5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 31, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number: 0-18146
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(Exact name of registrant as specified in governing instrument)
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
Former name, former address and former fiscal year, if changed
since last report: not applicable
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Page 1
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, October
31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,432,941 $
1,967,110
Real estate, at cost:
Land 8,823,904
10,023,904
Buildings and improvements 55,192,533
72,927,556
64,016,437
82,951,460
Accumulated depreciation 13,222,703
20,484,407
50,793,734
62,467,053
Real estate held for sale 11,416,422
11,941,818
Investments in joint ventures 23,910,545
24,127,982
Deferred leasing commissions, net 578,582
799,948
Other assets 1,894,576
2,486,957
$91,026,800
$103,790,868
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 356,225 $
652,515
Security deposits 93,438
156,945
449,663
809,460
Partners' capital (deficiency):
General partners (8,440,412)
(8,453,230)
Limited partners ($500 per Unit, 534,020 Units issued)
99,017,549 111,434,638
Total partners' capital 90,577,137
102,981,408
$91,026,800
$103,790,868
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED INCOME STATEMENTS
Three months ended January 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Revenues:
Rental $2,279,633
$2,844,876
Equity in earnings of joint ventures 610,901
1,831,022
Interest 69,327
100,051
Other 230,221
29,551
Gain on sale of real estate 6,190,263
- -
9,380,345
4,805,500
Expenses:
Property operating 807,092
787,434
Depreciation 644,094
751,954
Amortization 41,524
67,482
General and administrative 204,470
294,019
1,697,180
1,900,889
Net income $7,683,165
$2,904,611
Net income allocated to:
Limited partners $7,533,875
$2,707,106
General partners 149,290
197,505
$7,683,165
$2,904,611
Net income per Unit of limited partnership interest $ 14.11
$ 5.07
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Three months ended January 31, 1998
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C>
<C>
Partners' capital (deficiency)
at November 1, 1997 $111,434,638
$(8,453,230) $102,981,408
Net income 7,533,875
149,290 7,683,165
Cash distributions (19,950,964)
(136,472) (20,087,436)
Partners' capital (deficiency)
at January 31, 1998 $ 99,017,549
$(8,440,412) $ 90,577,137
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 7,683,165 $
2,904,611
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 644,094
751,954
Amortization 41,524
67,482
Gain on sale of real estate (6,190,263)
- -
Equity in earnings of joint ventures (610,901)
(1,831,022)
(Increase) decrease in operating assets:
Deferred expenses (185,848)
(2,600)
Other assets 592,381
866,319
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities
(296,290) 73,913
Security deposits (63,507)
(2,496)
Net cash provided by operating activities
1,614,355 2,828,161
Cash flows from investing activities:
Proceeds from disposition of real estate held for sale
18,497,771 -
Additions to real estate (387,197)
(208,829)
Investments in joint ventures (154,770)
(294,181)
Distributions from joint ventures 983,108
19,083,661
Net cash provided by investing activities
18,938,912 18,580,651
Cash flows from financing activities:
Cash distributions (20,087,436)
(2,877,775)
Increase in cash and cash equivalents 465,831
18,531,037
Cash and cash equivalents at beginning of period
1,967,110 2,380,612
Cash and cash equivalents at end of period $ 2,432,941
$20,911,649
Supplemental disclosure of non-cash investing activities:
Reclassification of real estate to real estate held for sale:
Real estate, at cost
Land $ 1,200,000 $
- -
Buildings and improvements 17,721,448
- -
Accumulated depreciation (7,505,026)
- -
Real estate held for sale $11,416,422 $
- -
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
1. The Partnership
Dean Witter Realty Income Partnership III, L.P. (the
"Partnership") is a limited partnership organized under
the laws of the State of Delaware in 1985. The
Partnership's fiscal year ends on October 31.
The financial statements include the accounts of the
Partnership, Part Six Associates and Laurel-Vincent
Place Associates Limited Partnership on a consolidated
basis. The Partnership's interests in Taxter Corporate
Park, Tech Park Reston and the partnership which owns
interests in Chesterbrook Corporate Center are
accounted for on the equity method.
