15
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 31, 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
Page 1
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, October
31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,108,124 $
1,741,456
Real estate:
Land 1,900,300
3,545,300
Buildings and improvements 12,946,438
30,377,786
14,846,738
33,923,086
Accumulated depreciation 4,400,635
12,757,533
10,446,103
21,165,553
Real estate held for sale 10,570,126
13,506,748
Investment in joint venture 2,552,654
2,572,800
Deferred leasing commissions, net 408,938
628,834
Other assets 579,629
1,348,454
$25,665,574
$40,963,845
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 721,542 $
940,489
Security deposits 94,857
173,057
816,399
1,113,546
Partners' capital (deficiency):
General partners (5,424,265)
(5,353,586)
Limited partners ($1,000 per Unit, 177,023 Units issued)
30,273,440 45,203,885
Total partners' capital 24,849,175
39,850,299
$25,665,574
$40,963,845
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues:
Rental $ 1,158,921
$4,240,916
Gain on sale of real estate 11,048,285 -
Equity in earnings of joint venture 59,521
62,900
Interest and other 113,379
49,603
12,380,106
4,353,419
Expenses:
Property operating 520,925
1,599,045
Depreciation 221,703
744,007
Amortization 43,328
139,490
General and administrative 168,887
191,413
954,843
2,673,955
Income before minority interest 11,425,263
1,679,464
Minority interest - 143,620
Net income $11,425,263
$1,535,844
Net income allocated to:
Limited partners $11,387,565
$1,382,260
General partners 37,698
153,584
$11,425,263
$1,535,844
Net income per Unit of limited partnership interest $ 64.33
$ 7.81
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Three months ended January 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 11,387,565
37,698 11,425,263
Cash distributions (26,318,010)
(108,377) (26,426,387)
Partners' capital (deficiency)
at January 31, 1998 $ 30,273,440
$(5,424,265) $ 24,849,175
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 11,425,263 $
1,535,844
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 221,703
744,007
Amortization 43,328
139,490
Gain on sale of real estate (11,048,285)
- -
Minority interest in joint ventures' operations -
143,620
Equity in earnings of Taxter joint venture
(59,521) (62,900)
(Increase) decrease in operating assets:
Deferred leasing commissions (169,499)
(120,007)
Other assets 338,729
63,416
(Decrease) increase in operating liabilities:
Accounts payable and accrued liabilities
(218,947) (309,947)
Security deposits (78,200)
1,924
Net cash provided by operating activities
454,571 2,135,447
Cash flows from investing activities:
Additions to real estate (79,154)
(16,939)
Distributions from Taxter joint venture 99,160
104,963
Investments in Taxter joint venture (19,493)
(6,353)
Proceeds from sale of real estate 25,337,971
- -
Net cash provided by investing activities
25,338,484 81,671
Cash flows from financing activities:
Cash distributions to partners (26,426,387)
(2,033,798)
Minority interest in joint venture's distributions -
(188,969)
Net cash used in financing activities (26,426,387)
(2,222,767)
Decrease in cash and cash equivalents (633,332)
(5,649)
Cash and cash equivalents at beginning of period
1,741,456 3,193,852
Cash and cash equivalents at end of period $ 1,108,124 $
3,188,203
Supplemental disclosure of non-cash investing activities:
Real estate, at cost
Land $
1,645,000 $ 6,429,000
Buildings and improvements 17,503,727
38,307,211
Accumulated depreciation (8,578,601)
(13,719,061)
Real estate held for sale $ 10,570,126 $
31,017,150
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
1. The
Partnership
Dean Witter Realty Income Partnership II, L.P. (the
"Partnership") is a limited partnership organized under
the laws of the State of Delaware in 1984. The
Partnership's fiscal year ends on October 31.
The financial statements include the accounts of the
Partnership and the Century Square and Framingham
Corporate Center joint ventures on a consolidated
basis. The equity method of accounting has been
applied to the Partnership's 15% interest in the Taxter
Corporate Park property because of the Partnership's
continuing ability to exert significant influence over
Taxter.
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
reporting purposes.
Net income 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 the gain on
real estate sales, 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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
2. 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.
Pursuant to a Purchase and Sale Agreement dated as of
February 10, 1998, the Partnership agreed to sell the
Glenhardie Corporate Center I and II properties
("Glenhardie I and II") to FV Office Partners, L.P., an
unaffiliated party. As part of the Agreement,
affiliates of the Partnership and of the Managing
General Partner agreed to sell their interests in the
remaining properties at the Glenhardie Corporate Center
and another office park. The aggregate sale price of
the properties to be sold is approximately $173
million, of which $21,330,000 was allocated in the
Agreement to Glenhardie I and II. The purchase price is
payable in cash at closing, which is expected to occur
in the second fiscal quarter.
