21
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 0-18146
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
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 (one of which was sold
in fiscal 1997, and one of which was sold subsequent to
fiscal 1997) 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 currently plans to market for sale its
remaining properties during fiscal 1998, with the objective
of completing sales of such properties by the end of 1998.
There is no assurance that the Partnership will be able to
achieve these objectives.
The Partnership considers its business to include one
industry segment, investment in real property. Financial
information regarding the Partnership is in the
Partnership's financial statements in Item 8 below.
The Partnership's real property investments are subject to
competition from similar types of properties in the
vicinities in which they are located. Further information
regarding competition and market conditions where the
Partnership's properties are located is set forth in Item 7,
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Partnership has no employees.
All of the Partnership's business is conducted in the United
States.
ITEM 2. PROPERTIES
The Partnership's principal offices are located at Two World
Trade Center, New York, New York 10048. The Partnership has
no other offices.
As of October 31, 1997, the Partnership owned directly or
through partnership interests the following seven 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
Completed/ Cost Area
Ownership of land
Property and Location Acquired ($000) (000 sq. ft.)
and 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%
General
Valley Forge, PA partnership
Office Building interest1
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 Holcomb 1984/1986 $23,100 244
Fee interest4
Woods, Roswell, GA
4 Office Buildings
Laurel Lakes Centre, 1987/1987 $51,297 466
99.999% General
Laurel, MD Partnership
Shopping Center interest1
Chesterbrook Corporate 1982-1987/ $32,430 621
26.7% General
Center, Valley Forge, PA 1987
Partnership
8 Office Buildings interest3
</TABLE>
1 The remaining general partnership ("GP")
interest is held by the Managing 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 interests are owned by
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.
4 Sold subsequent to year-end. See note 5
to the consolidated financial statements.
Each property was built with on-site parking facilities.
In the first quarter of fiscal 1997 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) sold the Technology Park Reston office park
("Tech Park") property. See note 6 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 6, 1998, there were 35,285 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, 1997, the Partnership paid
quarterly cash distributions aggregating $49.95 per Unit
(including $31.55 of proceeds from the sale of the Tech Park
property. Total distributions were $27,765,758, with
$26,673,984 distributed to the Limited Partners and
$1,091,774 to the General Partners. The distribution of
proceeds from the Tech Park property was paid 100% to the
Limited 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 properties sold in 1996. Total distributions were
$48,260,574, with $46,980,410 distributed to Limited
Partners and $1,280,164 to the General Partners.
On November 25, 1997, the Partnership paid the fourth
quarter distribution of $2.30 per Unit to the Limited
Partners. The total cash distribution amounted to
$1,364,718, with $1,228,246 distributed to the Limited
Partners and $136,472 to the General Partners.
On November 26, 1997, the Partnership distributed
$18,722,741 of the net proceeds from the sale of the Holcomb
Woods property ($35.06 per Unit). The distribution was paid
100% to Limited Partners.
The Partnership anticipates making regular distributions to
its partners in the future. Future cash distribution levels
will fluctuate based on cash flow generated by the
Partnership's remaining properties and proceeds received
from property sales.
Sale or financing proceeds will be distributed, to the
extent available, first, to each Limited Partner, until
there has been a return of the Limited Partner's capital
contribution plus cumulative distributions of distributable
cash and sale or financing proceeds in an amount sufficient
to provide a 9% cumulative annual return on the Limited
Partner's adjusted capital contribution. Thereafter, any
remaining sale or financing proceeds will be distributed 85%
to the Limited Partners and 15% to the General Partners
after the Managing General Partner receives a brokerage fee,
if earned, of up to 3% of the selling price of any equity
investment.
Taxable income generally 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 selected financial
data for the Partnership:
<TABLE>
<CAPTION>
For the years ended October 31,
19971 19962 1995
1994 1993
<S> <C> <C> <C> <C> <C>
Total revenues $ 14,751,226 $ 16,198,761 $
8,946,798 $ 20,279,777 $ 7,977,133
Net income (loss) $ 6,739,122 $ (4,954,508) $
(3,564,379)3 $ 9,711,910 $ (3,002,627)4
Net income
(loss) per
Unit of
limited
partnership
interest $ 11.53 $ (8.35) $
(6.24) $ 16.37 $ (5.06)
Cash distribu-
tions paid
per Unit of
limited
partnership
interest5 $ 49.95 $ 87.98 $
22.81 $ 20.00 $ 20.00
Total assets at
October 31 $103,790,868 $124,778,502
$177,988,847 $195,350,000 $197,751,501
</TABLE>
1 Revenues and net income include the effect of the sale of
the Tech Park property. See Note 6 to the consolidated
financial statements.
2 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.
