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 April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 0-18146
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State of organization)
13-3293754
(IRS Employer Identification No.)
2 World Trade Center, New York, NY
(Address of principal executive offices)
10048
(Zip Code)
Registrant's telephone number, including area code: (212) 392-1054
Former name, former address and former fiscal year, if changed since last
report: not applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No <PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1996 1995
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,302,175 $ 4,687,564
Real estate:
Land 11,263,904 15,200,000
Buildings and improvements 90,128,374 88,128,571
101,392,278 103,328,571
Accumulated depreciation 23,742,742 22,180,045
77,649,536 81,148,526
Real estate held for sale - 45,495,628
Investments in joint ventures 42,186,489 42,784,835
Deferred leasing commissions, net 1,009,213 968,202
Other assets 1,929,070 2,904,092
$127,076,483 $177,988,847
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 623,201 $ 596,476
Security deposits 196,288 169,245
819,489 765,721
Partners' capital (deficiency):
General partners (7,717,518) (6,166,797)
Limited partners ($500 per Unit,
534,020 Units issued) 133,974,512 183,389,923
Total partners' capital 126,256,994 177,223,126
$127,076,483 $177,988,847
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended April 30, 1996 and 1995
Three months ended Six months ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C>
Revenues:
Rental $2,699,151 $4,302,875 $6,141,634 $8,421,991
Equity in earnings of joint ventures 821,610 854,581 1,713,667 1,672,081
Interest 274,562 59,583 607,893 111,956
Other 38,827 40,215 75,100 122,974
3,834,150 5,257,254 8,538,294 10,329,002
Expenses:
Property operating 1,091,414 1,397,425 2,375,473 2,739,327
Depreciation 721,689 1,136,994 1,562,697 2,268,630
Amortization 74,536 67,094 134,134 133,349
General and administrative 246,584 259,539 504,224 508,440
Loss on impairment of real estate - - 12,422,872 -
2,134,223 2,861,052 16,999,400 5,649,746
Net income (loss) $1,699,927 $2,396,202 $(8,461,106) $4,679,256
Net income (loss) allocated to:
Limited Partners $1,529,934 $2,156,582 $(7,614,995) $4,211,330
General Partners 169,993 239,620 (846,111) 467,926
$1,699,927 $2,396,202 $(8,461,106) $4,679,256
Net income (loss) per Unit of limited
partnership interest $2.86 $4.04 $(14.26) $7.89
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Six months ended April 30, 1996
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency)
at November 1, 1995 $183,389,923 $(6,166,797) $177,223,126
Net loss (7,614,995) (846,111) (8,461,106)
Cash distributions (41,800,416) (704,610) (42,505,026)
Partners' capital (deficiency)
at April 30, 1996 $133,974,512 $(7,717,518) $126,256,994
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30, 1996 and 1995
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,461,106) $ 4,679,256
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,562,697 2,268,630
Amortization 134,134 133,349
Equity in earnings of joint ventures (1,713,667) (1,672,081)
Loss on impairment of real estate 12,422,872 -
(Increase) decrease in operating assets:
Deferred expenses (175,145) (294,876)
Other assets 975,022 310,178
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities 26,725 32,668
Security deposits 27,043 (12,674)
Net cash provided by operating activities 4,798,575 5,444,450
Cash flows from investing activities:
Proceeds from disposition of real estate
held for sale 35,256,585 -
Additions to real estate (247,536) (197,839)
Investments in joint ventures (348,737) (1,271,677)
Distributions from joint ventures 2,660,750 2,742,447
Net cash provided by investing
activities 37,321,062 1,272,931
Cash flows from financing activities:
Cash distributions (42,505,026) (6,489,827)
(Decrease) increase in cash and cash equivalents (385,389) 227,554
Cash and cash equivalents at beginning of period 4,687,564 5,683,026
Cash and cash equivalents at end of period $ 4,302,175 $ 5,910,580
Supplemental disclosure of non-cash investing activities (Note 2):
Reclassification of real estate held for sale:
Increase to real estate:
Land $ 1,023,904
Buildings and improvements 9,215,139
Decrease to real estate held for sale $ 10,239,043
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
1. The Partnership
Dean Witter Realty Income Partnership III, L.P. (the "Partnership") is
a limited partnership organized under the laws of the State of Delaware
in 1985. The Partnership's fiscal year ends on October 31.
The financial statements include the accounts of the Partnership, Part
Six Associates and Laurel-Vincent Place Associates Limited Partnership
on a consolidated basis. The Partnership's interests in Taxter Corporate
Park, Tech Park Reston and the partnership which owns interests in
Chesterbrook Corporate Center are accounted for on the equity method.
The Partnership's records are maintained on the accrual basis of
accounting for financial reporting and tax reporting purposes.
