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, 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 its charter)
Delaware
13-3293754
(State of organization) (IRS Employer
Identification No.)
2 World Trade Center, New York, NY
10048
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (212)
392-1054
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. N/A
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I.
ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Income Partnership III,
L.P. (the "Partnership"), is a limited partnership formed in
August 1985 under the Uniform Limited Partnership Act of the
State of Delaware for the purpose of investing primarily in
income-producing office, industrial and retail properties.
The Managing General Partner of the Partnership is Dean
Witter Realty Income Properties III Inc. (the "Managing
General Partner"), a Delaware corporation which is wholly
owned by Dean Witter Realty Inc. ("Realty"). The Associate
General Partner is Dean Witter Realty Income Associates III,
L.P. (the "Associate General Partner"), a Delaware limited
partnership, the general partner of which is the Managing
General Partner. The Managing General Partner manages and
controls all aspects of the business of the Partnership.
The terms of transactions between the Partnership and its
affiliates are set forth below in Note 8 to the consolidated
financial statements included in Item 8 and in Item 13.
The Partnership issued 534,020 units of limited partnership
interest
(the "Units") with gross proceeds from the offering of
$267,010,000. The offering has been terminated and no
additional Units will be sold.
The proceeds from the offering were used to make equity
investments in six office properties and five retail
properties which were acquired without mortgage debt. All
but one office and two retail properties were sold by
October 31, 1998. The remaining properties are described in
Item 2 below.
The Partnership currently is marketing for sale two
properties and plans to market for sale its remaining
property during fiscal 1999, with the objective of
completing sales of such properties by the end of 1999.
There can be 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.
<PAGE>
<TABLE>
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, 1998, the Partnership owned directly or
through partnership interests the following three 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.
<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>
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
Laurel Lakes Centre, 1987/1987 $51,297 466
99.999% General
Laurel, MD Partnership
Shopping Center interest1
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.
Each property was built with on-site parking facilities.
</TABLE>
<PAGE>
In the first quarter of fiscal 1998, the Partnership sold
the Holcomb Woods property which is located in Roswell,
Georgia. In the second qurter of fiscal 1998, the
Partnership sold the Glenhardie Corporate Center III and IV
properties and its share of the Chesterbrook property (owned
26.7% by the Partnership), all of which are located in
Valley Forge, Pennsylvania.
An affiliate of the Partnership is the property manager for
Taxter Corporate Park and Westland Crossing.
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. (now known as Morgan Stanley Dean Witter &
Co., "MWD") 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, MWD,
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
<PAGE>
Partner), Realty, DWR, MWD 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,
MWD, 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, MWD, 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.
On July 17, 1998 the Delaware Chancery Court granted the
defendants' motion to dismiss the complaint in the
Consolidated Action. The plaintiffs filed a notice of
appeal from the Chancery Court's order on August 14, 1998.
Oral argument on the appeal was heard by the Delaware
Supreme Court on January 5, 1999. The Delaware Supreme
Court affirmed the Chancery Court's dismissal of the
Consolidated Action on January 6, 1999.
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
<PAGE>
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, 1999, there were 34,238 holders of limited
partnership interests.
The Partnership is a limited partnership and, accordingly,
does not pay dividends. It does, however, make
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, 1998, the Partnership paid
cash distributions aggregating $147.42 per Unit (including
(a) $35.06 per Unit from the net proceeds from the sale of
the Holcomb Woods property, and (b) $105.09 per Unit from
the net proceeds from the sale of the Glenhardie III and IV
properties, its share of proceeds from the sale of the
Chestebrook property and the remaining proceeds from the
sale of the Technology Park property). Total distributions
were $79,156,575, with $78,725,205 distributed to the
Limited Partners and $431,370 to the General Partners. The
distributions of proceeds from the sales of the
Partnership's property interests were paid 100% to the
Limited 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 Limited Partners and $1,091,774 to the General Partners.
The Partnership did not make a distribution following the
fourth quarter of fiscal 1998 and does not anticipate making
regular distibutions to its partners in the future. Future
cash distribution levels will fluctuate based primarily on
sales of the Partnership's remaining properties and future
cash distributions will be paid from proceeds received from
such property sales and cash reserves.
