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, 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 13-3293754
(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 class Name 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 non-
affiliates of the registrant. N/A
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of 40
<PAGE>
PART I.
ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Income Partnership III, L.P. (the
"Partnership"), is a limited partnership formed in August 1985 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 III 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 III, L.P. (the "Associate General
Partner"), a Delaware limited partnership, the general partner of
which is 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 below in Note 8 to the consolidated financial
statements included in Item 8 and in Item 13.
The Partnership issued 534,020 units of limited partnership interest
(the "Units") with gross proceeds from the offering of $267,010,000.
The offering has been terminated and no additional Units will be
sold.
The proceeds from the offering were used to make equity investments
in six office properties and five retail properties (three of which
were sold in fiscal 1996) which were acquired without mortgage debt.
The properties are described in Item 2 below.
The Partnership considers its business to include one industry
segment, investment in real property. Financial information
regarding the Partnership is in the Partnership's 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, 1996, the Partnership owned directly or through a
partnership interest the following eight property interests, none of
which is encumbered by indebtedness. 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 Ownership
Completed/ Cost Area of land and
Property and Location Acquired ($000) (000 sq. ft.) Improvements
<S> <C> <C> <C> <C>
Glenhardie III, 1984/1986 $9,646 64 Fee interest
Valley Forge, PA
Office Building
Glenhardie IV, 1985/1986 $10,354 64 99.9% General1
Valley Forge, PA Partnership
Office Building interest
Westland Crossing, 1986/1986 $13,225 137 Fee interest
Westland, MI
Shopping Center
Taxter Corporate Park, 1987-1988/ $23,063 345 44.6% General
Westchester, NY 1986-1988 Partnership
2 Office Buildings interest2
Business Park at 1984/1986 $23,100 244 Fee interest
Holcomb Woods,
Roswell, GA
4 Office Buildings
Laurel Lakes Centre, 1987/1987 $51,297 466 99.999% General
Laurel, MD Partnership
Shopping Center interest1
Technology Park Reston, 1983-1985/1987 $20,170 374 35.0% General
Reston, VA Partnership
3 Office Buildings interest3
Chesterbrook Corp. 1982-1987/1987 $32,430 621 26.7% General
Center, Valley Forge, PA Partnership
8 Office Buildings interest4
</TABLE>
<PAGE>
1. The remaining general partnership ("GP") interest is held by the Managing
General Partner.
2. The remaining GP interests are held by Dean Witter Realty
Income Partnership II, L.P. (14.8%) and Dean Witter Realty
Income Partnership IV, L.P. (40.6%), affiliates of the
Partnership. The total cost of the property was $51.8
million
3. The remaining GP interest is held by Dean Witter Realty
Income Partnership IV, L.P. The total cost of the property
was $57.6 million. The property was sold on December 31,
1996. See Note 6 to the Consolidated Financial Statements
in Item 8.
4. The remaining GP interests are owned Dean Witter Realty
Income Partnership IV, L.P. (41.2%) and an affiliate of the
Managing General Partner (32.1%). The total cost of the
property was $121.3 million.
Each property was built with on-site parking facilities.
In the first quarter of fiscal 1996, the Partnership sold the Delta
Center, Hall Road Crossing and Fashion Corners shopping centers (the
"Shopping Centers Sold"). See Note 4 to the Consolidated Financial
Statements.
In fiscal 1996, the Partnership recorded a loss on impairment on its
Glenhardie and Holcomb Woods properties of approximately $4.7
million and $7.7 million repectively. See Note 4 to the
Consolidated Financial Statements.
An affiliate of the Partnership is the property manager for Laurel
Lakes Centre, Taxter Corporate Park, and Westland Crossing and the
co-property manager for the Glenhardie buildings and five buildings
at the Chesterbrook 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 in Item 8.
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 22, 1997, there were 36,960 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").
During the year ended October 31, 1996, the Partnership paid
quarterly cash distributions aggregating $87.98 per Unit (including
$66.40 of proceeds from the Shopping Centers Sold). Total
distributions were $48,260,574, with $46,980,410 distributed to the
Limited Partners and $1,280,164 to the General Partners. The
distribution of proceeds from the Shopping Centers Sold was paid
100% to the Limited Partners. During the year ended October 31,
1995, the Partnership paid quarterly cash distributions aggregating
$13,535,925, with $12,182,332 distributed to Limited Partners and
$1,353,593 to the General Partners.
On November 27, 1996, the Partnership paid the fourth 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.
The Partnership anticipates making regular distributions to its
partners in the future.
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 will be 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 the sale or financing). 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.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of the selected financial data for the
Partnership:
<TABLE>
For the years ended October 31, 1996, 1995, 1994, 1993 and 1992
<CAPTION>
19961 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total
revenues $ 16,198,761 $ 8,946,798 $ 20,279,777 $ 7,977,133 $ 20,957,942
Net (loss)
income $ (4,954,508) $ (3,564,379)2 $ 9,711,910 $ (3,002,627)3 $ 10,556,999
Net income
(loss) per
Unit of
limited
partnership
interest $(8.35) $(6.24) $16.37 $(5.06) $17.79
Cash distri-
butions paid
per Unit of
limited
partnership
interest4 $87.98 $22.81 $20.00 $20.00 $31.25
Total assets
at Octo-
ber 31 $124,778,502 $177,988,847 $195,350,000 $197,751,501 $212,527,983
1. Revenues and net loss include the effect of the sale of the Delta Center, Fashion
Corners, and Hall Road shopping centers. Net loss also includes losses on impairment
of the Glenhardie and Holcomb Woods properties of $4.7 million and $7.7 million,
respectively. See item 7 and Note 5 to the Consolidated Financial Statements.