Cash flow from Glenhardie I and II was approximately
$453,000 and $363,000 for the first quarter of 1998 and
1997, respectively. The property has been reclassified
to real estate held for sale at January 31, 1998.
3. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for three properties in
1998 and for four properties in 1997 until the sale of
Century Square in April 1997. The Partnership incurred
management fees of approximately $31,000 and $58,000
for the three months ended January 31, 1998 and 1997,
respectively.
Another affiliate of the Managing General Partner
performs administrative functions, processes investor
transactions and prepares tax information for the
Partnership. For the three months ended January 31,
1998 and 1997, the Partnership incurred
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
approximately $87,000 and $112,000, respectively, for
these services.
As of January 31, 1998, the affiliates were owed a
total of approximately $22,000 for these services.
4. Litigation
Various public partnerships sponsored by Dean Witter
Realty Inc. (including the Partnership and its Managing
General Partner) are defendants in purported class
action lawsuits pending in state and federal courts.
The complaints allege a number 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.
5. Subsequent Distribution
On February 25, 1998, the Partnership paid the first
quarter cash distribution of $4.19 per Unit. The cash
distribution aggregated $741,726, with $667,553
distributed to the Limited Partners and $74,173
distributed to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership raised $177,023,000 in a public
offering which was terminated in 1985. The Partnership
has no plans to raise additional capital.
The Partnership purchased five properties (one sold in
May 1993, one sold in December 1995, and one sold in
February 1997) and made three investments in
partnerships (one sold in April 1997 and one sold in
December 1997) on an all-cash basis. The Partnership's
acquisition program has been completed. No additional
investments are planned.
Employment growth, especially in the communications,
technology and financial services industries, has
increased demand for space in many office markets.
Such increasing demand and a controlled amount of
speculative construction has resulted in falling
vacancies and rising rents. Improved property
performance along with an influx of capital from REITs,
pension funds and foreign investors are increasing
property values. Some office markets, especially
suburban markets, are faring better than others and, in
certain areas, improved market conditions can support
construction. The occupancy rate in the Valley Forge,
PA office market, where Glenhardie Corporate Center I
and II is located, remains at approximately 10%. The
Partnership sold the Framingham property at the
beginning of fiscal 1998 and has entered into an
agreement to sell the Glenhardie property (see Note 2
to the consolidated financial statements). The
Partnership's remaining office property, Taxter
Corporate Park, is located in Westchester, New York
where the vacancy level for office properties is
approximately 17%. As this market continues to improve,
the Partnership plans to market the Taxter property for
sale during the second quarter of 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 accomplish this.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
In the retail sector, an over supply of retail space
and consolidation among retailers continued to lessen
the demand for retail space. Also, many outdated
properties are being redeveloped in order to compete
with newer retail properties. The abundance of
available retail space and sub-lease space offered by
retailers (usually at lower rents) has exerted downward
pressure on rents in many markets. Although investment
interest for retail properties has waned somewhat,
REITs continue to purchase retail properties
nationwide. 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 expects to market this property for
sale during 1998.
The Framingham Corporate Center was sold for
$26,050,000 on December 3, 1997. The Partnership
received cash at closing of approximately $25,300,000,
net of closing costs. In accordance with the
provisions of the Partnership Agreement, the net sales
proceeds ($143.16 per Unit) were distributed 100% to
the Limited Partners in December 1997 representing a
return of capital. The Partnership's aggregate cash
flow from operations from the property was
approximately $15,000 and $395,000 during the first
quarter of fiscal 1998 and 1997, respectively.
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 quarter ended January 31, 1998, 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 throughout fiscal 1998.
In addition, the Partnership's liquidity has been and
will continue to be affected by the sale of Partnership
properties. As properties have been sold, Partnership
cash from operations available for distribution has
declined and will continue to decline with future
sales. 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 of 1997, and to $5.51 per
Unit beginning with the third quarter distribution paid
in August 1997. As a result of the
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
absence of operating cash flows from the Framingham
property, the Partnership further decreased quarterly
cash distributions to $4.19 per Unit beginning with the
first quarter distribution paid in February 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 quarter ended January 31, 1998, excluding
proceeds and distribution amounts relating to property
sales, the Partnership's cash flow from operations and
distributions received from its joint venture exceeded
distributions to investors, capital expenditures,
leasing commissions and contributions to its joint
venture. The Partnership expects cash flow from
operations and distributions received from its joint
venture to continue to exceed distributions to
investors, leasing commissions and contributions to its
joint venture during the remainder of 1998. The
Partnership expects to fund a portion of any remaining
1998 capital expenditures from cash reserves. The
Partnership believes cash reserves will be sufficient
for its future needs.
