lake
properties. See Note 4 to the Consolidated Financial
Statements.
3. Includes a $4.9 million write-down of real
estate held for sale. See Note 5 to the Consolidated
Financial Statements.
4. Includes a $0.8 million gain on sale of real
estate and a $4.1 million loss in joint venture equity
due to a writedown for impairment recorded at Taxter
Corporate Park.
5. Distributions paid to limited partners include
returns of capital per Unit of limited partnership
interest of $332.99, $99.24, $40.00, $9.86 and $21.64 for
the years ended October 31, 1997, 1996, 1995,
1994, and 1993, respectively, calculated as the excess of
cash distributed per Unit over accumulated earnings
per Unit not previously distributed.
6. Include distributions of proceeds from sales of
real estate as follows: 1997 - $356.04;
1996 - $60.65; 1993 - $4.49.
ITEM 7. 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 and one sold in December 1997) on an all-cash
basis. The Partnership's acquisition program has been
completed. No additional investments are planned.
Limited speculative construction and the strong economy, low
unemployment and corporate growth continued to positively
impact the demand for office properties in 1997. In many
markets, tenant competition for a shrinking amount of office
space had a positive influence on rental rates and lease
terms. Capital has been readily available for investment
and financing of real estate. Investors, including
institutional, foreign and REIT investors, have been buying
office buildings in many markets. In fiscal 1997, the
office markets in which Framingham Corporate Center and
Glenhardie Corporate Center I and II are located have
improved and occupancy levels at these properties have been
high. The Partnership marketed the Framingham property for
sale during the fourth quarter of fiscal 1997 and sold it at
the beginning of fiscal 1998 and is currently marketing for
sale the Glenhardie property. 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.
In the retail sector, consolidation among retailers
continued to lessen the demand for retail space and exert
downward pressure on rents in many markets. Despite the
oversupply of retail space, new projects are being built and
planned, although the pace of new construction has slowed
considerably. Many outdated properties are being
redeveloped in order to compete with newer retail
properties. At the Partnership's retail property, Pavilions
at East Lake, re-development is complete. The Partnership
is marketing the vacant retail space at this center, 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. The Partnership's
aggregate cash flow from operations from the property was
approximately $2,800,000 in 1996 and $900,000 in 1997.
The Century Square office building was sold on April 10,
1997. See Note 5 to the consolidated financial statements.
In accordance with the provisions of the Partnership
Agreement, the Partnership's share of the net sales
proceeds, approximately $30.6 million ($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
$1,550,000 in 1997.
The Partnership sold the Framingham office property in
December 1997 and is currently marketing for sale the
Glenhardie office property. The Managing General Partner
plans to market for sale 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 cash flow from
operations of its properties and expenditures for building
improvements and tenant improvements and leasing commissions
in connection with the leasing of space. During the year
ended October 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 fiscal 1998.
In addition, the Partnership's liquidity has been and will
continue to be affected by the sale of Partnership
properties. As properties are sold, Partnership cash from
operations available for distribution has declined and will
continue to decline. 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
beginning with the third quarter distribution paid in August
1997. As a result of the absence of operating cash flows
from the Framingham property, the Partnership will further
decrease quarterly cash distributions in fiscal 1998.
Future cash distribution levels will fluctuate based on cash
flow generated by the Partnership's remaining properties and
proceeds received from future property sales.
During the year ended October 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 which
the MGP determined were in excess of the Partnership's
needs. The Partnership believes remaining cash reserves will
be sufficient for its future needs.
During the year ended October 31, 1997, the Partnership
incurred approximately $1,202,000 of building improvements,
tenant improvements and leasing commissions (net of capital
contributions by minority interest), including approximately
$735,000 in tenant-related capital expenditures at the
Glenhardie office property.
As of October 31, 1997, the Partnership has commitments to
fund capital expenditures of approximately $1,920,000,
primarily for tenant-related capital expenditures at the
Glenhardie property. These expenditures will be funded from
cash from operations, cash reserves and proceeds from future
property sales.
On November 25, 1997, the Partnership paid the fourth
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.
On December 3, the Partnership distributed approximately
$25.3 million ($143.16 per Unit) from the sale of the
Framingham property, entirety to Limited Partners.
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.
Operations
Fluctuations in the Partnership's operating results for the
year ended October 31, 1997 compared to 1996 and for the
year ended October 31, 1996 compared to 1995 are primarily
attributable to the following:
Rental revenue decreased at the Century Square and United
Services Life properties in 1997 compared to 1996 by
approximately $5.9 million due to the sales of these
properties (the "1997 Properties Sold") in February and
April, respectively. This decrease was offset primarily by
higher rental income of approximately $570,000 at the
Framingham property due to rent and occupancy increases and
approximately $620,000, at Pavilions at East Lake due to the
occupancy by Kroger during all of 1997. Rental revenue
decreased in 1996 compared to 1995 by approximately
$1,673,000 because of the sale of Wallkill Plaza, and by
approximately $518,000 because the lease of A&P, a major
anchor at Pavilions at East Lake, terminated in December
1995. These decreases were partially offset by higher
rental income at the Partnership's other properties; no
individual property accounted for a material increase.
The gain on sales of real estate in 1997 is due to the sales
of the 1997 Properties Sold.
Interest and other income decreased by approximately
$510,000 during 1997 compared to 1996 due to the absence in
1997 of a)interest earned 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 1997 Properties
Sold until such proceeds were distributed to Limited
Partners in March and May 1997.