/TABLE
<PAGE>
.
2. Includes a $1.3 million writedown of real estate held
for sale (see Item 7 and Note 4 to the Consolidated
Financial Statements) and the Partnership's share
($11.5 million) of loss on impairment of the
Chesterbrook property (see Item 7 and Note 5 to the
Consolidated Financial Statements).
3. Includes the Partnership's $12.4 million share of loss
on impairment of the Taxter property.
4. Distributions paid to limited partners include returns
of capital per Unit of limited partnership interest of
$87.98, $22.81, $3.63, $20.00, and $13.46 for the years
ended October 31, 1996, 1995, 1994, 1993 and 1992,
respectively, calculated as the excess of cash
distributed per Unit over accumulated earnings per Unit
not previously distributed.
Note: The above financial data should be read in conjunction
with the Consolidated Financial Statements and the
related notes in Item 8.
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 purchased, directly or through a partnership
interest six office properties and five retail properties (three of
which were sold in fiscal 1996). The Partnership's acquisition
program has been completed. No additional investments are planned.
Real estate markets continue to stabilize due to decreased new
office construction and continued strong leasing efforts, causing a
reduction in oversupply in many office markets. Certain areas have
experienced rising rents as growth in the financial services, high
technology, health care and communications industries creates demand
for office space. The northeastern and southeastern sections of the
country continue to improve. The retail sector is still
experiencing uncertainty with large retailers and power centers with
preferred locations continuing to attract a large part of consumer
spending at the expense of smaller retailers unable to compete on
pricing. This has resulted in sluggish demand for new and existing
retail space and higher overall vacancies, coupled with stagnant
rents.
On December 11, 1995 the Partnership sold the Shopping Centers Sold,
for approximately $35.5 million (net of closing costs). The net
proceeds from the sale ($66.40 per Unit) were distributed 100% to
Limited Partners in March 1996. See Note 5 to the consolidated
financial statements. The aggregate net income and cash flow from
operations for the Shopping Centers Sold during fiscal 1996 was
approximately $212,000.
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 vacant space.
In 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 has been affected by the
sale of the Shopping Centers Sold, and will be affected by the sale
of other properties. The Managing General Partner currently plans
to market for sale the Partnership's office properties and the two
remaining shopping centers in 1997 and 1998, with the objective of
completing sales of all the Partnership office properties by the end
of fiscal 1998. There is no assurance the Partnership will be able
to achieve these objectives. As the Partnership has fewer income
producing investments, Partnership cash from operations will
decline, as will Partnership distributions.
In 1996, Partnership distributions to investors exceeded cash flow
from operations and distributions received from its joint ventures,
primarily due to the distribution of proceeds from the sale of the
Shopping Centers Sold. The Partnership used cash reserves in fiscal
1996 to fund a portion of capital expenditures, leasing commissions,
and contributions to its joint ventures.
In 1996, the Partnership (a) incurred approximately $1,251,000 of
tenant improvements and leasing commissions, primarily relating to
the Glenhardie (approximatley $522,000) and Holcomb Woods
(approximately $680,000) properties; (b) contributed approximately
$491,000 to the Chesterbrook property for its share of capital
expenditures to lease vacant space and (c) contributed approximately
$187,000 to the Taxter property to fund leasing commissions.
As of October 31, 1996, the Partnership has commitments to fund
tenant improvements totalling approximately $258,000; no individual
commitment is significant. The Partnership also has commitments to
fund approximately $688,800 for its share of capital expenditures
and leasing commissions at the Taxter and Chesterbrook properties.
The Partnership may incur material capital expenditures to replace
the anchor tenant which vacated the Westland Crossing Shopping
Center, and to lease currently vacant space at Laurel Lakes Centre.
A portion of capital expenditures and leasing commissions is
expected to be funded from Partnership cash reserves in 1997. The
Managing General Partner believes cash reserves will be sufficient
for the Partnership's future needs.
In fiscal 1996, the Partnership recorded a loss on impairment on its
Glenhardie and Holcomb Woods properties of approximately $4.7
million and $7.7 million, respectively. See Note 4 to the
consolidated financial statements.
The Partnership decreased its cash distribution rate from $5.9375 to
$4.85 per Unit beginning with the second quarter cash distribution
paid May 29, 1996. The $4.85 distribution represents an annual
return of 4.75% on the gross offering proceeds attributable to the
Partnership's remaining investments.
On November 27, 1996, the Partnership paid the fourth 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.
In December 1996, the Partnership sold its investment in the
Technology Park Reston office park. The Partnership expects to
distribute 100% of the net sales proceeds of $31.55 per Unit ($16.85
million) to the Limited Partners in February 1996, representing a
return of invested capital. See Note 6 to the Consolidated
Financial Statements.
Except as described above and in the consolidated financial
statements, the Managing General Partner is not aware of any trends
or events, commitments or uncertainties that may impact liquidity in
a material way.