Net income (loss) per Unit of limited partnership interest amounts are
calculated by dividing net income (loss) allocated to Limited Partners,
in accordance with the Partnership Agreement, by the weighted average
number of Units outstanding.
In the opinion of management, the accompanying financial statements,
which have not been audited, include all adjustments necessary to present
fairly the results for the interim period. Except for the losses on
impairment of real estate, 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, 1995. Operating results of
interim periods may not be indicative of the operating results for the
entire year.
2. Real Estate
In the fourth quarter of fiscal 1995, the Partnership entered into an
agreement with New Plan Realty Trust, an unaffiliated party, to sell the
Delta Center, Fashion Corners, Hall Road Crossing and Westland Crossing
shopping centers. The net carrying values of these properties were
reduced to the net sales price in October 1995.
The closing of the sale of the Delta Center, Fashion Corners and Hall
Road Crossing shopping centers, for a negotiated sale price of
approximately $35.5 million (net of closing costs), took place on
December 11, 1995. No gain or loss was incurred as a result of the
closing. The net proceeds from the sale ($66.40 per Unit) were
distributed to Limited Partners in March 1996.
The sale of the Westland Crossing shopping center was cancelled, pursuant
to the sale agreement, because the Partnership was unable to obtain a
replacement tenant for an anchor tenant which vacated its space.
Westland Crossing is no longer being actively marketed for sale;
accordingly, its carrying value was reclassified from real estate held
for sale to real estate in the first quarter of fiscal 1996.
In accordance with its policies, 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 will be unable to recover its investments in
certain properties. Accordingly, in the first quarter of fiscal 1996,
the Partnership wrote down to fair value (based on independent
appraisals) its Glenhardie and Holcomb Woods properties, and recorded
losses on impairment of approximately $4.7 million and $7.7 million,
respectively.
3. Related Party Transactions
An affiliate of the Managing General Partner provided property management
services for eight properties (including the three shopping centers sold)
as well as for five buildings at the Chesterbrook Corporate Center. The
Partnership incurred management fees of approximately $168,000 and
$243,000 for the six months ended April 30, 1996 and 1995, respectively.
These amounts are included in property operating expenses.
Another affiliate of the Managing General Partner performs administrative
functions, processes investor transactions and prepares tax information
for the Partnership. For the six months ended April 30, 1996 and 1995,
the Partnership incurred approximately $335,000 and $379,000,
respectively, for these services. These amounts are included in general
and administrative expenses.
As of April 30, 1996, the affiliates were owed a total of approximately
$83,000 for these services.
4. Litigation
Various public partnerships sponsored by Realty (including the
Partnership and, in certain cases, its Managing General Partner) are
defendants in five 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 have
not yet responded to the complaints and intend to vigorously defend the
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 Event
On May 29, 1996, the Partnership paid a cash distribution of
approximately $4.85 per Unit to the Limited Partners. The total cash
distribution amounted to $2,877,774, with $2,589,997 distributed to the
Limited Partners and $287,777 to the General Partners.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership raised $267,010,000 in a public offering of 534,020
units which was terminated in 1987. The Partnership has no plans to
raise additional capital.
The Partnership has purchased eight properties (three of which have
been sold) and has made three investments in partnerships on an all-cash
basis. The Partnership's acquisition program has been completed. No
additional investments are planned.
The closing of the sale of the Delta Center, Fashion Corners and Hall
Road Crossing shopping centers occurred on December 11, 1995. See Note
2 to the consolidated financial statements. During the three- and six-
month periods ended April 30, 1996, the Partnership's aggregate cash flow
from operations was reduced by approximately $1,013,000 and $1,673,000,
respectively, as a result of the sale of the shopping centers.
The Partnership's liquidity depends upon cash flow from operations
of its properties and expenditures for tenant improvements and leasing
commissions in connection with the leasing of space. During the three-
and six-month periods ended April 30, 1996, all of the Partnership's
properties and joint venture interests generated positive cash flow from
operations, and it is anticipated that they will continue to do so.
In addition, the Partnership's liquidity will be affected by the sale
of the Partnership's properties. In accordance with the provisions of
the Partnership Agreement, the net sales proceeds from the sale of the
shopping centers of $35.5 million ($66.40 per Unit) were distributed to
the Limited Partners in March 1996, representing a return of invested
capital. Because the Partnership has fewer income producing investments,
the Partnership's cash from operations available for distribution will
decline in 1996 and thereafter. Accordingly, the Partnership decreased
its quarterly cash distribution to Limited Partners from $5.9375 to $4.85
per Unit, beginning with the second quarter distribution paid in May
1996.
Given the weaker retail property fundamentals and reduced investor
interest for retail properties, absent changed circumstances, the
Managing General Partner currently does not plan to offer the
Partnership's two remaining shopping centers for sale until 1997. The
suburban office market has begun to stabilize as a result of improved
operating results at many office properties and the lack of construction.