3 Includes a $1.3 million writedown of real estate held for
sale and the Partnership's share ($11.5 million) of loss
on impairment of the Chesterbrook property.
4 Includes the Partnership's $12.4 million share of loss on
impairment of the Taxter property.
5 Distributions paid to limited partners include returns of
capital per Unit of limited partnership interest of
$49.95, $87.98, $22.81, $8.69 and $20.00 for the years
ended October 31, 1997, 1996, 1995, 1994, and 1993,
respectively, calculated as the excess of cash
distributed per Unit over accumulated earnings per Unit
not previously distributed.
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 (one of which was sold in
fiscal 1997, and one of which was sold subsequent to fiscal
1997) 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.
In 1997 limited speculative construction and the strong
economy, low unemployment and corporate growth continued to
positively impact the demand for office properties. In many
markets, tenant competition for a shrinking amount of office
space has had a positive influence on rental rates and lease
terms. Capital has been readily available for investment
and financing of real estate. Investors, including
institutional, foreign and REIT investors, have been buying
office buildings in many markets.
In the retail sector, consolidation among retailers
continued to lessen the demand for retail space. The
abundance of available retail space and sub-lease space
being offered by retailers (usually at lower rents) has
exerted downward pressure on rents in many markets. Despite
the oversupply of retail space, new projects are being built
and planned, although the pace of new construction has
slowed considerably. Many outdated properties are being
redeveloped in order to compete with newer retail
properties.
On December 31, 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) sold
the Technology Park Reston office park. See note 6 to the
consolidated financial statements.
The Partnership's liquidity depends upon cash flow from
operations of its properties and expenditures for tenant
improvements and leasing commissions in connection with the
leasing of space. In 1997, 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 fiscal 1998.
In addition, the Partnership's liquidity has been and will
continue to be affected by the sale of the Partnership's
properties. The Holcomb Woods property was sold on November
7, 1997 (See Note 5 to the consolidated financial
statements), and the Managing General Partner currently
plans to market for sale the Partnership's remaining office
properties in 1998, with the objective of completing sales
of all the Partnership properties by the end of fiscal 1998.
There is no assurance the Partnership will be able to
achieve these objectives. As the properties are sold, the
Partnership has fewer income producing investments and
Partnership cash from operations and Partnership
distributions will decline.
In 1997, excluding proceeds and distribution amounts
relating to property sales, Partnership distributions to
investors, capital expenditures, leasing commissions, and
contributions to its joint ventures exceeded cash flow from
operations and distributions received from its joint
ventures. This shortfall was funded from cash reserves,
which the MGP determined were in excess of the Partnership's
needs. The Partnership believes, remaining cash reserves
will be sufficient for its future needs.
In 1997, the Partnership (a) incurred approximately $753,000
of tenant improvements and leasing commissions, primarily
relating to the Glenhardie (approximately $218,000) and
Holcomb Woods (approximately $424,000) properties; and (b)
contributed approximately $346,000 to the Chesterbrook joint
venture and $232,000 to the Taxter joint venture for its
share of capital expenditures and leasing commissions.
As of October 31, 1997, the Partnership has commitments to
fund capital expenditures and leasing commissions totaling
approximately $1,219,000, primarily at the Glenhardie
property. The Partnership also has commitments to fund
approximately $332,000 for its share of capital expenditures
and leasing commissions at the Taxter and Chesterbrook
properties.
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 to commence in the spring of 1998. The Partnership
anticipates funding the construction costs from cash
reserves and proceeds from future property sales.
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.
A portion of capital expenditures and leasing commissions is
expected to be funded from Partnership cash reserves in
1998. The Managing General Partner believes cash reserves
will be sufficient for the Partnership's future needs.
Total distributions in fiscal 1997 were $27,765,758, with
$26,673,984 ($49.95 per Unit) distributed to the Limited
Partners, of which $16,848,016 ($31.55 per Unit) was from
the sale of Tech Park, and $1,091,774 to the General
Partners. The Partnership decreased its cash distribution
per Unit from $4.25 per quarter to $2.30 for the quarterly
distribution paid on November 25, 1997. The total cash
distribution amounted to $1,364,718, with $1,228,246
distributed to the Limited Partners and $136,472 to the
General Partners.
On November 26, 1997, the Partnership distributed
$18,722,741 of the net proceeds from the sale of the Holcomb
Woods property ($35.06 per Unit). The distribution was paid
100% to Limited Partners. See note 5 to the consolidated
financial statements.
Future cash distribution levels will fluctuate based on cash
flow generated by the Partnership's remaining properties and
proceeds received from future property sales.