Operations
Fluctuations in the Partnership's operating results for the year
ended October 31, 1996 compared to 1995 and for the year ended
October 31, 1995 compared to 1994 were primarily attributable to the
following:
The decrease in rental revenue in 1996 compared to 1995 is primarily
due to the absence of rental income of approximately $4.7 million
from the Shopping Centers Sold. Rental revenue at Laurel Lakes
Centre also decreased by approximately $0.8 million due to lower
occupancy and reduced passthrough income. Operations at the
Partnership's other properties resulted in a net increase in
revenues of $0.6 million; no individual factor accounted for a
material portion of this change. No individual factor accounted for
a material portion of the increase in rental revenues in 1995 vs.
1994.
The increase in equity earnings of joint ventures in 1996 compared
to 1995 and the decrease in 1995 compared to 1994 was primarily due
to the 1995 recognition by the Partnership of its share
(approximately $11.5 million) of the writedown on the impairment of
the Chesterbrook property. 1995 equity in earnings also decreased
compared to 1994 due to approximately $349,000 of higher
depreciation and amortization on increased capital expenditures at
the Chesterbrook and Taxter properties and higher operating expenses
at the Taxter property.
The decrease in property operating expenses in 1996 compared to 1995
is primarily due to the absence of operating expenses from the
Shopping Centers Sold. The increase in property operating expenses
in 1995 compared to 1994 is primarily due to increased repair costs
at Laurel Lakes Centre. No other factor accounted for a significant
portion of the changes in operating expenses.
Depreciation decreased by approximately $1.2 million in 1996
compared to 1995 due to the absence of depreciation in 1996 on the
Shopping Centers Sold. The remaining decrease resulted from the
writedown of the Glenhardie and Holcomb Woods properties in January
1996.
The 1996 loss on impairment of real estate was due to the impairment
writedowns on the Glenhardie and Holcomb Woods properties totalling
approximately $12.4 million as described in Note 4 to the
consolidated financial statements. The 1995 loss on writedown of
real estate held for sale is due to the reduction of the carrying
values of the Shopping Centers Sold and Westland Crossing to the
price at which it was agreed they would be sold, net of closing
costs, as described in Note 5 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:
The Business Park at Holcomb Woods is located in the north central
corridor of suburban Atlanta where continued economic recovery has
resulted in increased office occupancies. The current market
vacancy rate is approximately 3%. During fiscal 1996, the average
occupancy at the property was 91%, and at October 31, 1996 the
property was 96% leased to 25 tenants. The property was 87% leased
at October 31, 1995. Leases on approximately 44% of total space
expire in fiscal 1999 (including Kimberly Clark, approximately 14%,
and Nations Credit, approximately 12%). Leases on approximately 30%
of total space expire in fiscal 2001 (including Telecorps Systems,
approximately 19%). There are no other significant tenants.
Current market conditions in the Valley Forge, Pennsylvania sector
where the Chesterbrook Corporate Center is located have improved,
especially during the second half of fiscal 1996. Market occupancy
is approximately 84%. At October 31, 1996 the property was
approximately 99% leased to 26 tenants, compared to 91% at the prior
fiscal year-end. The average occupancy during fiscal 1996 was 94%.
Leases for approximately 19% of total space expire in fiscal 1998.
The leases of Philadelphia Electric Company (for approximately 20%
of total space), Aetna Health Plan (for approximately 12% of total
space) and Dun & Bradstreet (for approximately 12% of total space)
expire in fiscal year 2000. There are no other significant tenants.
Glenhardie Corporate Center III & IV is also located in Valley
Forge, Pennsylvania. During 1996, average occupancy at the property
was 92%, and at October 31, 1996 the property was 97% leased to 27
tenants, compared to 92% at the prior fiscal year-end. The leases
of Allstate Insurance Company (for approximately 13% of total
space), Pilgrim Baxter (for approximately 13% of total space) and
Dean Witter Reynolds (for approximately 10% of total space) expire
in fiscal years 1999, 2000, and 2005, respectively.
The overall vacancy level in the office market in Westchester
County, New York, the location of Taxter Corporate Park increased
from 22% to 24% in 1996. The vacancy level in the west Westchester
market in which the building is located is currently 15%, and it is
unlikely that this vacant space will be absorbed in the market for
several years. However, during 1996, average occupancy at the
property was approximately 98%, and at October 31, 1996, occupancy
at the property was 97%, essentially unchanged from the prior year.
The property is leased to 22 tenants. KLM Royal Dutch Airlines owns
a long-term leasehold in approximately 20% of the space at the
property. Leases aggregating approximately 12% and 10% of the
property's space expire in 1997 and 1998, respectively. The lease
of Fuji Photo Film (for approximately 24% of the property's space)
expires in 2001. No other tenants occupy more than 10% of the
property.
Tech Park Reston, located in the Reston market in Virginia was 100%
leased during fiscal year 1996 to Sprint Communications. The
property was sold on December 31, 1996. See Note 6 to the
consolidated financial statements.
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., where retail centers continue to experience lower
net rental rates. The market vacancy rate is currently
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 October, 1996, occupancy at the property decreased to 81%
(leased to 36 tenants) from 88% at October 31, 1995 primarily
because several small tenants have moved out upon expiration of
their leases or as a result of bankruptcies. The Partnership is
considering the consolidation of portions of the vacant small shop
space at the center. The Partnership is also attempting to market
approximately 50,000 square feet of space as "big box" spaces.
Although conversion into "big box" type space would require
additional investment by the Partnership, the Partnership believes
that the potential for higher rental rates and increased occupancy
levels would increase the property's cash flow as well as the
overall value of the center. Leases aggregating approximately 8% of
the property's space expire in 1997. The leases of K-Mart (18% of
total space), Hoyts Cinemas (10% of total space), and Best Buy (11%
of total space), expire in 2005, 2005 and 2010, respectively. No
other tenant occupies more than 10% of the property.