Property operating expenses decreased primarily due to the
elimination of expenses relating to the 1997 Properties
Sold. Property operating expenses decreased in 1996
compared to 1995 primarily due to the absence of Wallkill
Plaza operating expenses.
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. See note 4 to
the consolidated financial statements.
Depreciation and amortization decreased by approximately
$2,810,000 and $230,000, respectively, in 1997 compared to
1996 primarily due to the absence of depreciation and
amortization on the 1997 Properties Sold, and due to lower
depreciation on the Framingham Corporate Center, resulting
primarily from major tenant improvements becoming fully
depreciated in 1996 and the writedown of this property in
1996. Depreciation decreased in 1996 compared to 1995 by
approximately $444,000 because of the sale of Wallkill Plaza
and by $508,000 due to lower depreciation charges at
Framingham Corporate Center, Glenhardie Corporate Center I
and II and Pavilions at East Lake due to the writedown of
these properties in January 1996.
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, approximated 5% in fiscal 1997.
Expansion by engineering, software, financial consulting and
health care companies fueled demand for office space in this
area, and rental rates in the market and at the property
increased throughout the year. During 1997, average
occupancy at the property was 97%, and at October 31, 1997,
occupancy was 100%, compared to 97% at the prior fiscal year-
end. The property was sold in December 1997.
The overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park decreased from 24% to 17% in 1997. The
vacancy level in the west Westchester market in which the
building is located is currently 11%, reflecting a 4%
absorption in fiscal 1997 over the prior year. During 1997,
average occupancy at the property was approximately 99%, and
at October 31, 1997, the property was 100% occupied. The
property is leased to 21 tenants. KLM Royal Dutch Airlines
owns a long-term leasehold in approximately 20% of the space
at the property. Leases aggregating approximately 15% of
the property's space expire in fiscal 1999. The lease of
Fuji Photo Film (for approximately 28% of the property's
space) expires in fiscal 2001. No other tenants occupy more
than 10% of the property.
The vacancy rate in Valley Forge, Pennsylvania, the location
of Glenhardie Corporate Center, decreased from 16% to 11% in
1997 in an improving office market with increasing demand.
During 1997, average occupancy at the property was 96%
compared to 98% in 1996, and at October 31, 1997, occupancy
at the property was 100%, as it was at October 31, 1996.
The property is occupied by eleven tenants. The leases of
Sungard Data Systems (for approximately 35% of the
property's space), Allstate Insurance Company (for
approximately 18% of the space) and Stevens and Lee (for
approximately 10% of the space) expire in 1998, 2002 and
2002, respectively. No other tenants occupy more than 10%
of the property. Leases on approximately 44% of the
property's space expire in 1998.
The Pavilions at East Lake shopping center is located in a
suburb of Atlanta which currently has a vacancy rate of 5%.
During 1997, average occupancy at the property was 78%. At
October 31, 1997, occupancy at the property was 74% vs. 73%
at October 31, 1996. The property is occupied by 34
tenants. In October 1996, Kroger moved into its newly
constructed space (which comprises approximately 39% of the
property's space). Shopper traffic has increased at the
property as a result of the new lease with Kroger, and
Kroger's presence at the property enabled the Partnership to
increase rental rates on leases completed during 1997. No
other tenants occupy more than 10% of the property. No
leases on significant amounts of space expire until 2002.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
INDEX
Page
(a) Financial Statements
Independent Auditors' Report 16
Consolidated Balance Sheets at October 31, 1997 and 1996 17
Consolidated Statements of Operations for the years ended
October 31, 1997, 1996 and 1995 18
Consolidated Statements of Partners' Capital for the
years ended October 31, 1997, 1996 and 1995 19
Consolidated Statements of Cash Flows for the years
ended October 31, 1997, 1996 and 1995 20-21
Notes to Consolidated Financial Statements 22-32
(b) Financial Statement Schedule
Real Estate and Accumulated Depreciation III 39-40
All schedules other than that indicated above have been
omitted because either the required information is not
applicable or the information is shown in the consolidated
financial statements or notes thereto.