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, 1997 compared to 1996 and for the
year ended October 31, 1996 compared to 1995 were primarily
attributable to the following:
Rental revenues decreased in the respective comparative
periods due to decreased revenues at the Laurel Lakes Centre
of approximately $605,000 and $803,000 due to lower
occupancy and reduced passthrough income and the absence of
rental income of approximately $441,000 and $4.7 million
from three shopping centers which were sold in the first
quarter of fiscal 1996 (the "Shopping Centers Sold"). These
decreases in 1996 vs. 1995 were offset by increases at the
Partnership's other properties; no individual property
accounted for a material portion of the change.
No individual factor accounted for a material portion of the
increase in equity in earnings of joint ventures in 1997
compared to 1996. The increase in equity in earnings of
joint ventures in 1996 compared to 1995 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.
Operating expenses decreased in the respective comparative
periods, primarily due to the absence of operating expenses
of the Shopping Centers Sold. Operating expenses also
decreased in 1997 vs. 1996 because of decreased building
service expenses and other operating expenses of
approximately $255,000 at Laurel Lakes Centre.
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 and 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 totaling approximately $12.4 million. 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.
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 1997, the average occupancy
at the property was 98%, and at October 31, 1997 the
property was 99% leased to 26 tenants. The property was 96%
leased at October 31, 1996. The Holcomb Woods property was
sold subsequent to year end. See note 5 to the consolidated
financial statements.
The office market in Valley Forge, Pennsylvania, the
location of the Chesterbrook Corporate Center, has shown
continued improvement with rental rates rising and limited
availability of larger space. Market vacancy improved to
less than 12%. At October 31, 1997 the property was 100%
leased to 29 tenants, compared to 99% at the prior fiscal
year-end. The average occupancy during fiscal 1997 was 99%.
Leases for approximately 16% 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 1997, average occupancy
at the property was 94%, and at October 31, 1997 the
property was 100% leased to 26 tenants, compared to 97% at
the prior fiscal year-end. Significant tenants and the year
of their lease expiration are: Allstate Insurance Company
which vacated in May 1997 on expiration of its lease and, in
October leased approximately 11% of total space - 2002; New
England Life, which signed a lease in October 1997 for
approximately 14% of space - 2004; and Dean Witter Reynolds,
(an affiliate of the Managing General Partner) for
approximately 10% of total space - 2005.
The overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park, decreased from 24% to 17% in 1997. The
vacancy level in the west Westchester market in which the
building is located is currently 11%, reflecting a 4%
absorption in fiscal 1997 over the prior year. During 1997,
average occupancy at the property was approximately 99%, and
at October 31, 1997, the property was 100% occupied. The
property is leased to 21 tenants. KLM Royal Dutch Airlines
owns a long-term leasehold in approximately 20% of the space
at the property. Leases aggregating approximately 15% of
the property's space expire in fiscal 1999. The lease of
Fuji Photo Film (for approximately 28% of the property's
space) expires in fiscal 2001. No other tenants occupy more
than 10% of the property.
Tech Park Reston, located in the Reston Virgnia market, was
100% leased during 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%. Some 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
31, 1997, occupancy at the property decreased to 79% (leased
to 29 tenants) from 81% at October 31, 1996. The
Partnership is considering the consolidation of portions of
the vacant small shop space at the center and other
redevelopment alternatives which would enhance the value of
the property, some of which would require additional
investment by the Partnership. The leases of K-Mart (18% of
total space), Hoyts Cinemas (10% of total space), Safeway
Stores (11% of total space) and Best Buy (11% of total
space), expire in 2005, 2005, 2006 and 2010, respectively.
No other tenant occupies more than 10% of the property, and
no leases for significant amounts of space expire until
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 which, when complete,
will compete with Westland Crossing for tenants. The
property has a current occupancy rate of 69%, leased to 14
tenants, (vs. 67% at the prior fiscal year-end), and an
average occupancy rate of 58% in fiscal 1997. In the fourth
quarter of fiscal 1997 the Partnership leased 25,000 square
feet of vacant anchor space to Office Depot. As described
above, a lease agreement was signed with PetsMart for
approximately 27,000 square feet of space. The Partnership
continues to look for opportunities to consolidate vacant
small shop space to make room for larger tenants. Leases
for approximately 9% of the property's space expire in
fiscal 1998. The lease of Frank's Supercrafts, which
occupies approximately 16% of the shopping center, expires
in fiscal 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
INDEX
Page
Independent Auditors' Report [UPDATE]
Consolidated Balance Sheets at October 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
October 31, 1997, 1996 and 1995
Consolidated Statements of Partners' Capital for the
years ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
October 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Real Estate and Accumulated Depreciation Schedule
III
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.