Westland Crossing is situated outside downtown Detroit and is in an
overbuilt market with a current vacancy rate of approximately 20%.
Nevertheless, a significant amount of new retail space is under
construction in this market. When complete, this space will compete
with Westland Crossing for tenants. The property has a current
occupancy rate of 58%, leased to 15 tenants, (vs. 85% at the prior
fiscal year-end), and an average occupancy rate of 73% in fiscal
1996. In January 1996, Marshalls vacated the property upon the
expiration of its lease (for approximately 18% of the property's
space). The Partnership is considering consolidating vacant small
shop space at this property in order to make room for an additional
anchor tenant. The Partnership is negotiating with several
prospective tenants to lease vacant anchor space. Leases for
approximately 13% of the property's space expire in 1997. The lease
of Frank's Supercrafts, which occupies approximately 16% of the
shopping center, expires in 2006. No other tenant occupies more
than 10% of the property.
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>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
INDEX
<CAPTION>
<S> <C>
Page
Independent Auditors' Report 15
Consolidated Balance Sheets at October 31, 1996 and 1995 16
Consolidated Statements of Operations for the years ended
October 31, 1996, 1995 and 1994 17
Consolidated Statements of Partners' Capital for the years
ended October 31, 1996, 1995 and 1994 18
Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1995 and 1994 19-20
Notes to Consolidated Financial Statements 21-31
Schedule
Real Estate and Accumulated Depreciation III 37-38
All schedules other than those 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.
</TABLE>
<PAGE>
Independent Auditors' Report
To The Partners of
Dean Witter Realty Income Partnership III, L.P.:
We have audited the accompanying consolidated balance sheets of Dean
Witter Realty Income Partnership III, L.P. and consolidated partnerships
(the "Partnership") as of October 31, 1996 and 1995 and the related
consolidated statements of operations, partners' capital, and cash flows
for each of the three years in the period ended October 31, 1996. 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
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 financial statements present fairly, in all material
respects, the financial position of Dean Witter Realty Income Partnership
III, L.P. and consolidated partnerships as of October 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996 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
January 24, 1997
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,380,612 $ 4,687,564
Real estate, at cost:
Land 11,263,904 15,200,000
Buildings and improvements 90,921,733 88,128,571
102,185,637 103,328,571
Accumulated depreciation (25,226,740) (22,180,045)
76,958,897 81,148,526
Real estate held for sale - 45,495,628
Investments in joint ventures 41,727,417 42,784,835
Deferred leasing commissions, net 938,381 968,202
Other assets 2,773,195 2,904,092
$124,778,502 $177,988,847
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 615,102 $ 596,476
Security deposits 155,356 169,245
770,458 765,721
Partners' capital (deficiency):
General partners (7,942,412) (6,166,797)
Limited partners ($500 per Unit,
534,020 Units issued) 131,950,456 183,389,923
Total partners' capital 124,008,044 177,223,126
$124,778,502 $177,988,847
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
Revenues:
<S> <C> <C> <C>
Rental $11,897,566 $16,677,181 $16,027,787
Equity in earnings (losses)
of joint ventures 3,477,991 (8,222,327) 3,651,193
Interest 668,471 234,446 186,333
Other 154,733 257,498 414,464
16,198,761 8,946,798 20,279,777
Expenses:
Property operating 4,418,272 5,381,373 5,018,380
Depreciation 3,046,695 4,565,589 4,378,952
Amortization 274,820 277,901 197,129
General and administrative 990,610 1,021,431 973,406
Losses on impairment of real estate 12,422,872 - -
Loss on writedown of real estate
held for sale - 1,264,883 -
21,153,269 12,511,177 10,567,867
Net income (loss) $(4,954,508) $(3,564,379) $ 9,711,910
Net income (loss) allocated to:
Limited partners $(4,459,057) $(3,334,429) $ 8,740,719
General partners (495,451) (229,950) 971,191
$(4,954,508) $(3,564,379) $ 9,711,910
Net income (loss) per Unit of limited
partnership interest $(8.35) $(6.24) $16.37
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the years ended October 31, 1996, 1995 and 1994
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency)
at October 31, 1993 $200,846,365 $(4,367,733) $196,478,632
Net income 8,740,719 971,191 9,711,910
Cash distributions (10,680,400) (1,186,712) (11,867,112)
Partners' capital (deficiency)
at October 31, 1994 198,906,684 (4,583,254) 194,323,430
Net loss (3,334,429) (229,950) (3,564,379)
Cash distributions (12,182,332) (1,353,593) (13,535,925)
Partners' capital (deficiency)
at October 31, 1995 183,389,923 (6,166,797) 177,223,126
Net loss (4,459,057) (495,451) (4,954,508)
Cash distributions (46,980,410) (1,280,164) (48,260,574)
Partners' capital (deficiency)
at October 31, 1996 $131,950,456 $(7,942,412) $124,008,044
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,954,508) $(3,564,379) $ 9,711,910
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 3,046,695 4,565,589 4,378,952
Amortization 274,820 277,901 197,129
Equity in (earnings) losses of joint ventures (3,477,991) 8,222,327 (3,651,193)
Loss on writedown of real estate held for sale - 1,264,883 -
Loss on impairment of real estate 12,422,872 - -
(Increase) decrease in operating assets:
Deferred leasing commissions (244,999) (517,660) (479,699)
Other assets 130,897 (410,290) 133,630
Increase (decrease) in operating abilities:
Accounts payable and accrued liabilities 18,626 (15,805) (266,180)
Security deposits (13,889) (20,402) 19,881
Net cash provided by operating activities 7,202,523 9,802,164 10,044,430