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
<PAGE>
<TABLE>
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:
<CAPTION>
For the years ended October 31,
19981 19972 19963 1995
1994
<S> <C> <C> <C> <C> <C>
Total revenues $ 41,694,717 $ 14,751,226 $
16,198,761 $ 8,946,798 $ 20,279,777
Net income (loss) $ 36,838,054 $ 6,739,122 $
(4,954,508) $ (3,564,379)4 $ 9,711,910
Net income
(loss) per
Unit of
limited
partnership
interest $ 68.22 $ 11.53 $
(8.35) $ (6.24) $ 16.37
Cash distribu-
tions paid
per Unit of
limited
partnership
interest5 $ 147.42 $ 49.95 $
87.98 $ 22.81 $ 8.69
Total assets at
October 31 $ 61,013,479 $103,790,868
$124,778,502 $177,988,847 $195,350,000
1 Revenues and net income include the effect of the sales
of the Holcomb Woods property, the Glenhardie
III and IV properties, and the Partnership's interest in the
Chesterbrook property.
2 Revenues and net income include the effect of the sale of
the Tech Park property.
</TABLE>
<PAGE>
3 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.
4 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.
5 Distributions paid to limited partners include
returns of capital per Unit of limited partnership
interest of $82.26, $49.95, $87.98, $22.81, and $8.69 for
the years ended October 31, 1998, 1997, 1996, 1995,
and 1994, 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 and five retail properties.
Through October 31, 1998, five office properties and three
retail properties have been sold. The Partnership's
acquisition program has been completed. No additional
investments are planned.
On November 7, 1997, the Partnership sold the Holcomb Woods
property. See Note 5 to the consolidated financial
statements. On November 26, 1997, the Partnership
distributed $18.7 million ($35.06 per Unit), the net
proceeds from the sale, representing a return of invested
capital. The distribution was paid 100% to Limited Partners.
On April 1, 1998, the Partnership sold the Glenhardie III
and IV properties and the Chesterbrook Corporate Center
joint venture sold its property investment. See Note 5 to
the consolidated financial statements. On April 14,1998,
the Partnership distributed $56.1 million ($105.09 per Unit)
of net proceeds from the sale of the Glenhardie III and IV
properties, its share of the proceeds from the sale of the
Chesterbrook Corporate Center, and the remaining proceeds
from the sale of the Technology Park property. The
distribution was paid 100% to Limited Partners.
The Managing General Partner currently is marketing for sale
the Westland Crossing and Taxter properties and will begin
marketing for
<PAGE>
sale in fiscal 1999 the Laurel Lakes Centre property, with
the objective of completing sales of all properties during
1999. However, there can be no assurance that the
Partnership will be able to achieve these objectives.
During fiscal 1998, the overall vacancy level in the office
market in Westchester County, New York, the location of
Taxter Corporate Park, increased slightly from 17% to 18%.
Also during fiscal 1998, the vacancy level in the west
Westchester market in which the building is
located increased from 11% to 14%. The average occupancy at
the property during fiscal 1998 was approximately 99%, and
at October 31, 1998, the property was 98% occupied. The
property is leased to 17 tenants. KLM Royal Dutch Airlines
("KLM") owns a long-term leasehold in approximately 20% of
the the space at the property. Leases aggregating
approximately 13% 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.
To maximize the value of the Taxter property, the joint
venture which owns the Taxter property has entered into an
agreement with KLM to purchase KLM's leasehold interest (see
note 6 to the Consolidated Financial Statements). The
purchase is expected to close in 1999; however, each
partner's share of the purchase price has yet to be
determined.
Upon completion of the acquisition, KLM will vacate
approximately 13% of the property's space. The joint
venture is discussing leasing the vacant space to several
existing tenants at the property. The joint venture is
likely to incur significant tenant-related capital
expenditures and leasing commissions in connection with the
leasing of the vacant space. The Partnership plans to fund
its share of the costs to acquire the KLM leasehold interest
and to lease the vacant space using existing cash reserves
and proceeds from the sale of the Westland Crossing or
Laurel Lakes Centre property.
The Partnership's liquidity is primarily affected by sales
of the Partnership's properties; as the properties are sold,
the Partnership has fewer income-producing investments and
Partnership cash from operations decreases. The Partnership
also requires less cash reserves to fund capital
expenditures and leasing commissions. Generally, future
cash distributions will be paid from proceeds from sales of
the Taxter, Westland Crossing and Laurel Lakes Centre
properties and cash reserves.
<PAGE>
During the year ended October 31, 1998, all of the
Partnership's properties generated positive cash flow from
operations, and it is anticipated that the Westland
Crossing, Laurel Lakes and the Taxter properties will
continue to do so during the period that the Partnership
continues to own its interest in them.
