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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number: 0-18149
DEAN WITTER REALTY YIELD PLUS II, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 13-3469111
(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 of 13<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
<CAPTION>
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Investment in participating mortgage loan,
net of allowance of $9,787,750 $15,232,767 $15,232,767
Investment in unconsolidated partnership 19,837,961 19,566,955
Building and improvements, at cost, net of
accumulated depreciation of $914,988 and
$824,572 6,212,781 6,268,052
Cash and cash equivalents 2,239,280 2,233,451
Deferred expenses, net 668,671 775,682
Other assets 425,325 410,597
$44,616,785 $44,487,504
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 221,447 $ 297,227
Security deposits 97,919 97,919
319,366 395,146
Partners' capital:
General partners 3,765,448 3,744,941
Limited partners ($500 per Unit,
173,164 Units issued) 40,531,971 40,347,417
Total partners' capital 44,297,419 44,092,358
$44,616,785 $44,487,504
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF INCOME
Three and six months ended June 30, 1996 and 1995
<CAPTION>
Three months ended Six months ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Interest on participating
mortgage loan $ 501,085 $ 501,085 $ 996,723 $ 991,277
Rental 354,935 287,760 697,202 599,147
Equity in earnings of
unconsolidated partnership 154,387 99,339 415,576 262,875
Interest and other 27,623 15,335 60,644 36,073
1,038,030 903,519 2,170,145 1,889,372
Expenses:
Property operating 195,790 212,592 411,044 384,850
Depreciation and amortization 98,713 97,453 197,427 194,906
General and administrative 78,109 79,887 154,085 161,288
372,612 389,932 762,556 741,044
Net income $ 665,418 $ 513,587 $1,407,589 $1,148,328
Net income allocated to:
Limited Partners $ 598,876 $ 462,228 $1,266,830 $1,033,495
General Partners 66,542 51,359 140,759 114,833
$ 665,418 $ 513,587 $1,407,589 $1,148,328
Net income per Unit of limited
partnership interest $3.46 $2.67 $7.32 $5.97
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Six months ended June 30, 1996
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital at
January 1, 1996 $40,347,417 $3,744,941 $44,092,358
Net income 1,266,830 140,759 1,407,589
Cash distributions (1,082,276) (120,252) (1,202,528)
Partners' capital at
June 30, 1996 $40,531,971 $3,765,448 $44,297,419
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
<CAPTION>
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,407,589 $1,148,328
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 197,427 194,906
Equity in earnings of unconsolidated partnership (415,576) (262,875)
Increase in operating assets:
Deferred expenses - (19,384)
Other assets (14,728) (129,231)
Decrease in operating liabilities:
Accounts payable and other liabilities (75,780) (39,552)
Net cash provided by operating activities 1,098,932 892,192
Cash flows from investing activities:
Additions to building and improvements (35,145) -
Contributions to unconsolidated partnership (871,029) (436,835)
Distributions from unconsolidated partnership 1,015,599 689,201
Net cash provided by investing activities 109,425 252,366
Cash flows used in financing activities:
Cash distributions (1,202,528) (1,924,044)
Increase (decrease) in cash and cash equivalents 5,829 (779,486)
Cash and cash equivalents at beginning of period 2,233,451 2,057,891
Cash and cash equivalents at end of period $ 2,239,280 $ 1,278,405
See accompanying notes to financial statements.
/TABLE
<PAGE>
1. The Partnership
Dean Witter Realty Yield Plus II, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of Delaware in 1988.
The Managing General Partner of the Partnership is Dean Witter Realty
Yield Plus II Inc., which is wholly-owned by Dean Witter Realty Inc.
("Realty").
The Partnership's records are maintained on the accrual basis of
accounting for financial and tax reporting purposes.
The Partnership accounts for its investment in DW Michelson Associates
under the equity method.
Net income per Unit amounts were 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, consisting only of
normal recurring accruals, necessary to present fairly the results for
the interim periods.
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 December 31, 1995. Operating results of
interim periods may not be indicative of the operating results for the
entire year.
2. Related Party Transactions
An affiliate of Realty provided property management services for two
properties during 1996 and 1995. The affiliate received property
management fees of $63,695 and $49,127 for the six months ended June 30,
1996 and 1995, respectively, for these services. These amounts are
included in property operating expenses.
An affiliate of Realty performs administrative functions, processes
investor transactions and prepares tax information for the Partnership.
During each of the six-month periods ended June 30, 1996 and 1995, the
Partnership incurred approximately $106,000 for these services. These
amounts are included in general and administrative expenses.