Cash flows from investing activities:
Proceeds from disposition of real estate
held for sale 35,256,585 - -
Additions to real estate (1,040,895) (1,021,987) (2,125,685)
Investment in joint ventures (678,346) (1,816,036) (1,234,388)
Distributions from joint ventures 5,213,755 5,576,322 5,627,781
Net cash provided by investing activities 38,751,099 2,738,299 2,267,708
Cash flows from financing activities:
Cash distributions (48,260,574) (13,535,925) (11,867,112)
Increase (decrease) in cash and cash equivalents (2,306,952) (995,462) 445,026
Cash and cash equivalents at beginning of year 4,687,564 5,683,026 5,238,000
Cash and cash equivalents at end of year $ 2,380,612 $ 4,687,564 $ 5,683,026
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1996, 1995 and 1994
(Continued)
<CAPTION>
1996 1995 1994
Supplemental disclosure of non-cash investing activities:
Reclassification of real estate held for sale
and writeoff of related assets and liabilities:
<S> <C> <C> <C>
Real estate, at cost
Land $ - $ 5,843,309 $ -
Buildings and improvements - 52,939,906 -
Accumulated depreciation - (12,355,956) -
Real estate, net - 46,427,259 -
Deferred leasing commissions - 224,508 -
Other assets - 333,386
Accounts payable - (175,752) -
Tenant security deposits - (48,890) -
Loss on writedown of real estate held for sale - (1,264,883) -
Real estate held for sale $ $ 45,495,628 $
Reclassification of real estate from held
for sale to real estate:
Land $ 1,023,904 $ - $ -
Buildings and improvements 9,215,139 - -
Accumulated depreciation - - -
Real estate, net $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
October 31, 1996, 1995 and 1994
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 is managed by Dean Witter Realty
Income Properties III Inc. (the "Managing General Partner"). The
Partnership's fiscal year ends on October 31.
In 1986 and 1987, the Partnership issued 534,020 units of limited
partnership interest (the "Units") for $267,010,000. No additional
Units will be sold. The proceeds of the offering were used to make
investments in income-producing office, industrial and retail
properties which were not encumbered by debt.
2. Summary of Significant Accounting Policies
The financial statements include the accounts of the Partnership,
Part Six Associates (owner of Glenhardie IV) and Laurel-Vincent
Place Associates Limited Partnership (owner of the Laurel Lakes
Centre) on a consolidated basis. The Partnership owns a 99.9% and
99.999% general partnership interest in Part Six Associates and
Laurel-Vincent Place Associates Limited Partnership, respectively.
The remaining interests in these partnerships are held by the
Managing General Partner.
The Partnership's 44.6% general partnership interest in Taxter
Corporate Park, 35% general partnership interest in Tech Park Reston
and 26.7% general partnership interest in 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 purposes. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that 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.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 value as of
October 31, 1996. The cash flows used to evaluate the
recoverability of the assets 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.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $47.3 million
higher than the amounts reported for financial statement purposes.
3. Partnership Agreement
The Partnership Agreement provides that distributable cash, as
defined, will be 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.
Taxable income generally is allocated in the same proportion 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.
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Distributions paid to Limited Partners include returns of capital
per Unit of limited partnership interest of $87.98, $22.81 and $3.63
for the years ended October 31, 1996, 1995 and 1994, respectively,
calculated as the excess of cash distributed per Unit over
accumulated earnings per Unit not previously distributed.
4. Real Estate Investments
The location, year of acquisition and net carrying values of the
properties are as follows:
<CAPTION>
Year of October 31,
Property Acquisition 1996 1995
<S> <C> <C> <C>
Glenhardie III and IV $11,883,930 $16,886,539
Valley Forge, PA 1986
Westland Crossing
Westland, MI 1986 9,862,785 -
Holcomb Woods
Roswell, GA 1986 12,428,082 20,311,695
Laurel Lakes Centre
Laurel, MD 1987 42,784,100 43,950,292
$76,958,897 $81,148,526
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 Glenhardie and Holcomb Woods
properties. Accordingly, the Partnership wrote these properties
down to fair value (based on independent appraisals), and recorded
losses on impairment of approximately $4.7 million and $7.7 million,
respectively.
The net carrying value of the Westland Crossing shopping center was
reclassified from real estate held for sale during fiscal 1996. See
Note 5.
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Sale of Real Estate
In the fourth quarter of fiscal 1995, the Partnership determined to
sell the Delta Center, Fashion Corners, Hall Road Crossing and
Westland Crossing shopping centers and, in October, entered into an
agreement (as amended) with New Plan Realty Trust, an unaffiliated
party, to sell the shopping centers. As part of the agreement, two
affiliated public partnerships, Dean Witter Realty Income
Partnership II, L.P. and Dean Witter Realty Yield Plus, L.P., also
agreed to sell certain shopping centers owned by them.
Because of the anticipated sale at October 31, 1995, the net
carrying values of the shopping centers were reclassified to real
estate held for sale and reduced to approximately $45.5 million (the
sales price net of closing costs), resulting in a loss on writedown
of real estate held for sale of approximately $1,265,000 in fiscal
1995. The loss from the writedown of real estate held for sale was
allocated 100% to the Limited Partners, in accordance with the
Partnership Agreement.