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, 1997 and 1996 and the related consolidated statements of
operations, partners' capital and cash flows for each of the
three years in the period ended October 31, 1997. Our
audits also included the financial statement schedule listed
in the Index at Item 8. These financial statements and
financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express
an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Dean Witter Realty Income Partnership III, L.P.
and consolidated partnerships as of October 31, 1997 and
1996 and the results of their operations and their cash
flows for each of the three years in the period ended
October 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
/s/Deloitte &
Touche LLP
DELOITTE & TOUCHE
LLP
January 16, 1998
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
As of October 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,967,110 $
2,380,612
Real estate, at cost:
Land 10,023,904
11,263,904
Buildings and improvements 72,927,556
90,921,733
82,951,460
102,185,637
Accumulated depreciation (20,484,407)
(25,226,740)
62,467,053
76,958,897
Real estate held for sale 11,941,818 -
Investments in joint ventures 24,127,982
41,727,417
Deferred leasing commissions, net 799,948
938,381
Other assets 2,486,957
2,773,195
$103,790,868
$124,778,502
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 652,515 $
615,102
Security deposits 156,945
155,356
809,460
770,458
Partners' capital (deficiency):
General partners (8,453,230)
(7,942,412)
Limited partners ($500 per Unit 534,020 Units issued)
111,434,638 131,950,456
Total partners' capital 102,981,408
124,008,044
$103,790,868
$124,778,502
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1997, 1996, and 1995
<CAPTION>
1997 1996
1995
<S> <C> <C> <C>
Revenues:
Rental $10,824,205
$11,897,566 $16,677,181
Equity in earnings (losses) of joint ventures
3,599,828 3,477,991
(8,222,327)
Interest 243,119
668,471 234,446
Other 84,074
154,733 257,498
14,751,226
16,198,761 8,946,798
Expenses:
Property operating 3,530,892
4,418,272 5,381,373
Depreciation 3,133,640
3,046,695 4,565,589
Amortization 308,136
274,820 277,901
General and administrative 1,039,436
990,610 1,021,431
Losses on impairment of real estate -
12,422,872 -
Loss on writedown of real estate held for
sale - -
1,264,883
8,012,104
21,153,269 12,511,177
Net income (loss) $ 6,739,122
$(4,954,508) $(3,564,379)
Net income (loss) allocated to:
Limited partners $ 6,158,166
$(4,459,057) $(3,334,429)
General partners 580,956
(495,451) (229,950)
$ 6,739,122
$(4,954,508) $(3,564,379)
Net income (loss) per Unit of limited
partnership interest $ 11.53 $
(8.35) $ (6.24)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the years ended October 31, 1997, 1996 and 1995
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency) at
November 1, 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
Net income 6,158,166
580,956 6,739,122
Cash distributions (26,673,984)
(1,091,774) (27,765,758)
Partners' capital (deficiency) at
October 31, 1997 $111,434,638
$(8,453,230) $102,981,408
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,739,122 $
(4,954,508) $ (3,564,379)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation 3,133,640
3,046,695 4,565,589
Amortization 308,136
274,820 277,901
Equity in (earnings) losses of joint
ventures (3,599,828)
(3,477,991) 8,222,327
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 (169,703)
(244,999) (517,660)
Other assets 286,238
130,897 (410,290)
Increase(decrease) in operating liabilities:
Accounts payable and accrued liabilities
37,413 18,626 (15,805)
Security deposits 1,589
(13,889) (20,402)
Net cash provided by operating
activities 6,736,607
7,202,523 9,802,164
Cash flows from investing activities:
Proceeds from sale of real estate -
35,256,585 -
Additions to real estate (583,614)
(1,040,895) (1,021,987)
Investment in joint ventures (578,613)
(678,346) (1,816,036)
Distributions from joint ventures 21,777,876
5,213,755 5,576,322
Net cash provided by investing
activities 20,615,649
38,751,099 2,738,299
(continued)
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1997, 1996 and 1995
(continued)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from financing activities:
Cash distributions (27,765,758)
(48,260,574) (13,535,925)
Decrease in cash and cash equivalents (413,502)
(2,306,952) (995,462)
Cash and cash equivalents at beginning of year
2,380,612 4,687,564
5,683,026
Cash and cash equivalents at end of year $ 1,967,110 $
2,380,612 $ 4,687,564
Supplemental disclosure of non-cash investing
activities:
Reclassification of real estate held for sale
and writeoff of related assets and liabilities:
Real estate, at cost
Land $ 1,240,000 $
- - $ 5,843,309
Buildings and improvements 18,111,954 -
52,939,906
Accumulated depreciation (7,410,136) -
(12,355,956)
Real estate, net 11,941,818 -
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 $11,914,818 $ -
$ 45,495,628
Reclassification of real estate from held
for sale to real estate:
Land $ - $
1,023,904 $ -
Buildings and improvements - 9,215,139
- -
Real estate, net $ - $10,239,043 $
- -
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997, 1996 and 1995
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 99.9% and 99.999% General Partnership
interests 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
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents consist of cash and highly liquid
investments with maturities, when purchased, of three months
or less.