In 1998, 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 Partnership determined were in excess of its
needs. The Partnership believes remaining cash reserves
will be sufficient for its future needs.
In 1998, the Partnership incurred approximately $1,317,000
of tenant improvements and leasing commissions, primarily
relating to the Glenhardie properties. The Partnership also
contributed approximately $310,000 to the Chesterbrook joint
venture and $288,000 to the Taxter joint venture for its
share of capital expenditures and leasing commissions.
As of October 31, 1998, the Partnership has commitments to
fund approximately $95,000 for its share of capital
expenditures and leasing commissions at the Taxter property.
The Partnership, through DWR Chesterbrook Associates, may
also be required to fund certain costs at the Chesterbrook
property (See Note 5 to the consolidated financial
statements).
In August 1998, the Partnership signed a new lease with
Michaels Stores, Inc., for approximately 18% of the space at
Westland Crossing; the lease is expected to be effective
July 1999. Under the terms of the lease, the Partnership
has commitments to fund approximately $1,100,000 of tenant-
related capital expenditures and leasing commissions. As of
October 31, 1998, the Partnership had funded only
approximately $10,000 of these expenditures. The Partnership
expects to fund approximately 30% of the remaining
commitments from cash reserves and the remainder from
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
<PAGE>
space at the property is not re-leased, the Partnership's
cash flow will be reduced.
Total distributions in fiscal 1998 were $79,156,575, with
$78,725,205 ($147.42 per Unit) distributed to the Limited
Partners and $431,370 to the General Partners. Of the amount
distributed to the Limited Partners, $74,842,903 ($140.15
per Unit) was from the proceeds from the sales of the
Holcomb Woods, Glenhardie and Chesterbrook properties. The
Partnership decreased its cash distribution per Unit from
$2.30 for the quarterly distribution paid on November 25,
1997 to $1.97 following the first quarter of fiscal 1998 and
to $1.50 following second and third quarters of 1998. No
distribution was made following the fourth quarter; future
cash distributions will be paid primarily from proceeds
received from property sales.
During 1999, the Partnership expects that its cash flow from
operations and distributions received from its joint
ventures will exceed distributions to Limited Partners
(other than distributions of net proceeds from property
sales). The Partnership expects to fund a portion of any
capital expenditures, leasing commissions and contributions
to its joint ventures from cash reserves and proceeds 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, 1998 compared to 1997 and for the
year ended October 31, 1997 compared to 1996 were primarily
attributable to the following:
The gain on sales of real estate in 1998 was attributable to
the sales of the Holcomb Woods and Glenhardie III and IV
properties (the "1998 Properties Sold") during the first
half of fiscal 1998.
Rental revenues, operating expenses and depreciation and
amortization expenses decreased in 1998 compared to 1997
primarily due to the sale of the 1998 Properties Sold.
Property operating expenses also decreased in 1998 because
of the recovery of approximately $335,000 of rents
receivable from a tenant at the Laurel Lakes Centre which
had previously been reserved.
<PAGE>
Rental revenues decreased in 1997 compared to 1996 due to
decreased revenues at the Laurel Lakes Centre of
approximately $605,000 due to lower occupancy and reduced
pass-through income at the property. The absence of rental
income of approximately $441,000 from three shopping centers
which were sold in fiscal 1996 (the "Shopping Centers Sold")
also contributed to the decrease.
Operating expenses decreased in the 1997 compared to 1996
primarily due to the absence of operating expenses at the
Shopping Centers Sold, as well as the decrease in building
service expenses and other operating expenses of
approximately $255,000 at Laurel Lakes Centre.
The increase in equity in earnings of joint ventures in 1998
compared to 1997 is primarily due to the sale of the
Chesterbrook Corporate Park.
No individual factor accounted for a material portion of the
increase in equity in earnings of joint ventures in 1997
compared to 1996.
Other income increased during 1998 compared to 1997
primarily due to lease termination fees received at the
Glenhardie properties and Laurel Lakes Centre.
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.
A summary of the retail markets in which the Partnership's
office properties are located and the performance 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 strong competition. The market vacancy rate is
currently approximately 16% with slightly increasing rental
rates. During 1998, occupancy at the property decreased
from 79% to 73%. As of October 31, 1998, the property was
leased to 25 tenants. The leases of K-Mart (22% of total
space), Best Buy (14% of total space), Safeway (13% of total
space) and Hoyts Cinemas (12% of total space) expire in
2005, 2010, 2006 and 2005, respectively. No other tenant
occupies more than 10% of the property's space and no leases
for significant amounts of space expire until 2005. The
Managing General Partner plans to market this property for
sale during 1999.