Independent Auditors' Report
To The Partners of
Dean Witter Realty Income Partnership II, L.P.:
We have audited the accompanying consolidated balance
sheets of Dean Witter Realty Income Partnership II,
L.P. and consolidated partnerships (the "Partnership")
as of October 31, 1997 and 1996 and the related
consolidated statements of operations, partners'
capital, and cash flows for each of the three years in
the period ended October 31, 1997. Our audits also
included the financial statement schedule listed in the
Index at Item 8. These financial statements and
financial statement schedule are the responsibility of
the Partnership's management. Our responsibility is to
express an opinion on the financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Dean Witter Realty Income Partnership II,
L.P. and consolidated partnerships as of October 31,
1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the
period ended October 31, 1997 in conformity with
generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when
considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly
in all material respects the information set forth
therein.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
January 16, 1998
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 31,
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,741,456 $
3,193,852
Real estate:
Land 3,545,300
11,803,399
Buildings and improvements 30,377,786
94,143,130
33,923,086
105,946,529
Accumulated depreciation 12,757,533
38,964,769
21,165,553
66,981,760
Real estate held for sale 13,506,748
22,417,670
Investment in joint venture 2,572,800
2,694,918
Deferred leasing commissions, net 628,834
2,185,691
Other assets 1,348,454
2,845,165
$40,963,845
$100,319,056
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 940,489 $
1,121,405
Security deposits 173,057
192,459
Minority interest in joint venture - 8,423,845
1,113,546
9,737,709
Partners' capital (deficiency)
General partners (5,353,586)
(5,078,043)
Limited partners ($1,000 per Unit, 177,023 units)
issued) 45,203,885
95,659,390
Total partners' capital 39,850,299
90,581,347
$40,963,845
$100,319,056
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1997, 1996 and 1995
<CAPTION>
1997 1996
1995
<S> <C> <C> <C>
Revenues:
Rental $11,331,966
$16,206,557 $17,249,584
Gains on sales of real estate 17,232,823 -
- -
Equity in earnings of joint venture 209,663
250,109 306,711
Interest and other 445,521
957,941 918,413
29,219,973
17,414,607 18,474,708
Expenses:
Property operating 4,483,709
6,459,867 6,803,324
Depreciation 2,204,761
5,011,419 6,053,280
Amortization 310,960
537,220 611,819
General and administrative 715,929
759,445 725,508
Loss on impairment of real estate - 11,870,000
- -
Loss on write-down of real estate held
for sale - -
4,886,200
7,715,359
24,637,951 19,080,131
Income (loss) before minority interest 21,504,614
(7,223,344) (605,423)
Minority interest 2,483,485
589,362 474,263
Net income (loss) $19,021,129
$(7,812,706) $(1,079,686)
Net income (loss) allocated to:
Limited partners $18,624,181
$(7,031,435) $(1,460,337)
General partners 396,948
(781,271) 380,651
$19,021,129
$(7,812,706) $(1,079,686)
Net income (loss) per Unit of limited
partnership interest $ 105.21 $
(39.72) $ (8.25)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the years ended October 31, 1997, 1996 and 1995
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency) at
October 31, 1994 $128,799,438
$(3,131,626) $125,667,812
Net (loss ) income (1,460,337)
380,651 (1,079,686)
Cash distributions (7,080,920)
(786,768) (7,867,688)
Partners' capital (deficiency) at
October 31, 1995 120,258,181
(3,537,743) 116,720,438
Net loss (7,031,435)
(781,271) (7,812,706)
Cash distributions (17,567,356)
(759,029) (18,326,385)
Partners' capital (deficiency) at
October 31, 1996 95,659,390
(5,078,043) 90,581,347
Net income 18,624,181
396,948 19,021,129
Cash distributions (69,079,686)
(672,491) (69,752,177)
Partners' capital (deficiency) at
October 31, 1997 $ 45,203,885
$(5,353,586) $ 39,850,299
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 19,021,129 $
(7,812,706) $ (1,079,686)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 2,204,761
5,011,419 6,053,280
Amortization 310,960
537,220 611,819
Loss on impairment of real estate -
11,870,000 -
Loss on write-down of real estate held
for sale - -
4,886,200
Minority interest in joint venture's
operations 2,509,698
589,362 474,263
Gains on sales of real estate (17,232,823) -
- -
Equity in earnings of Taxter joint
venture (209,663)
(250,109) (306,711)
(Increase) decrease in operating assets:
Deferred leasing commissions (196,316)
(713,636) (1,299,609)
Other assets (89,219)
372,484 519,000
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(113,856) 406,464
(25,742)
Security deposits 21,330
(64,299) (14,573)
Net cash provided by operating
activities 6,226,001
9,946,199 9,818,241
Cash flows from investing activities:
Additions to real estate (934,688)
(6,112,900) (1,287,837)
Distributions from Taxter joint venture 408,903
349,775 502,174
Investment in Taxter joint venture (77,122)
(64,009) (166,691)
Proceeds from sales of real estate 73,610,230
10,769,096 -
Minority interest in proceeds from sale
of real estate (10,446,817) -
- -
Net cash provided by (used in)
investing activities 62,560,506
4,941,962 (952,354)
(continued)
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1997, 1996 and 1995
(continued)
<CAPTION>
1997 1996 1995
<S> <C> <C>
<C>
Cash flows from financing activities:
Cash distributions to partners (69,752,177)
(18,326,385) (7,867,688)
Additional investment by minority interest 5,559
130,576 387,503
Minority interest in joint venture's
distributions (492,285)
(922,699) (989,365)
Repayment of deferred distribution - -
(2,784,417)
Net cash used in financing activities (70,238,903)
(19,118,508) (11,253,967)
Decrease in cash and cash equivalents (1,452,396)
(4,230,347) (2,388,080)
Cash and cash equivalents at beginning of year
3,193,852 7,424,199
9,812,279
Cash and cash equivalents at end of year $ 1,741,456 $
3,193,852 $ 7,424,199
Supplemental disclosure of non-cash
investing activities:
Reclassification of real estate held
for sale:
Land $ 1,829,099 $
2,831,536 $ 2,300,000
Buildings and improvements 26,370,585
31,438,921 17,397,188
Accumulated depreciation (14,692,936)
(11,852,787) (4,041,892)
Loss on write-down of real estate
held for sale - -
(4,886,200)
Real estate held for sale $ 13,506,748 $
22,417,670 $ 10,769,096
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997, 1996 and 1995
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 is
managed by Dean Witter Realty Income Properties II Inc. (the
"Managing General Partner"). The Partnership's fiscal year
ends on October 31.