The carrying value of real estate includes the purchase
price paid by the Partnership and acquisition fees and
expenses. Costs of improvements to the properties are
capitalized, and repairs are expensed. Depreciation is
recorded on the straight-line method. The Partnership stops
recording depreciation on a property when it is reclassified
as held for sale.
At least annually, and more often if circumstances dictate,
the Partnership evaluates the recoverability of the net
carrying value of its real estate and any related assets.
As part of this evaluation, the Partnership assesses, among
other things, whether there has been a significant decrease
in the market value of any of its properties. If events or
circumstances indicate that the net carrying value of a
property may not be recoverable, the expected future net
cash flows from the property are estimated for a period of
approximately five years (or a shorter period if the
Partnership expects that the property may be disposed of
sooner), along with estimated sales proceeds at the end of
the period. If the total of these future undiscounted cash
flows were less than the carrying amount of the property,
the property would be written down to its fair value as
determined (in some cases with the assistance of outside
real estate consultants) based on discounted cash flows, and
a loss on impairment recognized by a charge to earnings.
The Partnership's accounting policy complies with Statement
of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of".
Because the determination of fair value is based upon
projections of future economic events such as property
occupancy rates, rental rates, operating cost inflation and
market capitalization rates which are inherently subjective,
the amounts ultimately realized at disposition may differ
materially from the net carrying values as of October 31,
1997.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liabilities is approximately $48.5 million higher than the
amounts reported for financial statement purposes.
The Financial Accounting Standards Board has recently issued
several new accounting pronouncements. Statement No. 128,
"Earnings per Share" establishes standards for computing and
presenting earnings per share, and Statement No. 129,
"Disclosure of Information about Capital Structure"
establishes standards for disclosing information about an
entity's capital structure. These two standards will be
effective for the Partnership's 1998 year-end financial
statements. Statement No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of
comprehensive income and its components. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosure about products and services, geographic areas,
and major customers. These two standards are effective for
the Partnership's 1999 financial statements.
Management of the Partnership does not believe that these
new standards will have any effect on the Partnership's
computation or presentation of net income or net income per
Unit of limited partnership interest, or its disclosures of
capital structure, or other disclosures.
3. Partnership Agreement
The Partnership Agreement provides that distributable cash,
as defined, 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
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Distributions paid to Limited Partners include returns of
capital per Unit of limited partnership interest of $49.95,
$87.98 and $22.81 for the years ended October 31, 1997, 1996
and 1995, respectively, calculated as the excess of cash
distributed per Unit over accumulated earnings per Unit not
previously distributed.
4. Real Estate Investments
The location, year of acquisition and net carrying values of
the properties are as follows:
<TABLE>
<CAPTION>
Year of October 31,
Property Acquisition 1997 1996
<S> <C> <C> <C>
Glenhardie III and IV
Valley Forge, PA 1986 $11,275,058
$11,883,930
Westland Crossing, Westland, MI 1986
9,536,379 9,862,785
Holcomb Woods, Roswell, GA 1986 -
12,428,082
Laurel Lakes Centre, Laurel, MD 1987
41,655,616 42,784,100
$62,467,053
$76,958,897
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net carrying value of Holcomb Woods property was
reclassified to Real Estate Held For Sale in the fourth
quarter of fiscal 1997. See Note 5.
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.
5. Real Estate Held for Sale
Pursuant to an agreement dated as of October 1, 1997 (as
amended) the Partnership agreed to sell the Holcomb Woods
property to an unaffiliated party, for $19,112,500.
The closing of the sale took place on November 7, 1997. At
closing, the Partnership received proceeds of approximately
$18.7 million net of closing costs and other deductions.
The net proceeds from the sale $35.06 per Unit) were
distributed 100% to Limited Partners in November 1997.
Net income and cash flow from the Holcomb Woods property in
fiscal year 1997 were approximately $927,000 and $1,873,000
respectively.