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
reporting purposes.
Net income per Unit of limited partnership interest
amounts are calculated by dividing net income allocated
to Limited Partners, in accordance with the Partnership
Agreement, by the weighted average number of Units
outstanding.
In the opinion of management, the accompanying
financial statements, which have not been audited,
include all adjustments necessary to present fairly the
results for the interim period. Except for the gain on
the sale of the Tech Park Reston property included in
equity in earnings of joint ventures in the first
quarter of fiscal 1997 and the gain on the sale of the
Holcomb Woods property in the first quarter of fiscal
1998 (see Note 2), such adjustments consist only of
normal recurring accruals.
These financial statements should be read in
conjunction with the annual financial statements and
notes thereto included in the Partnership's annual
report on Form 10-K filed with the Securities and
Exchange Commission for the year ended October 31,
1997. Operating results of interim periods may not be
indicative of the operating results for the entire
year.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
2. Real Estate
On November 7, 1997 the Partnership sold the land and
building which comprise the Holcomb Woods property to
W9/LWS Real Estate Limited Partnership, an unaffiliated
party, for $19,112,500. The purchase price was paid in
cash, and the Partnership received proceeds of
approximately $18.5 million, net of closing costs and
other deductions. On November 26, 1997 the Partnership
distributed $18.7 million ($35.06 per Unit) of net
proceeds from the sale and cash reserves. The
distribution was paid 100% to Limited Partners.
Pursuant to a Purchase and Sale Agreement dated as of
February 10, 1998, the Partnership agreed to sell the
Glenhardie Corporate Center III and IV properties
("Glenhardie III and IV") and an affiliated partnership
agreed to sell its interest in the remaining properties
at Glenhardie Corporate Center. In addition, as part
of the Agreement, the Partnership, another affiliated
partnership and an affiliate of the Managing General
Partner agreed to sell the Chesterbrook Corporate
Center, (in which the Partnership has a 26.7% interest
through a joint venture). The purchaser of all of these
properties is FV Office Properties, L.P., an
unaffiliated entity. The aggregate price of the
properties to be sold is approximately $173 million of
which $21,120,000 was allocated in the Agreement to
Glenhardie III and IV, and $129,362,500 to the
Chesterbrook Corporate Center. The purchase price is
payable in cash at closing, which is expected to occur
in the second fiscal quarter.
Cash flow from Glenhardie III and IV approximated
$532,000 and $471,000 in the first quarter of 1998 and
1997, respectively. The Partnership's share of cash
flow of Chesterbrook Corporate Center approximated
$640,000 in each of these periods.
Glenhardie III and IV has been reclassified to Real
Estate Held For Sale at January 31, 1998.
The Partnership's contingent lease with PetsMart, at
the Westland Crossing property, has been cancelled.
The Partnership continues to market the 27,000 square
feet of vacant space covered by this lease and is
investigating other redevelopment alternatives which
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
would enhance the value of the property, some of which
would require additional investment by the Partnership.
3. Related Party Transactions
An affiliate of the Managing General Partner provided
property management services for five properties as
well as for five buildings at the Chesterbrook
Corporate Center. The Partnership incurred management
fees of approximately $67,000 and $74,000 for the three
months ended January 31, 1998 and 1997, 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,
1998 and 1997, the Partnership incurred approximately
$143,000 and $161,000, respectively, for these
services. These amounts are included in general and
administrative expenses.
As of January 31, 1998, the affiliates were owed a
total of approximately $48,000 for these services.
4. Litigation
Various public partnerships sponsored by Dean Witter
Realty Inc. (including the Partnership and its Managing
General Partner) are defendants in purported class
actions 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 an accounting of profits,
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.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Notes to Consolidated Financial Statements
5. Subsequent Distribution
On February 25, 1998, the Partnership paid the first
quarter cash distribution of $1.97 per Unit to the
Limited Partners. The total cash distribution amounted
to $1,168,910, with $1,052,019 distributed to the
Limited Partners and $116,891 to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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, 1998, two
office and three retail properties have been sold.