During the quarter ended January 31, 1998, the
Partnership incurred approximately $267,000 of building
improvements, tenant improvements and leasing
commissions, including approximately $170,000 in
leasing commission expenditures at the Glenhardie
office property.
As of January 31, 1998, the Partnership has commitments
to fund capital expenditures of approximately
$1,892,000, 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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
On December 23, 1997, the Partnership distributed
approximately $25.3 million ($143.16 per Unit) from the
sale of the Framingham property 100% to Limited
Partners.
On February 25, 1998, the Partnership paid the first
quarter cash distribution of $4.19 per Unit. The total
distribution aggregated $741,726, with $667,553
distributed to the Limited Partners and $74,173
distributed to the General 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 three- month period ended January 31, 1998 compared
to 1997 were primarily attributable to the following:
No individual factor accounted for a significant change
in equity in earnings of joint venture or general and
administrative expenses from 1997 to 1998.
Rental revenue decreased in 1998 compared to 1997 by
approximately $3,082,000 because of the sales of the
United Olympic and Century Square properties during the
second quarter of fiscal 1997 and the sale of
Framingham Corporate Center in December 1997. These
sales also caused the decrease in property operating
expenses by approximately $1,056,000, depreciation by
approximately $494,000 and amortization by
approximately $102,000.
The gain on sale of real estate resulted from the sale
of the Framingham Corporate Center. Interest and other
revenue increased by approximately $64,000 due to
interest earned during the first quarter of fiscal 1998
on proceeds from the Framingham sale prior to
distribution.
A summary of the markets in which the Partnership's
properties are located and the performance of each
property is as follows:
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
The overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park remained at approximately 17% in the
first quarter and the vacancy level in the west
Westchester market in which the building is located
remained at approximately 11%. During the first
quarter of 1998, occupancy at the property remained at
100% No leases for a significant amount of space
expire before 2001. The Partnership expects to market
the property for sale during the second quarter of
fiscal 1998.
The vacancy rate in Valley Forge, Pennsylvania, the
location of the Glenhardie property, has recently
decreased from 11% to 9% in an improving office market
with increased demand. During the first quarter of
1998, occupancy at the property continued at 100%.
During the fourth quarter of fiscal 1997, the
Partnership re-leased 35% of the property's space to an
existing tenant through July 2003. Leases on
approximately 10% of the space expire during the
remainder of 1998. The Partnership has entered into an
agreement to sell this property. See Note 2 to the
consolidated financial statements.
The Pavilions at East Lake shopping center is located
in a suburb of Atlanta which currently has a vacancy
rate of 5%. Rental rates in this market are stable.
During the first quarter of 1998, occupancy at the
property increased slightly to 75%. No significant
leases 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.
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
An exhibit index has been filed as part
of this Report on Page E1.
b) Reports on Form 8-K
Report dated December 3, 1997 reporting
the Partnership's sale of its interest in
the Framingham Corporate Center property.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
Dean Witter Realty
Income
Partnership II, L.P.
By: Dean Witter Realty
Income
Properties II Inc.
Managing General Partner
Date: March 17, 1998 By: /s/E. Davisson Hardman,
Jr.
E. Davisson Hardman, Jr.
President
Date: March 17, 1998 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
Dean Witter Realty Income Partnership II, L.P.
Quarter Ended January 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] 3-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-END] JAN-31-1998
[CASH] 1,108,124
[SECURITIES] 0
[RECEIVABLES] 498,734
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 25,665,574<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 24,849,175<F2>
[TOTAL-LIABILITY-AND-EQUITY] 25,665,574<F3>
[SALES] 0
[TOTAL-REVENUES] 12,380,106<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 954,843
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 11,425,263
[INCOME-TAX] 0
[INCOME-CONTINUING] 11,425,263
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 11,425,263
[EPS-PRIMARY] 64.33<F5>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $10,466,103, real estate held for sale of $10,570,126
investment in joint venture of $2,552,654, net deferred expenses of $408,938
and other assets of $80,895.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$721,542, and other liabilities of $94,857.
<F4>Total revenue includes rent of $1,158,921, gain on sale of real estate of
$11,048,285, equity in earnings of joint venture of $59,521 and other
revenues of $113,379.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