6. Investments in Joint Ventures
Taxter Corporate Park, Westchester County, New York
The Partnership owns a 44.6% partnership interest in the
general partnership which owns the property. Affiliates of
the
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership, Dean Witter Realty Income Partnership II, L.P.,
and Dean Witter Realty Income Partnership IV, L.P., own 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,
1997 1996
<S> <C> <C>
Land and buildings, net $17,203,009 $17,781,234
Other 1,718,650 1,990,515
Total assets $18,921,659 $19,771,749
Liabilities $ 153,159 $ 176,478
Partners' capital 18,768,500 19,595,271
Total liabilities and capital $18,921,659 $19,771,749
Summarized results of operations of the joint venture are as
follows:
Years ended October 31,
1997 1996 1995
Rental income $5,511,684 $5,954,030
$6,267,312
Other income 181,367 43,394
92,483
5,693,051 5,997,424
6,359,795
Property operating expenses 3,111,753 3,111,267
3,168,141
Depreciation and amortization 1,164,659 1,196,229
1,119,284
4,276,412 4,307,496
4,287,425
Net income $1,416,639 $1,689,928
$2,072,370
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Chesterbrook Corporate Center, Valley Forge, Pennsylvania
The Partnership, Dean Witter Realty Income Partnership IV,
L.P. and an affiliate of the Managing General Partner own
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.
In fiscal 1995, the partners concluded that the property's
value was impaired and, 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 an impairment loss of approximately
$43.2 million at October 31, 1995. The Partnership's share
of this loss (approximately $11.5 million) was included in
equity in earnings (losses) of joint ventures in fiscal
1995.
Summarized balance sheet information of the joint venture is
as follows:
<TABLE>
<CAPTION>
October 31,
1997 1996
<S> <C> <C>
Land and buildings, net $60,751,413 $62,641,806
Other 3,658,647 3,059,694
Total assets $64,410,060 $65,701,500
Liabilities $ 2,240,900 $ 1,792,898
Partners' capital 62,169,160 63,908,602
Total liabilities and capital $64,410,060 $65,701,500
</TABLE>
<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,
1997 1996 1995
<S> <C> <C> <C>
Rental income $14,128,854
$13,604,130 $ 13,532,187
Other income 43,550
35,957 212,134
14,172,404
13,640,087 13,744,321
Property operating expenses 4,323,012
4,818,114 4,528,817
Depreciation and amortization 3,305,764
3,186,022 4,664,856
Loss on impairment of real estate - -
43,161,160
7,628,776
8,004,136 52,354,833
Net income (loss) $ 6,543,628 $
5,635,951 $(38,610,512)
</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 received cash flow and profits and losses
according to their interests.
On December 31, 1996, TPA and an affiliate of the Managing
General Partner (the "Affiliate"), which owns the fourth
building at the property, sold the property to Sprint
Communications Company L.P., the sole tenant at the
property, for a negotiated sale price of $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 sale 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. In February
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997, the Partnership distributed $16,848,016 of the net
proceeds from the sale ($31.55 per Unit). The distribution
was paid 100% to Limited Partners.
Cash flow from operations for the Tech Park joint venture
was approximately $273,000 in 1997.
Summarized balance sheet information of the joint venture is
as follows:
<TABLE>
<CAPTION>
October 31,
1997 1996
<S> <C> <C>
Land and buildings, net $ - $46,158,784
Other - 1,692,571
Total assets $ - $47,851,355
Total partners' capital $ - $47,851,355
Summarized results of operations of the joint venture are as
follows:
Years ended October 31,
1997 1996 1995
Rental income $ 843,004 $5,219,899
$5,058,016
Gain on sale of property 3,169,132 -
- -
4,012,136 5,219,899
5,058,016
Depreciation 262,751 1,576,508
1,576,372
Amortization 17,827 106,960
106,960
Property operating expense 5,604 52,191
53,532
286,182 1,735,659
1,736,864
Net income $3,725,954 $3,484,240
$3,321,152
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in investments in joint ventures is as follows:
<CAPTION>
Years ended October 31,
1997 1996 1995
<S> <C> <C> <C>
Investments at beginning of year $ 41,727,417
$42,784,835 $54,767,448
Equity in earnings (losses) 3,599,828
3,477,991 (8,222,327)
Distributions (21,777,876)
(5,213,755) (5,576,322)
Contributions 578,613
678,346 1,816,036
Investments at end of year $ 24,127,982
$41,727,417 $42,784,835
</TABLE>
The accounting policies of the Joint Ventures are the same
as those of the Partnership.
7. Leases
Minimum future rental income under noncancellable operating
leases (excluding the leases of space at real estate held
for sale) as of October 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending October 31,
<S> <C>
1998 $ 6,467,265
1999 5,857,793
2000 4,900,476
2001 4,557,242
2002 4,008,475
Thereafter 14,464,566
Total $40,255,817
</TABLE>
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 five properties in 1997 and
eight properties in 1996 and 1995, as well as for five
buildings at the Chesterbrook Corporate Center in each year.
The Partnership incurred management fees of $244,266,
$478,220 and $466,198 for the years ended October 31, 1997,
1996 and
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995, respectively. These amounts are included in property
operating expenses.
Another affiliate of the Managing General Partner performs
administrative functions, processes investor transactions
and prepares tax information for the Partnership. The
Partnership incurred approximately $630,000, $661,000 and
$756,000 for these services in each of the years ended
October 31, 1997, 1996 and 1995. These amounts are included
in general and administrative expenses.
