UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 0-18146
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 1 of 15 <PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, October 31,
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 20,911,649 $ 2,380,612
Real estate, at cost:
Land 11,263,904 11,263,904
Buildings and improvements 91,130,562 90,921,733
102,394,466 102,185,637
Accumulated depreciation 25,978,694 25,226,740
76,415,772 76,958,897
Investments in joint ventures 24,768,959 41,727,417
Deferred leasing commissions, net 873,499 938,381
Other assets 1,906,876 2,773,195
$124,876,755 $124,778,502
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 689,015 $ 615,102
Security deposits 152,860 155,356
841,875 770,458
Partners' capital (deficiency):
General partners (8,032,685) (7,942,412)
Limited partners ($500 per Unit, 534,020 Units issued)132,067,565131,950,456
Total partners' capital 124,034,880 124,008,044
$124,876,755 $124,778,502
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended January 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Rental $ 2,844,876 $ 3,442,483
Equity in earnings of joint ventures 1,831,022 892,057
Interest 100,051 333,331
Other 29,551 36,273
4,805,500 4,704,144
Expenses:
Property operating 787,434 1,284,059
Depreciation 751,954 841,008
Amortization 67,482 59,598
General and administrative 294,019 257,640
Loss on impairment of real estate - 12,422,872
1,900,889 14,865,177
Net income (loss) $ 2,904,611 $(10,161,033)
Net income (loss) allocated to:
Limited partners $ 2,707,106 $ (9,144,930)
General partners 197,505 (1,016,103)
$ 2,904,611 $(10,161,033)
Net income (loss) per Unit of limited
partnership interest $5.07 $(17.12)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Three months ended January 31, 1997
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency)
at November 1, 1996 $131,950,456 $(7,942,412) $124,008,044
Net income 2,707,106 197,505 2,904,611
Cash distributions (2,589,997) (287,778) (2,877,775)
Partners' capital (deficiency)
at January 31, 1997 $132,067,565 $(8,032,685) $124,034,880
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,904,611 $(10,161,033)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 751,954 841,008
Amortization 67,482 59,598
Equity in earnings of joint ventures (1,831,022) (892,057)
Loss on impairment of real estate - 12,422,872
(Increase) decrease in operating assets:
Deferred expenses (2,600) (81,132)
Other assets 866,319 843,678
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities 73,913 110,736
Security deposits (2,496) 27,165
Net cash provided by operating activities 2,828,161 3,170,835
Cash flows from investing activities:
Proceeds from disposition of real estate held for sale - 35,256,585
Additions to real estate (208,829) (73,679)
Investment in joint ventures (294,181) (129,597)
Distributions from joint ventures 19,083,661 1,455,046
Net cash provided by investing activities 18,580,651 36,508,355
Cash flows from financing activities:
Cash distributions (2,877,775) (3,523,049)
Increase in cash and cash equivalents 18,531,037 36,156,141
Cash and cash equivalents at beginning of period 2,380,612 4,687,564
Cash and cash equivalents at end of period $ 20,911,649 $ 40,843,705
Supplemental disclosure of non-cash held for sale:
Reclassification of real estate held for sale:
Increase to real estate, at cost
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>
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, 1996.
Operating results of interim periods may not be indicative of the
operating results for the entire year.
2. Real Estate
Pursuant to an agreement dated as of November 19, 1996 Technology
Park Associates (which is owned 35% by the Partnership and 65% by
Dean Witter Realty Income Partnership IV, L.P., an affiliated public
partnership), and DW Technology Park II Associates, L.P. (which is
owned by affiliates of the General Partner) agreed to sell the
Technology Park Reston office park (the "Property) to Sprint
Communications Company L.P, which was the sole tenant at the
Property.
Notes to Consolidated Financial Statements
The closing of the sale took place on December 31, 1996 for a
negotiated sales price of $76.3 million. $51,483,000 of the sales
price was allocated to Technology Park Associates and $24,817,000
was allocated to DW/Technology Park II Associates, L.P., based on
the relative square footage of the buildings each owned at the
Property. 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 Technology Park
Associates, net of closing costs. The Partnership's share
($930,000) of Technology Park Associates' gain on the sale is
included in equity in earnings of joint ventures. The Partnership
made a distribution of net proceeds from the sale to Limited
Partners in February 1997 (See Note 4).
In connection with a new lease at Westland Crossing, the Partnership
committed to demolish approximately 20,000 square feet of existing
tenant space and to construct an additional 7,000 square feet of new
space for a PetsMart store at a cost of approximately $1.7 million.
Construction is expected to begin during the second quarter of
fiscal 1977 and be complete by the first quarter of fiscal 1998.
The Partnership anticipates funding the construction costs from cash
reserves.
3. Related Party Transactions
An affiliate of the Managing General Partner provided property
management services for five properties (eight properties in 1996)
as well as for five buildings at the Chesterbrook Corporate Center.