Westland Crossing is situated outside downtown Detroit and
is in an overbuilt retail market with a current vacancy rate
of approximately
<PAGE>
13%. In August 1998, the Partnership signed a new 10-year
lease with Michaels Stores, Inc. for approximately 18% of
the property's space; this lease is expected to be effective
July 1999. The property is currently leased to 15 tenants
(including Michaels Stores, Inc.) covering 82% of the
property's space (as compared to 69% at the prior fiscal
year-end). During 1998, an average of 75% of the property's
space was leased. The leases of Office Warehouse (18% of
total space) and Frank's Supercrafts (16% of total space)
expire in 2007 and 2006, respectively. No tenant other than
those mentioned above occupies more than 10% of the
property's space and no leases for a significant amount of
space expire until 2006. The Managing General Partner
currently is marketing this property for sale.
Inflation
Inflation has been consistently low during the periods
presented in the financial statements and, as a result, has
not had a significant effect on the operations of the
Partnership or its properties.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
INDEX
Page
Independent Auditors' Report
Consolidated Balance Sheets at October 31, 1998 and 1997
Consolidated Statements of Operations for the years ended
October 31, 1998, 1997 and 1996
Consolidated Statements of Partners' Capital for the
years ended October 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
October 31, 1998, 1997, and 1996
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.
<PAGE>
Independent Auditors' Report
To The Partners of
Dean Witter Realty Income Partnership III, L.P.:
We have audited the accompanying consolidated balance sheets
of Dean Witter Realty Income Partnership III, L.P. and
consolidated partnerships (the "Partnership") as of October
31, 1998 and 1997 and the related consolidated statements of
operations, partners' capital and cash flows for each of the
three years in the period ended October 31, 1998. 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, 1998 and
1997 and the results of their operations and their cash
flows for each of the three years in the period ended
October 31, 1998 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
New York, New York
January 15, 1999
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED BALANCE SHEETS
As of October 31, 1998 and 1997
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,919,694 $
1,967,110
Real estate, at cost:
Land 8,823,904
10,023,904
Buildings and improvements 55,274,320
72,927,556
64,098,224
82,951,460
Accumulated depreciation (14,356,686)
(20,484,407)
49,741,538
62,467,053
Real estate held for sale - 11,941,818
Investments in joint ventures 7,095,604
24,127,982
Deferred leasing commissions, net 333,488
799,948
Other assets 1,923,155
2,486,957
$ 61,013,479
$103,790,868
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 274,748 $
652,515
Security deposits 75,844
156,945
350,592
809,460
Partners' capital (deficiency):
General partners (8,476,231)
(8,453,230)
Limited partners ($500 per Unit 534,020 Units issued)
69,139,118 111,434,638
Total partners' capital 60,662,887
102,981,408
$ 61,013,479
$103,790,868
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1998, 1997 and 1996
<CAPTION>
1998 1997
1996
Revenues:
<S> <C> <C> <C>
Rental $ 6,945,820
$10,824,205 $11,897,566
Equity in earnings of joint ventures 18,538,476
3,599,828 3,477,991
Interest 245,759
243,119 668,471
Other 237,126
84,074 154,733
Gains on sales of real estate 15,727,536 -
- -
41,694,717
14,751,226 16,198,761
Expenses:
Property operating 2,129,425
3,530,892 4,418,272
Depreciation 1,778,077
3,133,640 3,046,695
Amortization 95,786
308,136 274,820
General and administrative 853,375
1,039,436 990,610
Loss on impairment of real estate - -
12,422,872
4,856,663
8,012,104 21,153,269
Net income (loss) $36,838,054 $
6,739,122 $(4,954,508)
Net income (loss) allocated to:
Limited partners $36,429,685 $
6,158,166 $(4,459,057)
General partners 408,369
580,956 (495,451)
$36,838,054 $
6,739,122 $(4,954,508)
Net income (loss) per Unit of limited
partnership interest $ 68.22 $
11.53 $ (8.35)
See accompanying notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the years ended October 31, 1998, 1997 and 1996
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency) at
November 1, 1995 $183,389,923
$(6,166,797) $177,223,126
Net loss (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
Net income 36,429,685
408,369 36,838,054
Cash distributions (78,725,205)
(431,370) (79,156,575)
Partners' capital (deficiency) at
October 31, 1998 $ 69,139,118
$(8,476,231) $ 60,662,887
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 36,838,054 $
6,739,122 $ (4,954,508)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation 1,778,077
3,133,640 3,046,695
Amortization 95,786
308,136 274,820
Equity in earnings of joint ventures (18,538,476)
(3,599,828) (3,477,991)
Gains on sales of real estate (15,727,536) -
- -
Loss on impairment of real estate - -
12,422,872
(Increase) decrease in operating assets:
Deferred leasing commissions (409,177)
(169,703) (244,999)
Other assets 316,671
286,238 130,897