Subsequent to January 31, 1998, the Partnership agreed
to sell two office properties and one of its joint
venture interests. (See Note 2 to the consolidated
financial statements). The Partnership's acquisition
program has been completed. No additional investments
are planned.
Employment growth, especially in the communications,
technology and financial services industries, has
increased demand for space in many office markets.
Such increasing demand and limited speculative
construction has resulted in falling vacancies and
rising rents. Improved property performance along with
an influx of capital from REITs, pension funds and
foreign investors are increasing property values. Some
office markets, especially suburban markets, are faring
better than others and, in certain areas, improved
market conditions can support construction. In the
retail sector, an oversupply of retail space and
consolidation among retailers continues to reduce
demand. Also, many outdated properties are being
redeveloped in order to compete with newer retail
properties. The abundance of available retail space
and sub-lease space offered by retailers (usually at
lower rents) has exerted downward pressure on rents in
many markets. Although investment interest for retail
properties has waned somewhat, REITs continue to
purchase retail properties nationwide.
On November 7, 1997, the Partnership sold the Holcomb
Woods property. (See Note 2 to the consolidated
financial statements). The Partnership received
proceeds of approximately $18.5 million, net of closing
costs and other deductions. On November 26, 1997 the
Partnership distributed $18.7 million ($35.06 per Unit)
of net proceeds from the sale and cash reserves,
representing a return of invested capital. The
distribution was paid 100% to Limited
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Partners. Net income from the Holcomb Woods property
for the first quarter of 1998 was $6,225,708 (including
gain on the sale of the property of $6,190,263). Cash
flow from operations included in distributions for the
first quarter of 1998 was approximately $130,000.
As a result of the sale of the Holcomb Woods property,
the quarterly distribution rate was adjusted from $2.30
per Unit, to $1.97 per Unit, beginning with the
February 1998 distribution.
The Partnership's liquidity depends upon cash flow from
operations of its properties and expenditures for
building improvements, tenant improvements and leasing
commissions in connection with the leasing of space.
During the three months ended January 31, 1998, 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 1998.
In addition, the Partnership's liquidity has been and
will continue to be affected by the sale of properties.
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.
During the three months ended January 31, 1998, the
Partnership's cash flow from operations and
distributions received from its joint ventures exceeded
distributions to investors (other than distributions
from sales of property), capital expenditures, leasing
commissions and contributions to joint ventures.
During the three months ended January 31, 1998, the
Partnership incurred approximately $573,000 of tenant
improvements, building improvements and leasing
commissions at the Glenhardie property. The
Partnership also contributed approximately $96,000 to
the Chesterbrook joint venture and approximately
$59,000 to the Taxter joint venture, for its share of
capital expenditures.
As of January 31, 1998, the Partnership has commitments
to fund approximately $711,000 for tenant improvements,
building improvements and leasing commissions and to
contribute approximately $1,145,000 for its share of
capital expenditures and
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
leasing commissions at the Chesterbrook ($922,000) and
Taxter ($223,000) joint ventures.
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 1998, 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 and proceeds from
future property sales in 1998.
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, 1998, primarily due to the amortization of
prepaid real estate taxes (approximately $254,000)
relating to Laurel Lakes Centre, and due to the sale of
the Holcomb Woods property (approximately $215,000) in
the first quarter of fiscal 1998.
On February 25, 1998, the Partnership paid the first
quarter distribution of $1.97 per Unit to the Limited
Partners. The total cash distribution amounted to
$1,168,910 with $1,052,019 distributed to the Limited
Partners and $116,891 to the General Partners.
Operations
Fluctuations in the Partnership's operating results for
the three month period ended January 31, 1998 compared
to 1997 were primarily attributable to the following:
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Rental revenues, operating expenses and depreciation
decreased primarily due to the sale of the Holcomb
Woods property in the first quarter of fiscal 1998.
Equity in earnings of joint ventures decreased due to
the sale of the Tech Park Reston office park in the
first quarter of fiscal 1997.