Most construction is limited to build-to-suit projects. The recovery in
the suburban office sector has been uneven for different geographic
regions but the Managing General Partner currently plans to offer for
sale certain of the Partnership's office properties in 1996 with the
objective of completing sales of all the Partnership's properties by
1998. There is no assurance the Partnership will be able to achieve
these objectives.
During the six months ended April 30, 1996, the Partnership's
distributions to investors, capital expenditures, leasing commissions and
contributions to its joint ventures exceeded its cash flow from
operations, net proceeds from sale of shopping centers and distributions
received from its joint ventures. This deficit was funded from cash
reserves.
During the six months ended April 30, 1996, the Partnership incurred
approximately $423,000 of tenant improvements and leasing commissions,
primarily relating to the Glenhardie and Holcomb Woods properties and
contributed approximately $349,000, its share of capital expenditures,
most of which relate to the Chesterbrook joint venture.
As of April 30, 1996, the Partnership has commitments to fund
approximately $1,000,000 of tenant improvements and leasing commissions,
primarily relating to the Glenhardie and Holcomb Woods properties, and
commitments to contribute approximately $528,000, its share of capital
expenditures, most of which relates to the Chesterbrook joint venture.
Also, the Partnership may incur material capital expenditures to
lease vacant space at the Laurel Lakes Centre and Westland Crossing
shopping centers. The amount of such expenditures is uncertain at this
time. To the extent that the vacant space at these two properties cannot
be re-leased, the Partnership's cash flow will be reduced.
During the remainder of 1996, the Partnership expects that its cash
flow from operations and distributions received from its joint ventures
will exceed distributions to its investors; the Partnership expects to
fund capital expenditures, leasing commissions and contributions to its
joint ventures from cash reserves.
The Partnership expects that cash flow from the Taxter joint venture
will decrease by approximately $410,000 during the remainder of 1996
because the extension of the lease with Fuji Photo USA Inc. (for
approximately 24% of the property's space) provides for six months of
free rent beginning April 1, 1996 and reduced rent during the remaining
term of the extension.
The joint venture which owns Tech Park Reston is discussing a
restructuring of its leases with Sprint Communications, the property's
sole tenant. At present, it is uncertain whether the leases will be
restructured and, if they are, what the effect of the restructuring on
the Partnership's cash flow and income will be.
Except as discussed herein and in the consolidated financial
statements, the Managing General Partner is not aware of any trends or
events, commitments or uncertainties that will materially impact
liquidity.
Other assets decreased during the six months ended April 30, 1996
primarily because of the sale of the shopping centers and the
amortization of prepaid real estate taxes at Laurel Lakes Centre.
On May 29, 1996, the Partnership paid the second quarter distribution
of $4.85 per Unit to the Limited Partners. The total cash distribution
amounted to $2,877,774 with $2,589,997 distributed to the Limited
Partners and $287,777 to the General Partners.
Operations
Fluctuations in the Partnership's operating results for the three-
and six-month periods ended April 30, 1996 compared to 1995 are primarily
attributable to the following:
Rental revenues decreased primarily due to the absence of rents of
approximately $1,294,000 and $2,062,000, from the shopping centers sold.
Revenues also decreased because of lower pass-through income at Laurel
Lakes Centre.
The increase in interest income represents interest earned on the
proceeds from the shopping centers sold before such proceeds were
distributed to investors in March 1996.
The decreases in property operating expenses are primarily due to a
reduction of approximately $300,000 and $400,000, respectively, in
operating expenses on the shopping centers sold.
Depreciation decreased primarily because no depreciation was recorded
in 1996 on the shopping centers sold. Depreciation also decreased at the
Glenhardie and Holcomb Wood properties due to the writedown of these
properties in January 1996.
In the first quarter of fiscal 1996, the Partnership recorded losses
on impairment of the Glenhardie and Holcomb Woods properties totalling
approximately $12.4 million. See Note 2 to the consolidated financial
statements.
A summary of the markets in which the Partnership's office properties
are located and the performance of each property is as follows:
Generally, office/research and development properties such as Holcomb
Woods are benefiting from growth in the computer, communications and
electronics industries. The office market in suburban Atlanta, the
location of Business Park at Holcomb Woods, has a current vacancy rate
of approximately 8% and rental rates increased 5% to 10% during 1995.
An increase in employment growth from corporate relocations and
improvements to Atlanta's infrastructure are contributing to the area's
prosperity. As a result, a number of office developments have commenced
in this market, and several other projects are in the planning stage of
development; the Partnership expects that these projects will have
minimal effect on the Holcomb Woods property. During the first quarter
of 1996, the Partnership negotiated a 3-year lease renewal with Kimberly
Clark at a higher rental rate for approximately 14% of the property's
space. At April 30, 1996, the property was 92% occupied. No leases for
significant amounts of space expire before 1998.