The Partnership incurred management fees of approximately $91,000
and $103,000 for the three months ended January 31, 1997 and 1996,
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 three months
ended January 31, 1997 and 1996, the Partnership incurred
approximately $161,000 and $180,000, respectively, for these
services. These amounts are included in general and administrative
expenses.
As of January 31, 1997, the affiliates were owed a total of
approximately $54,200 for these services.
Notes to Consolidated Financial Statements
4. Litigation
Various public partnerships sponsored by Realty (including the
Partnership and its Managing General Partner) are defendants in a
number of class action lawsuits pending in state and federal courts.
The complaints allege a variety of claims, including breach of
fiduciary duty, fraud, misrepresentation and related claims, and
seek compensatory and other damages and equitable relief. The
defendants intend to vigorously defend 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 Distributions
On February 27, 1997, the Partnership paid the first quarter 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. On February 28, 1997 the Partnership distributed
$16,848,016 of the net proceeds from the sale of the Technology Park
Reston office park ($31.55 per Unit). The distribution was paid
100% to Limited 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 purchased, directly or through a partnership
interest six office properties and five retail properties. Through
January 31, 1997, one office and three retail properties have been
sold. 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 with preferred
locations continuing to outperform smaller retailers unable to
compete on pricing. This has resulted in decreased demand for new
and existing retail space and higher overall vacancies.
On December 31, 1996, Technology Park Associates, (which is owned
35% by the Partnership) sold the Technology Park Reston office park.
(See Note 2 to the consolidated financial statements). The
Partnership's share of the net sales proceeds was approximately
$17.7 million of which approximately $16.9 million ($31.55 per Unit)
was distributed to the Limited Partners in February 1997
representing a return of invested capital; the remaining $.8 million
of proceeds was added to Partnership cash reserves. The
Partnership's share of net income included in equity in earnings of
joint ventures in the first quarter of 1997 was approximately
$1,221,000 (including gain on the sale of the property of
approximately $930,000). Cash flow from operations included in
distributions for the first quarter of 1997 was approximately
$273,000.
As a result of the sale of the Partnership's properties, the
quarterly distribution rate will be adjusted to $4.36 per Unit,
representing an annual return of approximately 4.75% on the gross
offering proceeds attributable to the Partnership's remaining
investments beginning with the May 1997 distribution.
The Partnership's liquidity depends upon cash flow from operations
of its properties and expenditures for building improvements and
tenant improvements and leasing commissions in connection with the
leasing of space. During the three months ended January 31, 1997,
all of the Partnership's properties and joint venture interests
generated positive cash flow from operations, and the Partnership
anticipates that they will continue to do so in fiscal 1997.
In addition, the Partnership's liquidity 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. The Partnership will
also require less cash reserves to fund capital expenditures and
leasing commissions. Accordingly, the Partnership plans to
distribute a portion of its cash reserves in 1997, as it did in
1996.
During the three months ended January 31, 1997, the Partnership's
cash flow from operations and distributions received from its joint
ventures exceeded distributions to investors, capital expenditures,
leasing commissions and contributions to its joint ventures.
During the three months ended January 31, 1997, the Partnership
incurred approximately $212,000 of tenant improvements and leasing
commissions; no individual property accounted for a material amount.
The Partnership contributed approximately $294,200, its share of
capital expenditures, primarily to the Chesterbrook joint venture.
As of January 31, 1997, the Partnership has commitments to fund
approximately $142,800 of tenant improvements and leasing
commissions, primarily relating to the Holcomb Woods property, and
to contribute approximately $330,000, for its share of capital
expenditures and leasing commissions at the Chesterbrook ($200,000)
and Taxter ($130,000) joint ventures.
In connection with a new lease, the Partnership committed to
demolish approximately 20,000 square feet of existing tenant space
and to construct an additional 7,000 square feet of new space for a
PetsMart store at a cost of approximately $1.7 million.
Construction is expected to begin during the second quarter of
fiscal 1977 and be complete by the first quarter of fiscal 1998.
The Partnership anticipates funding the construction costs from cash
reserves.
The Partnership may incur material capital expenditures to lease
vacant space at the Laurel Lakes Centre shopping center. The amount
of such expenditures is uncertain at this time. To the extent that
the vacant space at the property is not re-leased, the Partnership's
cash flow will be reduced.
During the remainder of 1997, the Partnership expects that its cash
flow from operations and distributions received from its joint
ventures will exceed distributions to its investors (other than
distributions of net proceeds from property sales); the Partnership
expects to fund a portion of capital expenditures, leasing
commissions and contributions to its joint ventures from cash
reserves in 1997. The Managing General Partner believes cash
reserves will be sufficient for the Partnership's future needs.
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 may materially impact
liquidity.
Other assets decreased during the three months ended January 31,
1997 primarily due to the amortization of prepaid real estate taxes
(approximately $200,000) and collection of accrued passthrough
income (approximately $450,000), both of which relate to Laurel
Lakes Centre.