In 1985, the Partnership issued 177,023 units of limited
partnership interest (the "Units") for $177,023,000. No
additional Units will be sold. The proceeds of the offering
were used to make equity investments in income-producing
office and retail properties which were not encumbered by
debt when acquired.
2. Summary of Significant Accounting Policies
The financial statements include the accounts of the
Partnership and the Century Square and Framingham Corporate
Center joint ventures on a consolidated basis. The
Partnership owns a 75% general partnership interest in
Century Square; an affiliate of the partnership, Dean Witter
Realty Income Partnership I, L.P., owns the remaining 25%
general partnership interest. The Partnership owns a 95%
general partnership interest in Framingham Corporate Center;
the Managing General Partner owns the remaining 5% interest.
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. Affiliates of the Partnership,
Dean Witter Realty Income Partnership III, L.P. and Dean
Witter Realty Income Partnership IV, L.P. own the remaining
44.6% and 40.6% general partnership interests, respectively,
in the Taxter Corporate Park property.
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
purposes. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents consist of cash and highly liquid
investments with maturities, when purchased, of three months
or less.
The carrying value of real estate includes the purchase
price paid by the Partnership and acquisition fees and
expenses. Costs of improvements to the properties are
capitalized, and repairs are expensed. Depreciation is
recorded on the straight-line method. The Partnership stops
recording depreciation on a property when it is reclassified
as held for sale.
At least annually, and more often if circumstances dictate,
the Partnership evaluates the recoverability of the net
carrying value of its real estate and any related assets.
As part of this evaluation, the Partnership assesses, among
other things, whether there has been a significant decrease
in the market value of any of its properties. If events or
circumstances indicate that the net carrying value of a
property may not be recoverable, the expected future net
cash flows from the property are estimated for a period of
approximately five years (or a shorter period if the
Partnership expects that the property may be disposed of
sooner), along with estimated sales proceeds at the end of
the period. If the total of these future undiscounted cash
flows were less than the carrying amount of the property,
the property would be written down to its fair value as
determined (in some cases with the assistance of outside
real estate consultants) based on discounted cash flows, and
a loss on impairment recognized by a charge to earnings.
The Partnership's accounting policy complies with Statement
of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of".
Because the determination of fair value is based upon
projections of future economic events such as property
occupancy rates, rental rates, operating cost inflation and
market capitalization rates which are inherently subjective,
the amounts ultimately realized at disposition may differ
materially from the net carrying values as of October 31,
1997.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cash flows used to evaluate the recoverability of the
properties and to determine fair value are based on good
faith estimates and assumptions developed by the Managing
General Partner. Unanticipated events and circumstances may
occur and some assumptions may not materialize; therefore
actual results may vary from the estimates and the variances
may be material. The Partnership may provide additional
write-downs which could be material in subsequent years if
real estate markets or local economic conditions change.
Deferred leasing commissions are amortized over the
applicable lease terms.
Rental income is accrued on a straight-line basis over the
terms of the leases. Accruals in excess of amounts payable
by tenants pursuant to their leases (resulting from rent
concessions or rents which periodically increase over the
term of a lease) are recorded as receivables and included in
other assets.
Net income (loss) per Unit 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.
No provision for income taxes has been made in the financial
statements, since the liability for such taxes is that of
the partners rather than the Partnership.
For income tax purposes, Partnership results are reported
for the calendar year. The accounting policies used for tax
reporting purposes differ from those used for financial
reporting as follows: (a) depreciation is calculated using
accelerated methods, (b) rental income is recognized based
on the payment terms in the applicable leases, and (c)
writedowns for impairment of real estate are not deductible.
In addition, offering costs are treated differently for tax
and financial reporting purposes. The tax basis of the
Partnership's assets and liabilities is approximately $21
million higher than the amounts reported for financial
statement purposes.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Financial Accounting Standards Board has recently issued
several new accounting pronouncements. Statement No. 128,
"Earnings per Share" establishes standards for computing and
presenting earnings per share, and Statement No. 129,
"Disclosure of Information about Capital Structure"
establishes standards for disclosing information about an
entity's capital structure. These two standards will be
effective for the Partnership's 1998 year-end financial
statements. Statement No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of
comprehensive income and its components. Statements No.
131, "Disclosures about Segments of an Enterprise and
Related Information" establishes standards for the way that
public business enterprises report information about
operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports issued
to shareholders. It also establishes standards for related
disclosure about products and services, geographic areas,
and major customers. These two standards are effective for
the Partnership's 1999 financial statements.
Management of the Partnership does not believe that these
new standards will have any effect on the Partnership's
computation or presentation of net income or net income per
unit of limited partnership interest, or its disclosures of
capital structure, or other disclosures.
3. Partnership Agreement
The Partnership Agreement provides that distributable cash,
as defined, is paid 90% to the Limited Partners and 10% to
the General Partners.
Sale or financing proceeds will be distributed, to the
extent available, first, to each Limited Partner, until
there has been a return of the Limited Partner's capital
contribution plus cumulative distributions of distributable
cash and sale or financing proceeds in an amount sufficient
to provide a 9% cumulative annual return on the Limited
Partner's adjusted capital contribution. Thereafter, any
remaining sale or financing proceeds will be distributed 85%
to the Limited Partners and 15% to the General Partners
after the Managing General Partner receives a brokerage fee,
if earned, of up to 3% of the selling price of any equity
investment.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxable income generally is allocated in the same
proportions as distributions of distributable cash or sale
or financing proceeds (except that the General Partner must
be allocated at least 1% of taxable income from sales or
financings). In the event there is no distributable cash or
sale or financing proceeds, taxable income will be allocated
90% to the Limited Partners and 10% to the General Partners.