Increase(decrease) in operating liabilities:
Accounts payable and accrued liabilities
(419,192) 37,413
18,626
Security deposits 24,564
1,589 (13,889)
Net cash provided by operating
activities 3,958,771
6,736,607 7,202,523
Cash flows from investing activities:
Proceeds from sale of real estate 40,487,606
- - 35,256,585
Additions to real estate (908,072)
(583,614) (1,040,895)
Investment in joint ventures (598,049)
(578,613) (678,346)
Distributions from joint ventures 36,168,903
21,777,876 5,213,755
Net cash provided by investing
activities 75,150,388
20,615,649 38,751,099
(continued)
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1998, 1997 and 1996
(continued)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from financing activities:
Cash distributions (79,156,575)
(27,765,758) (48,260,574)
Decrease in cash and cash equivalents (47,416)
(413,502) (2,306,952)
Cash and cash equivalents at beginning of year
1,967,110 2,380,612
4,687,564
Cash and cash equivalents at end of year $ 1,919,694 $
1,967,110 $ 2,380,612
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 $ -
Buildings and improvements - 18,111,954
- -
Accumulated depreciation - (7,410,136)
- -
Real estate held for sale - 11,941,818
- -
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>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998, 1997 and 1996
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.
The Partnership expects to sell its remaining real estate
investments in 1999. Pursuant to the Partnership Agreement,
the sale of the Partnerships's last such investment will
cause the dissolution of the Partnership. Thereafter, the
Partnership will wind up its affairs, make a final cash
distribution, and terminate.
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 owned a 99.9% General Partnership interest
in Part Six Associates until the sale of Glenhardie IV in
April 1998 and owns a 99.999% General Partnership interest
in Laurel-Vincent Place Associates Limited Partnership. The
remaining interests in these partnerships are held by the
Managing General Partner.
The equity method of accounting has been applied to the
Partnership's 44.6% general partnership interest in Taxter
Corporate Park, its 35% general partnership interest in Tech
Park Reston (sold in December 1996) and its 26.7% general
partnership interest in the partnership which owned
interests in Chesterbrook Corporate Center (sold in April
1998).
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III,
L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
purposes. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents consist of cash and highly liquid
investments with maturities, when purchased, of three months
or less.
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.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1998. 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.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, offering costs are treated differently for tax
and financial reporting purposes. The tax basis of the
Partnership's assets and liabilities is approximately $25.8
million higher than the amounts reported for financial
statement purposes.
The implementation in 1998 of Statement of Financial
Accounting Standards ("Statement") No. 128, "Earnings per
Share" and Statement No. 129, "Disclosure of Information
about Capital Structure" effective for the Partnership's
1998 year-end financial statements did not have any impact
on the Partnership's financial statements. Two additional
accounting pronouncements will be effective for the
Partnership's 1999 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 reporting information about operating segments
and establishes standards for related disclosure about
products and services, geographic areas, and major
customers. The Partnership does not believe that these
statements will have any effect on its computation or
presentation of net income 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 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
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $82.26,
$49.95, and $87.98 for the years ended October 31, 1998,
1997 and 1996, respectively, calculated as the excess of
cash distributed per Unit over accumulated earnings per Unit
not previously distributed.
4. Real Estate Investments
The location, year of acquisition and net carrying values of
the properties are as follows:
<CAPTION>
Year of October 31,
Property Acquisition 1998
1997
<S> <C> <C> <C>
Westland Crossing, Westland, MI 1986
$ 9,226,382 $ 9,536,379
Glenhardie III and IV,
Valley Forge, PA 1986 -
11,275,058
Laurel Lakes Centre, Laurel, MD 1987
40,515,156 41,655,616
$49,741,538
$62,467,053
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
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III,
L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Sales of Real Estate
On November 7, 1997 the Partnership sold the Holcomb Woods
property to an unaffiliated party for approximately $19.1
million. The purchase price was paid in cash, and the
Partnership received proceeds, net of closing costs, of
approximately $18.7 million. On November 26, 1997, the
Partnership distributed these net proceeds ($35.06 per Unit)
100% to Limited Partners.