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.
Pursuant to the sale agreement, the sale of the Westland Crossing
shopping center was cancelled because the Partnership was unable to
obtain a replacement tenant for an anchor tenant which vacated the
center upon expiration of its lease on January 31, 1996. The net
carrying value of Westland Crossing of approximately $10.2 million,
was subsequently reclassified to real estate in the first quarter of
fiscal 1996.
The aggregate net income in fiscal 1996 from the three shopping
centers sold was approximately $212,000.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Investments in Joint Ventures
Taxter Corporate Park, Westchester County, New York
In 1986, the Partnership purchased a 44.6% partnership interest in
the general partnership which owns the property. Affiliates of the
Partnership, Dean Witter Realty Income Partnership II, L.P., and
Dean Witter Realty Income Partnership IV, L.P., purchased the
remaining interests of 14.8% and 40.6%, respectively.
The partners each receive cash flow and profits and losses according
to their interests.
Summarized balance sheet information of the joint venture is as
follows:
<TABLE>
<CAPTION>
October 31,
1996 1995
<S> <C> <C>
Land and buildings, net $17,781,234 $18,575,100
Other 1,990,515 1,427,047
Total assets $19,771,749 $20,002,147
Liabilities $ 176,478 $ 165,593
Partners' capital 19,595,271 19,836,554
Total liabilities and capital $19,771,749 $20,002,147
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized results of operations of the joint venture are as
follows:
<CAPTION>
Years ended October 31,
1996 1995 1994
<S> <C> <C> <C>
Rental income $5,954,030 $6,267,312 $6,269,934
Other income 43,394 92,483 81,301
5,997,424 6,359,795 6,351,235
Property operating expenses 3,111,267 3,168,141 3,020,235
Depreciation and
amortization 1,196,229 1,119,284 991,163
4,307,496 4,287,425 4,011,398
Net income $1,689,928 $2,072,370 $2,339,837
</TABLE>
Tech Park Reston, Reston, Virginia
In 1987, the Partnership purchased a 35% partnership interest in the
general partnership ("TPA") which owns the property, which consists
of three office buildings in the Technology Park Reston office park.
The remaining 65% interest in TPA is owned by Dean Witter Realty
Income Partnership IV, L.P.
The partners receive cash flow and profits and losses according to
their interests.
Subsequent to October 31, 1996, TPA and an affiliate of the Managing
General Partner (the "Affiliate"), which owns the fourth building at
the property, agreed to sell the property to Sprint Communications
Company L.P., which was the sole tenant at the property.
The negotiated sales price for the property was $76,300,000,
$51,483,000 of the sales price was allocated to TPA and $24,817,000
was allocated to the Affiliate, based on the relative square footage
of the buildings each owned at the property.
The closing of the sale took place on December 31, 1996. The
purchase price was received in cash at closing. The Partnership
received approximately $17.7 million of such cash representing its
35% share of the cash received by TPA, net of closing costs.
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized balance sheet information of the joint venture is as
follows:
<CAPTION>
October 31,
1996 1995
<S> <C> <C>
Land and buildings, net $46,158,784 $47,735,292
Other 1,692,571 1,643,614
Total assets $47,851,355 $49,378,906
Total partners' capital $47,851,355 $49,378,906
Summarized results of operations of the joint venture are as
follows:
Years ended October 31,
1996 1995 1994
Rental income $5,219,899 $5,058,016 $5,267,825
Depreciation 1,576,508 1,576,372 1,576,100
Amortization 106,960 106,960 106,960
Property operating expense 52,191 53,532 -
1,735,659 1,736,864 1,683,060
Net income $3,484,240 $3,321,152 $3,584,765
Chesterbrook Corporate Center, Valley Forge, Pennsylvania
In 1987, the Partnership, Dean Witter Realty Income Partnership IV,
L.P. and an affiliate of the Managing General Partner acquired
26.7%, 41.2% and 32.1% interests in the general partnership which
owns the property.
The partners receive cash flow and profits and losses according to
their interests.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 1995, the general partners in the partnership which owns
the property concluded that there was a permanent decline in the
property's value. Accordingly, in accordance with its policy for
evaluating the recoverability of its real estate, which is the same
as the Partnership's, the partnership which owns the property
recorded a loss on impairment of the property of approximately $43.2
million at October 31, 1995. The Partnership's share of this loss
(approximately $11.5 million) was included in equity is earnings
(losses) of joint ventures in fiscal 1995.