Any tax loss will be allocated 90% to the Limited Partners
and 10% to the General Partners.
Distributions paid to limited partners include returns of
capital per Unit of limited partnership interest of $332.99,
$99.24 and $40.00 for the years ended October 31, 1997, 1996
and 1995, respectively, calculated as the excess of cash
distributed per Unit over accumulated earnings per Unit not
previously distributed.
4. Real Estate Investments
The locations, years of acquisition and net carrying values
of the properties are as follows:
<TABLE>
<CAPTION>
Carrying Value
at
Year of October 31,
Property Acquisition 1997 1996
<S> <C> <C> <C>
Glenhardie I and II,
Valley Forge, PA 1985 $10,644,395
$10,559,394
Pavilions at East Lake,
Atlanta, GA 1986 10,521,158
10,925,704
Century Square, Pasadena, CA 1985
- - 31,312,446
(see Note 5)
Framingham Corporate Center,
Framingham, MA (see Note 10) 1985
- - 14,184,216
$21,165,553
$66,981,760
</TABLE>
The net carrying value of the Framingham Corporate Center
was reclassified to Real Estate Held for Sale in the fourth
quarter of 1997.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the first quarter of fiscal 1996, in accordance with the
impairment evaluation policy described in Note 2, the
Partnership evaluated the recoverability of its investments
in real estate and concluded that, based on revised
expectations as to the holding periods of the properties,
the Partnership would be unable to recover its investments
in the Framingham Corporate Center, Glenhardie Corporate
Center I and II and Pavilions at East Lake properties.
Accordingly, the Partnership wrote these properties down to
their estimated fair values (based on independent
appraisals) and recorded losses on impairment of $2,323,000,
$3,550,000 and $5,997,000, respectively.
5. Sales of Real Estate
In February 1997, the Partnership sold the United Services
Life property to an unaffiliated party for $33,750,000. The
proceeds from the sale, net of closing costs, of
approximately $32,400,000 were distributed 100% to the
Limited Partners in March 1997, representing a return of
capital of $183 per Unit.
On April 10, 1997, the Century Square joint venture sold the
Century Square property to an unaffiliated party 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 the joint
venture, net of closing costs. The net proceeds from the
sale were distributed 100% to Limited Partners in May 1997
($173.04 per Unit) representing a return of capital.
Aggregate net income and cash flow, excluding the gains on
sales of the properties, was approximately $1,800,000 and
$2,100,000, respectively, from the United Services Life and
Century Square properties in 1997.
In October 1995, the Partnership entered into an agreement
to sell the Wallkill Plaza shopping center to an
unaffiliated party for approximately $12.2 million. As part
of the agreement, two affiliated partnerships, Dean Witter
Realty Income Partnership III, L.P. and Dean Witter Realty
Yield Plus L.P., also agreed to sell certain shopping
centers owned by them.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The closing of the sale of the Wallkill Plaza shopping
center took place on December 11, 1995.
At closing, a contingent promissory note for $1.2 million of
the purchase price was issued by the purchaser to the
Partnership. A portion of the space in the Wallkill Plaza
Shopping Center is leased to The Stop & Shop Companies, Inc.
("S&S") and assigned to Bradlees, which is in bankruptcy.
If, in the bankruptcy proceedings, the lease is assumed by
Bradlees, the note will be payable in full, plus interest at
4.5%. If, at December 11, 2000, the lease has neither been
assumed nor rejected nor deemed rejected by Bradlees, an
amount equal to one half of the promissory note, plus
interest on such half will be payable, and the remaining
amount of the promissory note will be forgiven. If the
lease is rejected or deemed rejected by Bradlees but, until
December 11, 2000, S&S makes all payments due under the
lease, the note will be payable in full, plus interest. If,
however, the lease is rejected or deemed rejected by
Bradlees and S&S does not make all payments due under the
lease during the five-year period ending December 11, 2005,
the promissory note will be forgiven and the Purchaser shall
have no obligation to pay the Partnership any portion of the
$1.2 million.
Because of the sale, the net carrying value of the property
was reclassified to real estate held for sale at October 31,
1995, and its carrying value was reduced to approximately
$10.8 million, resulting in a loss of approximately $4.9
million. In accordance with the Partnership Agreement, 100%
of the loss was allocated to the Limited Partners in 1995.
The reduced carrying value represented the cash portion of
the sale price, net of closing costs. The portion of the
sale price represented by the $1.2 million promissory note
has not been recognized in revenue because of the
uncertainty of its realization.
The net income from the Wallkill Plaza Shopping Center
included in the Partnership's statement of operations in
fiscal 1995 was approximately $752,000.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Investment in Joint Venture
Taxter Corporate Park, Westchester County, New York
The Partnership owns a 14.8% general partnership interest in
the partnership which owns the property. Affiliates of the
Partnership, Dean Witter Realty Income Partnership III, L.P.
and Dean Witter Realty Income Partnership IV, L.P. purchased
the remaining 44.6% and 40.6% general partnership interests,
respectively.
The partners receive cash flow and profits and losses
according to their interests.