On February 27, 1997, the Partnership paid the first 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
month period ended January 31, 1997 compared to 1996 were primarily
attributable to the following:
Rental revenues decreased primarily due to the absence of rents of
approximately $485,000 from the three shopping centers sold (the
"Shopping Centers Sold") in December 1995. Rental revenues also
decreased at Laurel Lake Centre by approximately $230,000 primarily
due to a decrease in tenant passthrough income and lower occupancy.
Westland Crossing rental revenues also decreased by approximately
$123,000 primarily due to reduced occupancy. These decreases were
partially offset by higher rental income due to increases in
occupancy at the Glenhardie and Holcomb Woods properties.
Equity in earnings of joint ventures increased due to the
Partnership's share of the gain on the sale of the Tech Park Reston
Office Park.
Interest income decreased during the three months ended January 31,
1997 due to the absence in 1997 of interest earned on the proceeds
from the Shopping Centers Sold, offset by interest earned in 1997 on
the proceeds from the sale of Technology Park Reston office park.
Property operating expenses decreased primarily due to the absence
of approximately $207,000 of operating expenses from the Shopping
Centers Sold, and approximately $122,000 of decreased building
service expenses at Laurel Lakes Centre.
Depreciation decreased in 1997 primarily due to the writedown of the
Glenhardie and Holcomb Wood properties in January 1996.
A summary of the markets in which the Partnership's properties are
located and the performance of each property is as follows:
The office market in suburban Atlanta, the location of the Business
Park at Holcomb Woods, continues to improve with a current vacancy
rate of approximately 3%. The Managing General Partner expects
rental rates to increase moderately in 1997 as the economic
expansion and continued corporate growth has resulted in increased
office occupancies. Several office projects are in the planning
stage of development or under construction in the market; the
Partnership expects that these projects will have minimal effect on
the Holcomb Woods property. Occupancy at the property is currently
97%. No significant leases expire until fiscal 1999.
Market conditions in Valley Forge, Pennsylvania, where the
Chesterbrook Corporate Center is located have improved. The vacancy
rate has decreased from approximately 16% to 12%. During the first
quarter of 1997, average occupancy at the property was approximately
98%. No leases for significant amounts of space expire before 1999.
Glenhardie Corporate Center III and IV is also located in Valley
Forge, Pennsylvania. During the first quarter of 1997 average
occupancy at the property was 99%. No leases for significant
amounts of space expire before 1999.
The overall vacancy level in the office market in Westchester
County, New York, the location of Taxter Corporate Park is currently
24%, and the vacancy level in the west Westchester market in which
the building is located is 15%. It is unlikely that the vacant
space will be absorbed in the market for several years. However,
during the first quarter of 1997, average occupancy at the property
remained at 99%. Leases aggregating approximately 14% of the
property's space expire in 1998.
Tech Park Reston, located in the Reston market in Virginia, was 100%
leased to Sprint Communications. The property was sold on December
31, 1996. See Note 2 to the consolidated financial statements.
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 continue to
experience financial difficulties. However, the property's design,
location and tenant mix has enabled it to maintain relatively stable
rental rates. During the quarter ended January 31, 1997, occupancy
at the property decreased slightly to approximately 80%. 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" space. 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 its overall value. No leases for significant amounts of
space expire before 2005.
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; however, the Partnership believes that
it will not compete with the Property when complete. During the
first quarter of 1997, occupancy at the property decreased to
approximately 53%. As described above, a lease agreement was signed
with Petsmart for approximately 27,000 square feet of space. Toys
R Us plans to renovate its space commencing in the second quarter
1997, which is expected to positively impact the center. The
Partnership continues to look for opportunites to consolidate vacant
small shop space to make room for larger tenants. No leases for
significant amounts of space expire before 2006.
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 6. Exhibits and Reports on Form 8-K.
a) Exhibits
An exhibit index has been filed as part of this Report
on Page E1.
b) Reports on Form 8-K - Report dated December 31,
1996 reporting the sale of the Tech Park Reston
office park.
<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: March 14, 1997 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: March 14, 1997 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and Accounting
Officer)
<PAGE>
Dean Witter Realty Income Partnership III, L.P.
Quarter Ended January 31, 1997
Exhibit Index
Exhibit
No. Description
27 Financial Data Schedule
E1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 20,911,649
<SECURITIES> 0
<RECEIVABLES> 1,092,568
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,876,755<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 124,034,880<F2>
<TOTAL-LIABILITY-AND-EQUITY> 124,876,755<F3>
<SALES> 0
<TOTAL-REVENUES> 4,805,500<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,900,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,904,611
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,904,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,904,611
<EPS-PRIMARY> 5.07<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $76,415,772, investments in joint ventures of $24,768,959,
net deferred expenses of $873,499 and other assets of $814,308.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $689,015,
and security deposits of $152,860.
<F4>Total revenue includes rent of $2,844,876, equity in earnings of joint
ventures of $1,831,022, interest of $100,051 and other revenues of $29,551.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