As of June 30, 1996, the affiliates were owed a total of approximately
$41,000 for these services.
3. Litigation
Various public partnerships sponsored by Realty (including the
Partnership and, in certain cases, its Managing General Partner) are
defendants in a number of class action lawsuits pending in state and
federal courts. The complaints allege a variety of claims, including
breach of fiduciary duty, fraud, misrepresentation and related claims,
and seek compensatory and other damages and equitable relief. The
defendants intend to vigorously defend the actions. It is impossible to
predict the effect, if any, the outcome of these actions might have on
the Partnership's financial statements.
4. Subsequent Event
On July 30, 1996, the Partnership paid a cash distribution of $3.125 per
Unit to Limited Partners. The cash distribution aggregated $601,264 with
$541,138 distributed to the Limited Partners and $60,126 distributed to
the General Partners. <PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership raised $86,582,000 through a public offering which was
terminated in 1990. The Partnership has no plans to raise additional
capital.
The Partnership committed the gross proceeds raised in the offering to
three investments. No additional investments are planned.
Many real estate markets are stabilizing or improving, primarily due to
the continued absence of significant construction activity. The relative
absence of office construction as well as growth in demand from high
technology and professional service firms has recently resulted in
absorption of office space in Orange County, CA (the location of 2600
Michelson Drive). In contrast, office vacancy levels in Boston (the
location of One Congress Street) may be negatively impacted by corporate
and bank consolidations in the near term. In most markets, office
construction is limited to build-to-suit projects. The overall economic
recovery and a lack of warehouse construction over the past several years
is benefiting industrial properties such as the Century Alameda
Distribution Center. The demand has grown for modern high-quality space
and well-located industrial properties, and most new warehouse
construction is on a build-to-suit basis.
The Partnership's liquidity depends upon the cash flow from operations
of its real estate investments, interest on the participating mortgage
loan and expenditures for building improvements and tenant improvements
and leasing commissions in connection with the leasing of space. During
the six months ended June 30, 1996, both the Century Alameda property and
the Michelson joint venture generated positive cash flow from operations,
and it is anticipated that they will continue to do so.
During the six months ended June 30, 1996, Partnership cash flow from
operations and distributions from DW Michelson Associates slightly
exceeded distributions to investors, capital expenditures and
contributions to DW Michelson Associates. The Partnership expects that
such cash flows will be sufficient to fund capital expenditures,
contributions to DW Michelson Associates and cash distributions during
the remainder of 1996.
As of June 30, 1996, the Partnership has commitments to fund
approximately $247,000 at the Century Alameda property and to contribute
approximately $78,000 to DW Michelson Associates, primarily for lease-
related capital expenditures.
The Partnership's participating mortgage (the "Second Mortgage Loan")
loan is secured by the One Congress Street property. In March 1996, the
DEAN WITTER REALTY YIELD PLUS II, L.P.
General Services Administration ("GSA"), which leases all of the office
space at the property, notified the owner/borrower of the One Congress
Street property that it will exercise its one-time cancellation option
on a portion of its lease and will vacate approximately 67,500 square
feet (approximately 28%) in August 1996. The GSA's annual rent for this
space approximates $2.5 million. The owner is currently attempting to
re-lease this space and continues renewal discussions regarding the lease
of GSA's remaining space, which expires August 1997. Discussions
regarding the pending claim with GSA in connection with the original
construction of its space are also ongoing. The owner remains current
on the first mortgage loan and the Second Mortgage Loan.
Current market rental rates are significantly less than in the early
1990's when the GSA lease was entered into. Therefore, the
owner/borrower may not receive sufficient rent from re-leasing the office
space at the property to fully fund all of its obligations, including the
total interest due on the Partnership's loan. In addition, there may be
a significant amount of time before a new tenant is found for this space,
and substantial funds may be required to re-lease it. Notwithstanding,
the cash flow generated from the garage lease is projected to be
sufficient to pay the debt service due under the first mortgage loan on
the property. However, the Partnership is concerned that the
owner/borrower will not be able to pay its minimum debt service under the
Second Mortgage Loan once GSA vacates.
During the first quarter of 1996, the lease at the Century Alameda
property of California Feather & Down (for approximately 13% of the
property's space) was extended through 2007. Because market rates have
declined since the tenant signed its original lease, rental revenue and
cash flow will decrease under the new lease, which was effective January
1, 1996, by approximately $85,000 in 1996 compared to 1995.
Except as discussed herein and in the financial statements, the Managing
General Partner is not aware of any trends or events, commitments or
uncertainties that will have a material impact on liquidity.