Summarized balance sheet information of the joint venture
are as follows:
<TABLE>
<CAPTION>
October 31,
1997 1996
<S> <C> <C>
Land and buildings, net $17,203,009 $17,781,234
Other 1,718,650 1,990,515
Total assets $18,921,659 $19,771,749
Liabilities $ 153,159 $ 176,478
Partners' capital 18,768,500 19,595,271
Total liabilities and capital $18,921,659 $19,771,749
</TABLE>
Summarized results of the operations of the joint venture
are as follows:
<TABLE> Years ended October 31,
1997 1996 1995
Rental income $5,511,684 $5,954,030
$6,267,312
Other income 181,367 43,394
92,483
5,693,051 5,997,424
6,359,795
Property operating expenses 3,111,753 3,111,267
3,168,141
Depreciation and amortization 1,164,659 1,196,229
1,119,284
4,276,412 4,307,496
4,287,425
Net income $1,416,639 $1,689,928
$2,072,370
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the Partnership's investment in joint venture is
as follows:
<CAPTION>
Years ended October 31,
1997 1996 1995
<S> <C> <C> <C>
Investment at beginning of year $2,694,918
$2,730,575 $2,759,347
Equity in earnings 209,663 250,109
306,711
Distributions (408,903)
(349,775) (502,174)
Additional investments 77,122 64,009
166,691
Investment at end of year $2,572,800 $2,694,918
$2,730,575
</TABLE>
The accounting policies of the joint venture are the same as
those of the Partnership.
7. Leases
Minimum future rental income under noncancellable operating
leases (excluding the leases of space at real estate held
for sale) as of October 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending October 31:
<S> <C>
1998 $ 2,793,624
1999 2,156,933
2000 2,018,704
2001 1,885,191
2002 1,036,173
Thereafter 7,407,094
Total $17,297,719
The Partnership has determined that all leases relating to
its properties are operating leases. The lease terms range
from one year to twenty years, and generally provide for
fixed minimum rents with rental escalation and/or expense
reimbursement clauses.
8. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for three properties in 1997
(subsequent to the sale of the Century Square property) and
four properties in 1996 and 1995. The Partnership paid the
affiliate management fees (included in property
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operating expenses) of approximately $193,000, $243,000 and
$296,000 for the years ended October 31, 1997, 1996 and
1995, respectively.
Another affiliate of the Managing General Partner performs
administrative functions and processes certain investor and
tax information on behalf of the Partnership. For the years
ended October 31, 1997, 1996 and 1995, the affiliate was
reimbursed approximately $396,000, $489,000 and $522,000,
respectively, for these services. These amounts have been
recorded in general and administrative expenses.
As of October 31, 1997, the affiliates were owed
approximately $166,000 for these services.
Through October 31, 1994, the General Partners had deferred
receipt of distributions to which they were entitled
totaling $2,784,417. Amounts deferred were charged against
partners' capital and recorded as liabilities to the General
Partners. In fiscal 1995, the Partnership repaid these
deferred distributions.
9. Litigation
Various public partnerships sponsored by Dean Witter Realty
Inc. (including the Partnership and its Managing General
Partner) are defendants in a number of class action lawsuits
pending in state and federal courts. The complaints allege
a variety of claims, including breach of fiduciary duty,
fraud, misrepresentation and related claims, and seek
compensatory and other damages and equitable relief. The
defendants intend to vigorously defend against these
actions. It is impossible to predict the effect, if any,
the outcome of these actions might have on the Partnership's
financial statements.
10. Subsequent Events
On November 25, 1997, the Partnership paid a 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 3, 1997, the Partnership sold the Framingham
Corporate Center to an unaffiliated party for $26.05
million. At closing, the Partnership received proceeds, net
of closing costs and other deductions, of approximately
$25.3 million. On December 23, 1997, the Partnership
distributed approximately $25.3 million ($143.16 per Unit)
of sale proceeds entirely to Limited Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership which has no
directors or officers.
The directors and executive officers of the Managing General
Partner are as follows:
Position with the
Name Managing General
Partner
William B. Smith Chairman of the Board of
Directors
E. Davisson Hardman, Jr. President and Director
Lawrence Volpe Controller and Director
Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the
next annual meeting of the shareholder of the Managing
General Partner or until their successors are elected and
qualify. Each of the executive officers has been elected to
serve until his successor is elected and qualifies.
William B. Smith, age 54, has been a Managing Director of
Morgan Stanley and co-head of Morgan Stanley Realty
Incorporated since 1997, and a Managing Director of Dean
Witter Realty Inc., which he joined in 1982. He is an
Executive Vice President of Dean Witter Reynolds Inc.
E. Davisson Hardman, Jr., age 48, has been a Managing
Director of Morgan Stanley Asia, Ltd. since 1997, and a
Managing Director of Dean Witter Realty Inc., which he
joined in 1982.
Lawrence Volpe, age 50, is a Director and the Controller of
Dean Witter Realty Inc. He is a Senior Vice President and
Controller of Dean Witter Reynolds Inc., which he joined in
1983.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Ronald T. Carman, age 46, is a Director and the Secretary of
Dean Witter Realty Inc. He is an Assistant Secretary of MWD
and a Senior Vice President and Associate General Counsel of
Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing
persons.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash
distributions, when and as cash distributions are made to
the Limited Partners, and a share of taxable income or tax
loss. Descriptions of such distributions and allocations
are in Item 5 above. The General Partners received cash
distributions of $672,491, $759,029 and $786,768 for the
years ended October 31, 1997, 1996 and 1995, respectively.