On April 1, 1998, the Partnership sold the land and
buildings which comprise the Glenhardie Corporate Center III
and IV properties ("Glenhardie III and IV") and an
affiliated partnership sold its interest in the remaining
properties at Glenhardie Corporate Center. In addition, the
Partnership, another affiliated partnership and an affiliate
of the Managing General Partner sold the Chesterbrook
Corporate Center, in which the Partnership has a 26.7%
interest through a joint venture, to an unaffiliated entity.
The aggregate price of the properties sold was approximately
$168 million, of which approximately $22.1 million was
allocated to Glenhardie III and IV, and approximately $126.1
million (of which the Partnership's share is approximately
$33.7 million) was allocated to the Chesterbrook Corporate
Center. The purchase price was paid in cash at closing.
The Partnership received proceeds, net of closing costs and
other deductions, of approximately $22 million and $33.4
million, respectively, for the sale of the Glenhardie III
and IV properties and its share of the proceeds from the
sale of the Chesterbrook Corporate Center. On April 14,
1998, the Partnership distributed $56.1 million ($105.09 per
Unit) of net proceeds from the sale of the Glenhardie III
and IV properties, its share of the proceeds from the sale
of the Chesterbrook Corporate Center and from the remaining
proceeds from the sale of the Technology Park property (see
Note 6 to the consolidated financial statements). The
distribution was paid 100% to Limited Partners.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the sale agreement for the Glenhardie and
Chesterbrook properties, escrows were established for the
costs of certain building improvements and tenant
improvements (the "Improvements"). In addition to payment
of the purchase price, at closing the purchasers deposited
into these escrows approximately $3.9 million, of which
approximately $2.3 million relates to the Chesterbrook
Corporate Center. Any balances remaining in the escrows
relating to the Chesterbrook Corporate Center after the
Improvements are completed will be delivered to the
Partnership. If the costs of Improvements at Chesterbrook
Corporate Center exceed the escrow established therefor, the
Partnership, through DWR Chesterbrook Associates, will be
required to fund its share of the excess costs.
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 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.
In October 1998, the general partnership which owns the
Taxter property entered into an agreement with KLM Royal
Dutch Airlines ("KLM"), a tenant who owns a long-term
leasehold interest in approximately 20% of the space at the
property, to purchase KLM's leasehold interest for $6.75
million. The Partnership's share of this purchase price has
yet to be determined. The closing of the purchase is
expected to occur during the second fiscal quarter of 1999.
The partners each receive cash flow and profits and losses
according to their interests.
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized balance sheet information of the joint venture is
as follows:
<CAPTION>
October 31,
1998 1997
<S> <C> <C>
Land and buildings, net $16,630,575 $17,203,009
Other 913,738 1,718,650
Total assets $17,544,313 $18,921,659
Liabilities $ 124,622 $ 153,159
Partners' capital 17,419,691 18,768,500
Total liabilities and capital $17,544,313 $18,921,659
Summarized results of operations of the joint venture are as
follows:
Years ended October 31,
1998 1997 1996
Rental income $5,158,170 $5,511,684
$5,954,030
Other income 67,779 181,367
43,394
5,225,949 5,693,051
5,997,424
Property operating expenses 2,455,628 3,111,753
3,111,267
Depreciation and amortization 1,241,470 1,164,659
1,196,229
3,697,098 4,276,412
4,307,496
Net income $1,528,851 $1,416,639
$1,689,928
</TABLE>
<PAGE>
<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 owned
26.7%, 41.2% and 32.1% interests in the general partnership
which owned the property until its sale in April 1998 (see
Note 5).
The partners received cash flow and profits and losses
according to their interests.
Cash flow from operations from the Chesterbrook joint
venture for the year ended October 31, 1998 was
approximately $600,058.