As of October 31, 1997, the affiliates were owed a total of
approximately $70,000 for these services.
9. Litigation
Various public partnerships sponsored by Dean Witter Realty
Inc. (including the Partnership and its Managing General
Partner) are defendants in a number of class action lawsuits
pending in state and federal courts. The complaints allege
a variety of claims, including breach of fiduciary duty,
fraud, misrepresentation and related claims, and seek
compensatory and other damages and equitable relief. The
defendants intend to vigorously defend the actions. It is
impossible to predict the effect, if any, the outcome of
these actions might have on the Partnership's financial
statements.
10. Distributions Subsequent to Year-End
On November 25, 1997, the Partnership paid a cash
distribution of $2.30 per Unit to the Limited Partners. The
total cash distribution amounted to $1,364,718, with
$1,228,246 distributed to the Limited Partners and $136,472
to the General Partners.
On November 26, 1997 the partnership distributed $18,722,741
of the net proceeds from the sale of the Holcomb Woods
property ($35.06 per Unit). The distribution was paid 100%
to Limited Partners. See Note 5.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership which has no
directors or officers.
The directors and executive officers of the Managing General
Partner are as follows:
Position with the
Name Managing General Partner
William B. Smith Chairman of the Board of
Directors
E. Davisson Hardman, Jr. President and Director
Lawrence Volpe Controller and Director
Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the
next annual meeting of the shareholder of the Managing
General Partner or until their successors are elected and
qualify. Each of the executive officers has been elected to
serve until his successor is elected and qualifies.
William B. Smith, age 54, has been a Managing Director of
Morgan Stanley and co-head of Morgan Stanley Realty
Incorporated since 1997, and a Managing Director of Dean
Witter Realty Inc., which he joined in 1982. He is an
Executive Vice President of Dean Witter Reynolds Inc.
E. Davisson Hardman, Jr., age 48, has been a Managing
Director of Morgan Stanley Asia, Ltd. since 1997, and a
Managing Director of Dean Witter Realty Inc., which he
joined in 1982.
Lawrence Volpe, age 50, is a Director and the Controller of
Dean Witter Realty Inc. He is a Senior Vice President and
Controller of Dean Witter Reynolds Inc., which he joined in
1983.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Ronald T. Carman, age 46, is a Director and the Secretary of
Dean Witter Realty Inc. He is an Assistant Secretary of MWD
and a Senior Vice President and Associate General Counsel of
Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing
persons.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash
distributions, when and as cash distributions are made to
the Limited Partners, and a share of taxable income or tax
loss. Descriptions of such distributions and allocations
are in Item 5 above. The General Partners received cash
distributions of $1,091,774, $1,280,164 and $1,353,593
during the years ended October 31, 1997, 1996 and 1995,
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
8 to the consolidated financial statements in Item 8 above.
The directors and officers of the Partnership's Managing
General Partner received no remuneration from the
Partnership.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND
MANAGEMENT
(a) No person is known to the Partnership to be the
beneficial owner of more than five percent of the Units.
(b) The directors and executive officers of the
Managing General Partner own the following Units as of
December 31, 1997:
Amount and
Title of Name of Nature
of
Class Beneficial Owner Beneficial
Ownership
Limited All directors and *
Partnership executive officers of
Interests the Managing General
Partner, as a group
* Own, by virtue of ownership of limited partnership
interests in the Associate General Partner, less than 1% of
the Units of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their being partners of a limited partnership
which is the Limited Partner of the Associate General
Partner, certain current and former officers and directors
of the Managing General Partner also own indirect
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 Dean Witter Realty
Inc. ("Realty"), a Delaware corporation which is a wholly-
owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co. The general partner of the Associate General Partner is
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
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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.
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 of
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.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(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 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, 1986k, June 1,
1987, December 7, 1987, and December 15, 1987 are
incorporated herein by reference.
(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 is 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 is 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 is
incorporated herein by reference.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(e) Purchase and Sale Agreement, dated as of
October 1, 1997, First Amendment to Purchase and
Sale Agreement dated as of October 15, 1997 and
Second Amendment to Purchase and Sale Agreement
dated as of October 27, 1997 between Dean Witter
Realty Income Partnership III, L.P., as Seller and
LPC Commercial Services, Inc. as Purchaser, filed
as Exhibit 2 to the Registrant's Report on Form 8-
K on November 7, 1997 is 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.