In fiscal 1995, the Partnership repaid $2,784,417 of
previously deferred distributions owed to the General
Partners.
The General Partners and their affiliates were paid certain
fees and reimbursed for certain expenses. Information
concerning such fees and reimbursements is contained in Note
8 to the consolidated financial statements in Item 8 above.
The directors and officers of the Partnership's Managing
General Partner received no remuneration from the
Partnership.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
(a) No person is known to the Partnership to be the
beneficial owner of more than five percent of the Units.
(b) The directors and executive officers of the Managing
General Partner own the following Units as of January 1,
1997:
(1) (2) (3)
Amount and
Title of Name of Nature of
Class Beneficial Owner Beneficial
Ownership
Limited All directors and executive *
Partnership officers of the Managing
Interests General Partner, as a group
* Own, by virtue of ownership of Limited Partnership
interests in the Associate General Partner, less than 1% of
the Units of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their being partners of a limited partnership
which is the limited partner of the Associate General
Partner, certain current and former officers and directors
of the Managing General Partner also own indirect general
partnership interests in the Partnership. The Partnership
Agreement of the Partnership provides that cash
distributions and allocations of income and loss to the
general partners be distributed or allocated 50% to the
Managing General Partner and 50% to the Associate General
Partner. The General Partners' share of cash distributions
and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the
Managing General Partner are owned by Realty, a Delaware
corporation which is a wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. The general partner of
the Associate General Partner is Dean Witter Realty Income
Associates II Inc., which is a wholly-owned subsidiary of
the Managing General Partner. The limited partner of the
Associate General Partner is LSA 84 II L.P., a Delaware
limited partnership. Realty and certain current and former
officers and directors of Realty are partners
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
of LSA 84 II L.P. Additional information with respect to
the directors and officers and compensation of the Managing
General Partner and affiliates is contained in Items 10 and
11 above.
The General Partners and their affiliates were paid certain
fees and reimbursed for certain expenses. Information
concerning such fees and reimbursements is contained in Note
8 to the Consolidated Financial Statements in Item 8 above.
The Partnership believes that the payment of fees and the
reimbursement of expenses to the General Partners and their
affiliates are on terms as favorable as would be obtained
from unrelated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this
Annual Report:
1. Financial Statements (see Index to Financial
Statements filed as part of Item 8 of this Annual
Report).
2. Financial Statement Schedules (see Index to
Financial Statements filed as part of Item 8 of this
Annual Report).
3. Exhibits
(3)(a) Amended and Restated Agreement of
Limited Partnership dated as of September 6,
1984 set forth in Exhibit A to the Prospectus
included in Registration Statement Number
2-93207 is incorporated herein by reference.
(b) Certificate of Limited
Partnership included in Registration Statement
Number 2-93207 is incorporated herein by
reference.
(4)(a) Amended and Restated Agreement of
Limited Partnership dated as of September 6,
1984 set forth in Exhibit A to the Prospectus
included in Registration Statement Number
2-93207 is incorporated herein by reference.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
(b) Certificate of Limited
Partnership included in Registration Statement
Number 2-93207 is incorporated herein by
reference.
(10)(a) Purchase and Sale Agreements for
properties purchased were filed as Exhibits to
Form 8-K on May 24, 1985, July 15, 1985, October
29, 1985, November 15, 1985, February 27, 1986,
August 29, 1986, September 4, 1986, December 18,
1986 and December 30, 1986 and are incorporated
herein by reference.
(b) Purchase and Sale Agreement,
dated as of October 19, 1995, between Dean
Witter Income Partnership II, L.P., Midway
Crossing Limited Partnership, Dean Witter Income
Partnership III, L.P., Genesee Crossing Limited
Partnership, Farmington/9 Mile Associates, a
Michigan Limited Partnership, Hampton Crossing
Associates, Rochester Hills Limited Partnership,
Dean Witter Realty Yield Plus, L.P. and New Plan
Realty Trust (including Exhibit J thereto) was
filed as an exhibit to Form 8-K on December 11,
1995 and is incorporated herein by reference.
(c) First Amendment to Purchase and
Sale Agreement, dated as of October 19, 1995,
between Dean Witter Income Partnership II, L.P.,
Midway Crossing Limited Partnership, Dean Witter
Income Partnership III, L.P., Genesee Crossing
Limited Partnership, Farmington/9 Mile
Associates, a Michigan Limited Partnership,
Hampton Crossing Associates, Rochester Hills
Limited Partnership, Dean Witter Realty Yield
Plus, L.P. and New Plan Realty Trust was filed
as an exhibit to Form 8-K on December 11, 1995
and is incorporated herein by reference.
(d) Purchase and Sale Agreement dated
as of December 19, 1996, between Dean Witter
Realty Income Partnership II, L.P., a Delaware
limited partnership, as Seller and Office
Opportunity Fund III, a California limited
partnership, as Purchaser was filed as an
Exhibit to Form 8-K on February 27, 1997 and is
incorporated herein by reference.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
(e) Purchase and Sale Agreement,
dated as of February 28, 1997, between Century
Square Venture, a California general
partnership, as Seller and Speiker Properties,
L.P., a California limited partnership, as
Purchaser was filed as an Exhibit to Form 8-K on
April 10, 1997 and is incorporated herein by
reference.