Summarized results of operations of the joint venture are as
follows:
<CAPTION>
Years ended October 31,
1998 1997 1996
<S> <C> <C> <C>
Rental income $ 5,797,344 $14,128,854 $13,604,130
Gain on sale of property $63,770,914 - -
Other income 44,301 43,550 35,957
69,612,559 14,172,404 13,640,087
Property operating
expenses 1,873,518 4,323,012 4,818,114
Depreciation and
amortization 860,360 3,305,764 3,186,022
2,733,878 7,628,776 8,004,136
Net income (loss) $66,878,681 $ 6,543,628 $ 5,635,951
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tech Park Reston, Reston, Virginia
In 1987, the Partnership purchased a 35% partnership
interest in the general partnership ("TPA") which owned
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 owned 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 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.
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized results of operations of the joint venture were
as follows:
<CAPTION>
Years ended October 31,
1997 1996
<S> <C> <C>
Rental income $ 843,004
$5,219,899
Gain on sale of property 3,169,132
- -
4,012,136
5,219,899
Depreciation 262,751
1,576,508
Amortization 17,827
106,960
Property operating expense 5,604
52,191
286,182
1,735,659
Net income $3,725,954
$3,484,240
Activity in investments in joint ventures is as follows:
Years ended October 31,
1998 1997 1996
Investments at beginning of year $24,127,982 $
41,727,417 $42,784,835
Equity in earnings 18,538,476
3,599,828 3,477,991
Distributions (36,168,903)
(21,777,876) (5,213,755)
Contributions 598,049 578,613
678,346
Investments at end of year $7,095,604 $
24,127,982 $41,727,417
The accounting policies of the Joint Ventures are the same
as those of the Partnership.
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Leases
Minimum future rental income under noncancellable operating
leases as of October 31, 1998 is as follows:
Year ending October 31,
1999 $ 4,492,276
2000 4,275,301
2001 4,313,982
2002 4,187,824
2003 4,089,910
Thereafter 13,163,738
Total $34,523,031
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 fiscal
1998 (until the sales of the Holcomb Woods and Glenhardie
III and IV properties in November 1997 and April 1998,
respectively) and 1997 and eight properties in fiscal 1996,
as well as for five buildings at the Chesterbrook Corporate
Center in each year (until the sale of the Chesterbrook
joint venture in April 1998). The Partnership incurred
management fees of $222,466, $244,266, and $478,220 for the
years ended October 31, 1998, 1997 and 1996, respectively.
These amounts are included in property operating expenses.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Another affiliate of the Managing General Partner performs
administrative functions, processes investor transactions
and prepares tax information for the Partnership. The
Partnership incurred approximately $503,000, $630,000,
$661,000 for these services for the years ended October 31,
1998, 1997 and 1996, respectively. These amounts are
included in general and administrative expenses.
As of October 31, 1998, 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) were defendants in a class action lawsuit. On July
17, 1998, the Delaware Chancery Court granted the
defendants' motion to dismiss the complaint in the lawsuit.
On August 14, 1998, the plaintiffs filed a notice of appeal
from the Court's order. On January 6, 1999, the Delaware
Supreme Court affirmed the Chancery Court's dismissal of the
complaint.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
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 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 55, has been a Managing Director of
Morgan Stanley and co-head of Morgan Stanley Realty
Incorporated since July 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 49, has been a Managing
Director of Morgan Stanley Asia, Ltd. since July 1997, and a
Managing Director of Dean Witter Realty Inc., which he
joined in 1982.
Lawrence Volpe, age 51, is a Senior Vice President of Dean
Witter Reynolds, Inc. which he joined in 1983. Since June
1998, he has served in an advisory capacity in connection
with Dean Witter Realty Inc. and related entities. Prior to
June 1998, he was the Controller of Dean Witter Reynolds
Inc. and the Managing General Partner, and the Controller
and a Director of Dean Witter Realty Inc.
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Ronald T. Carman, age 47, is a Director and the Secretary of
Dean Witter Realty Inc. He has been an Assistant Secretary
of MWD and a Managing Director of Morgan Stanley Dean Witter
& Co. Inc. since July 1998. Previously, he was 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 $431,370, $1,091,774 and $1,280,164 during
the years ended October 31, 1998, 1997 and 1996,
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.
<PAGE>
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, 1998:
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 & 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
(f) Purchase and Sale Agreement, dated as of
February 10, 1998, between DWR Chesterbrook
Associates, Glenhardie Corporation, Dean Witter
Realty Income Partnership II, L.P., the
Partnership and Part Six Associates, as Sellers,
and FV Office Partners, L.P. as Purchaser.