Summarized balance sheet information of the joint venture is as
follows:
<CAPTION>
October 31,
1996 1995
<S> <C> <C>
Land and buildings, net $62,641,806 $64,200,000
Other 3,059,694 3,448,347
Total assets $65,701,500 $67,648,347
Liabilities $ 1,792,898 $ 2,184,232
Partners' capital 63,908,602 65,464,115
Total liabilities and
capital $65,701,500 $67,648,347
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized results of operations of the joint venture are as
follows:
<CAPTION>
Years ended October 31,
1996 1995 1994
<S> <C> <C> <C>
Rental income $ 13,604,130 $ 13,532,187 $13,232,900
Other income 35,957 212,134 (161,469)
13,640,087 13,744,321 13,071,431
Property operating
expenses 4,818,114 4,528,817 4,028,834
Depreciation and
amortization 3,186,022 4,664,856 3,975,339
Loss on impairment of
real estate - 43,161,160 -
8,004,136 52,354,833 8,004,173
Net income (loss) $ 5,635,951 $(38,610,512) $ 5,067,258
Activity in investments in joint ventures is as follows:
Years ended October 31,
1996 1995 1994
Investments at beginning
of year $42,784,835 $54,767,448 $55,509,648
Equity in earnings
(losses) 3,477,991 (8,222,327) 3,651,193
Distributions (5,213,755) (5,576,322) (5,627,781)
Contributions 678,346 1,816,036 1,234,388
Investments at end of
year $41,727,417 $42,784,835 $54,767,448
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Leases
Minimum future rental income under noncancellable operating leases
as of October 31, 1996 is as follows:
Year ending October 31
1997 $ 9,192,476
1998 8,803,398
1999 7,684,817
2000 6,080,015
2001 5,036,015
Thereafter 18,927,719
Total $55,724,440
The Partnership has determined that all leases relating to its
properties are operating leases. The terms range from one to
twenty-one 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 eight properties in 1996 and 1995 and six
properties in 1994, as well as for five buildings at the
Chesterbrook Corporate Center in each year. The Partnership
incurred management fees of $478,220, $466,198 and $459,128 for the
years ended October 31, 1996, 1995 and 1994, 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. The Partnership
incurred approximately $761,000, $756,000 and $761,000 for these
services in each of the years ended October 31, 1996, 1995 and 1994.
These amounts are included in general and administrative expenses.
As of October 31, 1996, the affiliates were owed a total of
approximately $100,000 for these services.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Litigation
Various public partnerships sponsored by Dean Witter Realty Inc.
(including the Partnership and its Managing General Partner) are
defendants in purported class action lawsuits pending in state and
federal courts. The complaints allege a number of claims, including
breach of fiduciary duty, fraud and misrepresentation, and seek an
accounting of profits, compensatory and other damages in an
unspecified amount, possible liquidation of the Partnership under a
receiver's supervision and other equitable relief. The defendants
are vigorously defending these actions. It is impossible to predict
the effect, if any, the outcome of these actions might have on the
Partnership's financial statements.
10. Distribution Subsequent to Year-End
On November 27, 1996, the Partnership paid a cash 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.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Various public partnerships sponsored by Realty (including the
Partnership and its Managing General Partner) are defendants in
purported class action lawsuits pending in state and federal courts.
The complaints allege a number of claims, including breach of
fiduciary duty, fraud and misrepresentation, and seek an accounting
of profits, compensatory and other damages in an unspecified amount,
possible liquidation of the Partnership under a receiver's
supervision and other equitable relief. The defendants are
vigorously defending these actions. It is impossible to predict the
effect, if any, the outcome of these actions might have on the
Partnership's financial statements.
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 Parnter
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 53, is a Managing Director of Dean Witter
Realty Inc. and has been with Dean Witter Realty Inc. since 1982.
He is an Executive Vice President of Dean Witter Reynolds Inc.
E. Davisson Hardman, Jr., age 47, is a Managing Director of Dean
Witter Realty Inc. and has been with Dean Witter Realty Inc. since
1982.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Lawrence Volpe, age 49, 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.
Ronald T. Carman, age 45, is a Director and the Secretary of Dean
Witter Realty Inc. He is a Senior Vice President and Associate
General Counsel of Dean Witter, Discover & Co. and 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 $1,280,164, $1,353,593, and
$1,186,712 during the years ended October 31, 1996, 1995 and 1994,
respectively.
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 9 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.
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 December 31, 1996:
<TABLE>
<CAPTION> Amount and
Title of Name of Nature of
Class Beneficial Owner Beneficial Ownership
<S> <C> <C>
Limited All directors and executive *
Partnership officers of the Managing
Interests General Partner, as a group
</TABLE>
* Own, by virtue of ownership of limited partnership interests in
the Associate General Partner, less than 1% of the Units of the
Partnership.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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 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 shall 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 Dean Witter, Discover & Co. The
general partner of the Associate General Partner is the Managing
General Partner. The limited partner of the Associate General
Partner is LSA 86 L.P., a Delaware limited partnership. Realty and
certain current and former officers and directors of the Managing
General Partner are partners of LSA 86 L.P. Additional information
with respect to the directors and executive 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.<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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) Certificate of Limited Partnership included in the
Registration Statement Number 33-1912 is incorporated by
reference.
(3)(b) Amended and Restated Agreement of Limited Partnership dated
as of February 11, 1986 set forth in Exhibit A to the
Prospectus in the Registration Statement Number 33-1912 is
incorporated herein by reference.
(4)(a) Certificate of Limited Partnership included in the
Registration Statement Number 33-1912 is incorporated by
reference.
(4)(b) Amended and Restated Agreement of Limited Partnership dated
as of February 11, 1986 set forth in Exhibit A to the
Prospectus included in the Registration Statement Number
33-1912 is incorporated herein by reference.
(10)(a) Purchase and Sale Agreements for properties purchased were
filed as Exhibits to Form 8-K on June 27, 1986, December
29, 1986, December 29, 1986, December 29, 1986, December
29, 1986, December 30, 1986, December 30, 1986, June 1,
1987, December 7, 1987, and December 15, 1987 and are
incorporated herein by reference.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(b) Purchase and Sale Agreement, dated October 19, 1995 between
Dean Witter Realty Income Partnership II, L.P., Midway
Crossing Limited Partnership, Dean Witter Realty 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) filed as exhibit to Form 8-K on December 11, 1995
and incorporated herein by reference.