Other income increased during the three months ended
January 31, 1998 compared to 1997 primarily due to a
lease termination fee of approximately $110,000
received at the Glenhardie properties.
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 Valley Forge, Pennsylvania, the
location of the Chesterbrook Corporate Center, has seen
rental rates increase substantially and vacancy levels
decline to approximately 10%, as large blocks of
contiguous office space are limited in this market.
During the first quarter of 1998 occupancy at the
property remained at 100%. The Partnership has entered
into an agreement to sell this property. See Note 2 to
the consolidated financial statements.
Glenhardie Corporate Center III and IV is also located
in Valley Forge, Pennsylvania. During the first
quarter of 1998 occupancy at the property decreased
slightly to 98%. The Partnership has entered into an
agreement to sell this property. See Note 2 to the
consolidated financial statements.
The overall vacancy level in the office market in
Westchester County, New York, the location of Taxter
Corporate Park, remained at approximately 17% in the
first quarter, and the vacancy level in the west
Westchester market in which the building is located
remained at approximately 11%. During the first
quarter of 1998, occupancy at the property remained at
100%. No leases for a significant amount of space
expire before 2001. The Partnership expects to market
the property for sale during the second quarter of
fiscal 1998.
Laurel Lakes Centre is located in a suburb of Baltimore
and Washington, D.C., where retail centers continue to
experience strong competition and lower net rental
rates. The market vacancy
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
increased from approximately 16% to 18%. Many
retailers in this market continue to experience
financial difficulties which has negatively affected
the property. As of January 31, 1998, occupancy at the
property was 72%. The Partnership is considering
redevelopment alternatives which would enhance the
value of the property, some of which would require
additional investment by the Partnership. No leases
for significant amounts of space expire before 2005.
The Partnership plans to market the property for sale
during fiscal 1998.
Westland Crossing is situated outside downtown Detroit
and is in an overbuilt market with a current vacancy
rate of approximately 13%. A significant amount of new
retail space is under construction which, when
complete, will compete with Westland Crossing for
tenants. During the first quarter of 1998, occupancy
at the property remained at 69%. The Partnership
continues to market approximately 27,000 square feet of
space covered by a contingent lease signed at the
beginning of the year to PetsMart which has been
canceled. No leases for significant amounts of space
expire before 2006. The Partnership plans to market
the property for sale during fiscal 1998.
Inflation
Inflation has been consistently low during the periods
presented in the financial statements and, as a result,
has not had a significant effect on the operations of
the Partnership or its properties.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
PART II - OTHER INFORMATION
Item 6. Exhibits & 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
1. Report dated November 7, 1997 reporting
the sale of the Holcomb Woods property.
2. Report dated December 22, 1997 reporting
on the change in cash distributions.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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 17, 1998 By: /s/E. Davisson Hardman,
Jr.
E. Davisson Hardman, Jr.
President
Date: March 17, 1998 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Quarter Ended January 31, 1998
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
E1
[ARTICLE] 5
[LEGEND]
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance
sheet is unclassified. For full information, refer to the accompanying
unaudited financial statements.
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-END] JAN-31-1998
[CASH] 2,432,941
[SECURITIES] 0
[RECEIVABLES] 1,221,655
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 91,026,800<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 90,577,137<F2>
[TOTAL-LIABILITY-AND-EQUITY] 91,026,800<F3>
[SALES] 0
[TOTAL-REVENUES] 9,380,345<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 1,697,180
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 7,683,165
[INCOME-TAX] 0
[INCOME-CONTINUING] 7,683,165
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 7,683,165
[EPS-PRIMARY] 14.11<F5>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $50,793,734, real estate held for sale of $11,416,422,
investments in joint ventures of $23,910,545, net deferred expenses of
$578,582 and other assets of $672,921.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $356,225,
and security deposits of $93,438.
<F4>Total revenue includes rent of $2,279,633, equity in earnings of joint
ventures of $610,901, interest of $69,327, other revenues of $230,221 and gain
on sale of real estate of $6,190,263.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