(f) Purchase and Sale Agreement,
dated as of October 22, 1997, between Framingham
Corporate Center Limited Partnership as Seller
and Massachusetts Mutual Life Insurance Company
as Purchaser was filed as an Exhibit to Form 8-K
on December 18, 1997 and is incorporated herein
by reference.
(21) Subsidiaries: Century Square Venture,
a California general partnership; Framingham
Corporate Center LP, a Massachusetts limited
partnership.
(27) Financial Data Schedule.
(b)Reports on Form 8-K -
No Forms 8-K were filed by the Partnership during the
last quarter of the period covered by this report.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
SCHEDULE III
Real Estate and Accumulated Depreciation
<CAPTION>
October 31, 1997
Initial cost to Partnership
[WILL CHANGE]
Costs
Capital-
ized
Subsequent
Description Land Improvements Total
To Acquisition
<S> <C> <C> <C> <C>
Office Building
Framingham, MA $ 2,061,399 $21,369,446
$23,430,845 $ 7,091,839
Office Buildings
Valley Forge, PA 2,000,000 16,534,152
18,534,152 4,124,266
Office Building
Pasadena, CA 6,429,000 33,907,000
40,336,000 4,422,447
Shopping Center
Atlanta, GA 2,500,000 13,858,607
16,358,607 4,453,060
$12,990,399 $85,669,205
$98,659,604 $20,091,612
Gross Amount at which
Carried at End of Period
(A)
Building and
Description Reductions Land
Improvements Total
Office Building
Framingham, MA $ (2,323,000)1 $ $ $
(28,199,684)2 - -
- -
Office Buildings
Valley Forge, PA (3,550,000)1 1,645,000
17,463,418 19,108,418
Office Buildings
Pasadena, CA (44,758,447)3 - -
- -
Shopping Center
Atlanta, GA (5,997,000)1 1,900,300 12,914,367
14,814,667
$(84,828,131) $3,545,300 $30,377,785
$33,923,085
</TABLE>
1. Loss on impairment of real estate.
2. Reclassified to real estate held for sale.
3. Real estate sold during year.
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
SCHEDULE III (continued)
<CAPTION>
Life on
which
Depreciation in
Latest
Income
Accumulated Date of Statement
is
Description Depreciation (B) Construction Date
Acquired Computed
<S> <C> <C> <C> <C>
Office Buildings
Valley Forge, PA $ 8,464,024 1979 July
1985 5-40 years
1982 November 1985
Shopping Center
Atlanta, GA 4,293,509 1986 December
1986 5-40 years
$12,757,533
</TABLE>
Notes:
(A)Reconciliation of real estate owned at October 31:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $105,946,529
$145,974,086$164,357,368
Additions (deletions) during period:
Improvements 934,687
6,112,900 1,314,951
Cost recovery on capital
improvements - -
(27,114)
Loss on impairment of real
estate - (11,870,000)
-
Reclassified to real estate
held for sale (28,199,684)
(34,270,457) (19,671,119)
Real estate sold (44,758,447)
- -
Balance at end of period $ 33,923,085
$105,946,529$145,974,086
</TABLE>
(B) Reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $ 38,964,769 $
45,806,137 $ 43,775,258
Additions (deletions) during
period:
Depreciation expense 2,204,761
5,011,419 6,053,280
Reclassified to real estate
held for sale (2,840,149)
(7,830,386) (4,022,401)
Real estate sold (25,571,848)
(4,022,401) -
Balance end of period $ 12,757,533 $
38,964,769 $ 45,806,137
</TABLE>
There is no difference between cost for financial reporting
purposes and cost for federal income tax purpose.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
By: Dean Witter Realty Income Properties II Inc.
Managing General Partner
By: /s/E. Davisson Hardman, Jr. Date: January
28, 1998
E. Davisson Hardman, Jr.
President
By: /s/Lawrence Volpe Date: January
28, 1998
Lawrence Volpe
Controller
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
DEAN WITTER REALTY INCOME PROPERTIES II INC.
Managing General Partner
/s/William B. Smith Date: January
28, 1998
William B. Smith
Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date: January
28, 1998
E. Davisson Hardman, Jr.
Director
/s/Lawrence Volpe Date: January
28, 1998
Lawrence Volpe
Director
/s/Ronald T. Carman Date: January
28, 1998
Ronald T. Carman
Director
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Year Ended October 31, 1997
Exhibit Index
Exhibit
No. Description
27 Financial Data Schedule
E1
[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
audited financial statements.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[CASH] 1,741,456
[SECURITIES] 0
[RECEIVABLES] 1,119,938
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 40,963,845<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 39,850,299<F2>
[TOTAL-LIABILITY-AND-EQUITY] 40,963,845<F3>
[SALES] 0
[TOTAL-REVENUES] 29,219,973<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 10,198,844
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 19,021,129
[INCOME-TAX] 0
[INCOME-CONTINUING] 19,021,129
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 19,021,129
[EPS-PRIMARY] 105.21<F5>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $21,165,553, real estate held for sale of $13,506,748,
investment in joint venture of $2,572,800, net deferred expenses of
$628,834 and other assets of $228,516.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$940,489 and other liabilities of $173,057.
<F4>Total revenue includes rent of $11,331,966, gains on sales of real estate
of $17,232,823, equity in earnings of joint venture of $209,663, and interest
and other revenues of $445,521.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