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SCHEDULE III
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Real Estate and Accumulated Depreciation
October 31, 1997
Initial cost to Partnership
<CAPTION>
Cost
Capital-
ized
Subsequent
Description Land Improvements Total
To Acquisition
<S> <C> <C> <C> <C>
Glenhardie III & IV
Valley Forge, PA $ 2,000,000 $18,805,786
$20,805,786 $2,616,392
Westland Crossing
Westland, MI 1,376,659 12,389,933
13,766,592 428,135
Laurel Lakes Centre
Laurel, MD 7,800,000 45,536,882
53,336,882 614,523
$11,176,659 $76,732,601
$87,909,260 $3,659,050
Gross Amount at which
Carried at End of Period
(A)
Loss on
Impairment
of Building and
Description Real Estate Land
Improvements Total
Glenhardie III & IV
Valley Forge, PA $4,664,675 $ 1,200,000
$17,557,503 $18,757,503
Westland Crossing
Westland, MI 3,952,1751 1,023,904
9,218,648 10,242,552
Laurel Lakes Centre
Laurel, MD - 7,800,000 46,151,405
53,951,405
$8,616,850 $10,023,904
$72,927,556 $82,951,460
1 Westland Crossing was reclassified from Real Estate Held
For Sale to Real Estate in fiscal 1996. Amount includes
accumulated depreciation of $3,023,690 and a loss on
impairment of real estate of $928.485.
</TABLE>
<TABLE>
1DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(SCHEDULE III (continued)
<CAPTION>
Life on
which
Depreciation in
Latest
Income
Accumulated Date of Statement
is
Description Depreciation(B) Construction Date
Acquired Computed
<S> <C> <C> <C> <C>
Glenhardie III & IV
Valley Forge, PA $ 7,482,445 1984 -
1985 June 1968 up to 40 years
Westland Crossing
Westland, MI 706,173 1986 December
1986 up to 40 years
Laurel Lakes Centre
Laurel, MD 12,295,789 1987 June 1987
up to 40 years
$20,484,407
</TABLE>
<TABLE>
Notes:
(A)Reconciliation of real estate owned at October 31:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $102,185,637
$103,328,571$161,364,133
Additions (deletions) during period:
Purchases - - -
Improvements 583,614
1,040,895 1,021,987
Write-offs due to lease expirations
(465,837) - (274,334)
Reclass (to) from real estate held
for sale (19,351,954)
10,239,0431 (58,783,215)
Loss on impairment of Real Estate -
(12,422,872) -
Balance at end of period $ 82,951,460
$102,185,637$103,328,571
</TABLE>
Except for losses on impairment of real estate and the
adjustment to Westland Crossing for accumulated depreciation
described in note 1, there is no difference between cost for
financial reporting purposes and cost for federal income tax
purposes.
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(SCHEDULE III (continued)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
(B)Reconciliation of accumulated
depreciation:
Balance at beginning of period $25,226,740 $
22,180,045 $ 30,244,746
Depreciation expense 3,133,640
3,046,695 4,565,589
Write-offs due to lease
expirations (465,837)
- (274,334)
Reclass to real estate held for
sale (7,410,136) -
(12,355,956)
Balance end of period $20,484,407 $
25,226,740 $ 22,180,045
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 28, 1998
E. Davisson Hardman, Jr.
President
By: /s/Lawrence Volpe Date:
January 28, 1998
Lawrence Volpe
Controller
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
DEAN WITTER REALTY INCOME PROPERTIES III INC.
Managing General Partner
/s/William B. Smith Date:
January 28, 1998
William B. Smith
Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date:
January 28, 1998
E. Davisson Hardman, Jr.
Director
/s/Lawrence Volpe Date:
January 28, 1998
Lawrence Volpe
Director
/s/Ronald T. Carman Date:
January 28, 1998
Ronald T. Carman
Director
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Year Ended October 31, 1997
Exhibit Index
Exhibit
No.
27 Financial Data Schedule
E1
_______________________________
1
[ARTICLE] 5
[LEGEND]
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
audited financial statements.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-END] OCT-31-1997
[CASH] 1,967,110
[SECURITIES] 0
[RECEIVABLES] 1,488,436
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 103,790,868<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 102,981,408<F2>
[TOTAL-LIABILITY-AND-EQUITY] 103,790,868<F3>
[SALES] 0
[TOTAL-REVENUES] 14,751,226<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 8,012,104
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 6,739,122
[INCOME-TAX] 0
[INCOME-CONTINUING] 6,739,122
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 6,739,122
[EPS-PRIMARY] 11.53<F5>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $62,467,053, real estate held for sale of $11,941,818,
investments in joint ventures of $24,127,982, net deferred expenses of
$799,948 and other assets of $998,521.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $652,515,
and security deposits of $156,945.
<F4>Total revenue includes rent of $10,824,205, equity in earnings of joint
ventures of $3,599,828, interest of $243,119 and other revenues of $84,074.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