(21) Subsidiaries: Park Six Associates, a
Pennsylvania limited partnership. Laurel Vincent
Place Associates, a Maryland limited partnership.
(b) No Forms 8-K were filed by the
Partnership during the last quarter of the period
covered by this report.
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SCHEDULE III
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Real Estate and Accumulated Depreciation
October 31, 1998
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 $3,219,425
Westland Crossing
Westland, MI 1,376,659 12,389,933
13,766,592 421,214
Laurel Lakes Centre
Laurel, MD 7,800,000 45,536,882
53,336,882 525,711
$11,176,659 $76,732,601
$87,909,260 $4,166,350
Gross Amount at which
Carried at End of Period
(A)
Building and
Description Reductions Land
Improvements Total
Glenhardie III & IV
Valley Forge, PA $ 4,664,6751
19,360,536 - -
- -
Westland Crossing
Westland, MI $ 3,952,175 1,023,904
9,211,727 10,253,631
Laurel Lakes Centre
Laurel, MD - 7,800,000 46,062,593
53,862,593
$27,977,386 $8,823,904
$55,274,320 $64,098,224
1 Loss on impairment of real estate in 1996.
2 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.
3 Real estate sold during 1998.
<PAGE>
</TABLE>
<TABLE>
DEAN 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 - 1984 - 1985 June
1968 up to 40 years
Westland Crossing
Westland, MI 970,892 1986 December
1986 up to 40 years
Laurel Lakes Centre
Laurel, MD 13,385,794 1987 June 1987
up to 40 years
$14,356,686
Notes:
(A)Reconciliation of real estate owned at October 31:
1998 1997 1996
Balance at beginning of year $82,951,460
$102,185,637$103,328,571
Additions (deletions) during period:
Purchases - - -
Improvements 908,072
583,614 1,040,895
Write-offs due to lease expirations
(400,772) (465,837) -
Real estate sold (19,360,536)
- -
Reclass (to) from real estate held
for sale - (19,351,954)
10,239,0431
Loss on impairment of Real Estate - -
(12,422,872)
Balance at end of period $64,098,224 $
82,951,460 $102,185,637
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>
<PAGE>
<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
(SCHEDULE III (continued)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(B)Reconciliation of accumulated
depreciation:
Balance at beginning of period 20,484,407
$25,226,740 $ 22,180,045
Depreciation expense 1,778,077
3,133,640 3,046,695
Write-offs due to lease
expirations (295,616)
(465,837) -
Real estate sold (7,610,182)
- -
Reclass to real estate held for
sale - (7,410,136)
-
Balance end of period $14,356,686
$20,484,407 $ 25,226,740 1
</TABLE>
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
By: Dean Witter Realty Income Properties III Inc.
Managing General Partner
By: /s/E. Davisson Hardman, Jr. Date:
January 27, 1999
E. Davisson Hardman, Jr.
President
By: /s/Lawrence Volpe Date:
January 27, 1999
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 27, 1999
William B. Smith
Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date:
January 27, 1999
E. Davisson Hardman, Jr.
Director
/s/Lawrence Volpe Date:
January 27, 1999
Lawrence Volpe
Director
/s/Ronald T. Carman Date:
January 27, 1999
Ronald T. Carman
Director
<PAGE>
DEAN WITTER REALTY INCOME PARTNERSHIP III, L.P.
Year Ended October 31, 1997
Exhibit Index
Exhibit
No.
27 Financial Data Schedule
E1
_______________________________
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate, and
real estate joint ventures. In accordance with industry practices, its
balance sheet is unclassified. For full information, refer to the
accompanying audited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,919,694
<SECURITIES> 0
<RECEIVABLES> 1,251,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,013,479<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 60,662,887<F2>
<TOTAL-LIABILITY-AND-EQUITY> 61,013,479<F3>
<SALES> 0
<TOTAL-REVENUES> 41,694,717<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,856,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,838,054
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,838,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,838,054
<EPS-PRIMARY> 68.22<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $49,741,538, investments in joint ventures of $7,095,604,
net deferred expenses of $333,488 and other assets of $671,910.
<F2>Other Stockholders' Equity represents partners' capital.
<F3>Liabilities include accounts payable and accrued liabilities of $274,748
and security deposits of $75,844.
<F4>Total revenue includes rent of $6,945,820, gain on sales of real estate
of $15,727,536, equity in earnings of joint ventures of $18,538,476,
interest of $245,759 and other revenues of $237,126.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