Chesterbrook Corporate Center is located in Valley Forge,
Pennsylvania, an improving market with increasing demand and a current
vacancy rate of approximately 12%. At April 30, 1996, the property was
95% leased (including one tenant which will move into its space in July
1996). No leases for significant amounts of space expire before 1998.
Glenhardie Corporate Center III and IV is also located in Valley
Forge, Pennsylvania. At April 30, 1996, the property was 96% leased
(including one tenant which will move into its space in June 1996). No
leases for significant amounts of space expire before 1999.
The vacancy level in the office market in Westchester County, New
York, the location of Taxter Corporate Park, has recently improved
slightly to 19%. It is unlikely that the vacant space will be absorbed
in the market for several years. At April 30, 1996, occupancy at the
property was 97%. Leases aggregating approximately 12% of the space
expire in 1997.
The Reston market in Virginia, the location of Tech Park Reston, has
a vacancy rate of approximately 10%. The leases with Sprint
Communications, which occupies 100% of the space, expire in 2003. Sprint
has the option to terminate its leases on approximately 96% of the
property's space beginning in 1997 and 1998. As discussed above, the
joint venture which owns the property is discussing a modification of its
leases with Sprint.
Generally, at retail properties, vacancy levels are increasing and
rental rates are stagnant as a result of sluggish retail sales and
competition from large power centers, discounters and reorganized
department stores. A summary of the markets in which the Partnership's
retail properties are located and the leasing status of each property is
as follows:
Laurel Lakes Centre is located in a suburb of Baltimore and
Washington, D.C. Retail centers in this market have generally
experienced lower net rental rates and, currently, a vacancy rate of
approximately 16%. Many retailers in this market are experiencing
financial difficulties. However, the property's design, location and
tenant mix has enabled it to maintain relatively stable rental rates.
At April 30, 1996, occupancy at the property was 85%. Leases aggregating
approximately 10% of the property's space expire in 1997.
Westland Crossing is situated outside downtown Detroit and is in an
overbuilt market with a current vacancy rate of approximately 20%. A
significant amount of new retail space is under construction in this
market. When complete, this space will compete with Westland Crossing
for tenants. In January 1996, Marshall's vacated the property upon the
expiration of its lease (for approximately 18% of the property's space).
During the second quarter of 1996, occupancy at the property decreased
from 67% to 62%. Leases for approximately 13% of the property's space
expire in 1997.
Inflation
Inflation has been consistently low during the periods presented in
the financial statements and, as a result, has not had a significant
effect on the operations of the Partnership or its properties.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following developments have occurred since the filing of the
Partnership's most recent quarterly report on Form 10-Q with respect to
the purported class actions filed against the Partnership.
On March 13, 1996, a class action lawsuit (the "Young Action") naming the
Partnership, other unidentified limited partnerships, Dean Witter,
Discover & Co., Dean Witter Reynolds Inc., and others as defendants was
filed in the Circuit Court for Baltimore City in Baltimore, Maryland.
The defendants have removed the case to the United States District Court
for the District of Maryland. The complaint alleges fraud, negligent
misrepresentation, breach of fiduciary duty, unjust enrichment and
related claims and seeks an accounting of records, compensatory and
punitive damages in unspecified amounts and other equitable relief. The
defendants have not yet responded to the complaint and intend to
vigorously defend the action.
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.
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 April 15, 1996 of the Valuation per Unit of
Limited Partnership Interest at October 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dean Witter Realty Income
Partnership III, L.P.
By: Dean Witter Realty Income
Properties III Inc.
Managing General Partner
Date: June 14, 1996 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: June 14, 1996 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Dean Witter Realty Income Partnership III, L.P.
Quarter Ended April 30, 1996
Exhibit Sequentially
No. Description Numbered Page
<C> <S>
27 Financial Data Schedule
E1
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
</LEGEND>
<CIK> 0000784161
<NAME> DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-3O-1996
<CASH> 4,302,175
<SECURITIES> 0
<RECEIVABLES> 1,612,677
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 127,076,483<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 126,256,994<F2>
<TOTAL-LIABILITY-AND-EQUITY> 127,076,483<F3>
<SALES> 0
<TOTAL-REVENUES> 8,538,294<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,999,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,461,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,461,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,461,106)
<EPS-PRIMARY> (14.26)<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $77,649,536, investment in joint ventures of $42,186,489,
net deferred leasing commissions of $1,009,213 and other assets of $316,393.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of
$623,201, and security deposits of $196,288.
<F4>Total revenue includes rent of $6,141,634, equity in earnings of joint
ventures of $1,713,667 interest of $607,893 and other revenues of
$75,100.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