(c) First Amendment to Agreement of Purchase and Sale by and
between Dean Witter Realty Income Partnership II, L.P.,
Midway Crossing Limited Partnership, Dean Witter Realty
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) filed as exhibit to Form 8-K on December 11, 1995
and incorporated herein by reference.
(d) Purchase and Sale Agreement between Technology Park
Associates, Dean Witter/Technology Park II Associates,
L.P., and Sprint Communications Company, L.P. a Delaware
Limited Partnership filed as exhibit 2 to the Registrant's
Report on Form 8-K on December 31, 1996 and incorporated
herein by reference.
(21) Subsidiaries: Park Six Associates, a Pennsylvania limited
partnership. Laurel Vincent Place Associates, a Maryland
limited partnership.
(b) No Forms 8-K were filed by the Partnership during the last
quarter of the period covered by this report.
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SCHEDULE III
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Real Estate and Accumulated Depreciation
December 31, 1996
Initial cost to Partnership (A)
<CAPTION>
Costs Capitalized
Building and Subsequent To
Description Land Improvements Total Acquisition
<S> <C> <C> <C> <C>
Glenhardie III & IV
Valley Forge, PA $2,000,000 $18,805,786 $20,805,786 $2,859,026
Holcomb Business
Park Roswell, GA 5,400,000 18,675,322 24,075,322 2,749,067
Westland Crossing
Westland, MI 1,376,659 12,389,933 13,766,592 379,327
Laurel Lakes Centre
Laurel, MD 7,800,000 45,536,882 53,336,882 543,383
$16,576,659 $ 95,407,923 $111,984,582 $6,530,803
Gross Amount at which
Carried at End of Period (B)
Loss on
Impairment of Building and
Description Real Estate Land Improvements Total
Glenhardie III & IV
Valley Forge, PA $ 4,664,675 $1,200,000 $17,800,137 $19,000,137
Holcomb Business Park
Roswell, GA 7,758,197 1,240,000 17,826,192 19,066,192
Westland Crossing
Westland, MI - 1,023,904 9,215,139 10,239,043
Laurel Lakes Centre
Laurel, MD - 7,800,000 46,080,265 53,880,265
$12,422,822 $11,263,904 $ 90,921,733 $102,185,637
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SCHEDULE III (CONTINUED)
<CAPTION>
Life on which
Depreciation in
Latest Income
Accumulated Date of Date Statement
Description Depreciation(C) Construction Acquired is Computed
<S> <C> <C> <C> <C>
Glenhardie III & IV
Valley Forge, PA $7,116,207 1984-1985 June 1986 up to 40 years
Holcomb Business Park
Roswell, GA 6,638,110 1984 December 1986 up to 40 years
Westland Crossing
Westland, MI 376,258 1986 December 1986 up to 40 years
Laurel Lakes Centre
Laurel, MD 11,096,165 1987 June 1987 up to 40 years
$25,226,740
Notes:
(A) The initial cost includes the purchase price paid by the Partnership and acquisition fees and
expenses. There is no difference between cost for financial reporting purposes and cost for
federal income tax purposes.
(B) Reconciliation of real estate owned
at October 31: 1996 1995 1994
Balance at beginning of period $103,328,571 $161,364,133 $159,543,611
Additions (deletions) during period:
Purchases - - -
Improvements 1,040,895 1,021,987 2,125,685
Write-offs due to lease expirations (274,334) (305,163)
Reclass (to) from real estate
held for sale 10,239,043 (58,783,215) -
Loss on impairment of Real Estate (12,422,872) - -
Balance at end of period $102,185,637 $103,328,571 $161,364,133
(C) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 22,180,045 $ 30,244,746 $ 26,170,957
Depreciation expense 3,046,695 4,565,589 4,378,952
Write-offs due to lease expirations - (274,334) (305,163)
Reclass to real estate held for sale - (12,355,956) -
Balance end of period $ 25,226,740 $ 22,180,045 $ 30,244,746
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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 III, L.P.
By: Dean Witter Realty Income Properties III Inc.
Managing General Partner
By:/s/E. Davisson Hardman, Jr. Date: January 29, 1997
E. Davisson Hardman, Jr.
President
By: /s/Lawrence Volpe Date: January 29, 1997
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 III INC.
Managing General Partner
/s/William B. Smith Date: January 29, 1997
William B. Smith
Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date: January 29, 1997
E. Davisson Hardman, Jr.
Director
/s/Lawrence Volpe Date: January 29, 1997
Lawrence Volpe
Director
/s/Ronald T. Carman Date: January 29, 1997
Ronald T. Carman
Director<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Year Ended October 31, 1996
Exhibit Index
Exhibit
No.
27 Financial Data Schedule
E1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 2,380,612
<SECURITIES> 0
<RECEIVABLES> 1,867,535
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,778,502<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 124,008,044<F2>
<TOTAL-LIABILITY-AND-EQUITY> 124,778,502<F3>
<SALES> 0
<TOTAL-REVENUES> 16,198,761<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,153,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,954,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,954,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,954,508)
<EPS-PRIMARY> (8.35)<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $76,958,897, investments in joint ventures of $41,727,417,
net deferred expenses of $938,381 and other assets of $905,660.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $615,102,
and security deposits of $155,356.
<F4>Total revenue includes rent of $11,897,566, equity in earnings of joint
ventures of $3,477,991, interest of $668,471 and other revenues of $154,733.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