On July 30, 1996, the Partnership paid a cash distribution of $3.125 per
Unit to the Limited Partners. The cash distribution aggregated $601,264
with $541,138 distributed to the Limited Partners and $60,126 distributed
to the General Partners.
Operations
Fluctuations in the Partnership's operating results for the six- and
three-month periods ended June 30, 1996 compared to 1995 are primarily
attributable to the following:
Rental income increased due to higher occupancy at the Century Alameda
property resulting from the leasing of approximately 28% of the
property's space in the third quarter of 1995, partially offset by
decreased rent from the California Feather & Down lease renewal described
above.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Equity in earnings of the unconsolidated partnership increased due to
higher rental income at the Michelson property resulting from the leasing
of 22% of the property's space in the third quarter of 1995, partially
offset by higher depreciation and amortization due to increased capital
expenditures relating thereto.
A summary of the office, retail and industrial building markets where the
Partnership's properties, and the property underlying the Partnerships'
investment in a participating mortgage loan are located, and the
performance of each property, is as follows:
There has been no significant new construction in the industrial building
market in Lynwood, California, the location of the Century Alameda
Distribution Center. There is a shortage of space for larger tenants in
this market, and space is being absorbed at a slow and steady pace.
During the six months ended June 30, 1996, the vacancy rate in this
market increased slightly to approximately 10%. During the second
quarter of 1996, the property was 100% leased to 3 tenants. The lease
of Tools Exchange (for approximately 22% of the property's space) expires
in 1997.
Favorable lease rates are attracting tenants to the office market in
Irvine, California, the location of 2600 Michelson Drive, where the
market vacancy rate is approximately 14%. The steady absorption of space
and the lack of new construction are leading to a tightening of available
quality office space in this market. During the second quarter of 1996,
occupancy at the property increased slightly to 92%. No significant
leases expire before 1998.
The vacancy level in the Boston office market, the location of One
Congress Street, is approximately 11% and, as discussed above, may worsen
in the near future. The property may be affected by the vacancy in this
market, because GSA has announced it will vacate approximately 67,500
square feet of the property's space in August 1996 and its lease on the
remaining space terminates in August 1997. Also, the retail space (which
has been substantially vacant for some time) has been difficult to lease.
During the second quarter of 1996, occupancy at the office and garage
space remained at 100% and the retail space, which is not a significant
portion of the overall space, remained substantially vacant.
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 YIELD PLUS II, L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following developments have occurred since the filing of the
Partnership's most recent quarterly report on Form 10-Q with respect to
the purported class actions filed against the Partnership.
Pursuant to an order to 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.
The parties in the Schechtman Action, the Dosky Action and the Segal
Action intend to ask the Delaware Court of Chancery that such Actions be
consolidated in a single matter. The Grigsby Action has been stayed
indefinitely subject to being reopened for good cause. The Young Action
has been dismissed without prejudice. The defendants in the Young Action
understand that the plaintiffs in the Young Action intend to join the
Schechtman Action, the Dosky Action and the Segal Action if such Actions
are consolidated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An exhibit index has been filed as part of this Report
on Page E1.
(b) Reports on Form 8-K.
Report dated May 14, 1996 of the Valuation per Unit of Limited
Partnership Interest at December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN WITTER REALTY YIELD PLUS II, L.P.
By: Dean Witter Realty Yield Plus II Inc.
Managing General Partner
Date: August 14, 1996 By: /s/ E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: August 14, 1996 By: /s/ Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and Accounting
Officer)<PAGE>
Dean Witter Realty Yield Plus II, L.P.
Quarter Ended June 30, 1996
Exhibit Index
Exhibit Sequentially
No. Description Numbered Page
27 Financial Data Schedule
E1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate,
participating mortgage loans, and real estate joint ventures. In accordance
with industry practice, its balance sheet is unclassified. For full
information, refer to the accompanying unaudited financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,239,280
<SECURITIES> 0
<RECEIVABLES> 425,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,616,785<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 44,297,419<F2>
<TOTAL-LIABILITY-AND-EQUITY> 44,616,785<F3>
<SALES> 0
<TOTAL-REVENUES> 2,170,145<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 762,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,407,589
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,407,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,407,589
<EPS-PRIMARY> 7.32<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in building and improvements of $6,212,781, investment in unconsolidated
partnership of $19,837,961, net investments in participating mortgage loan
of $15,232,767 and net deferred expenses of $668,671.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $221,447
and security deposits of $97,919.
<F4>Total revenue includes rent of $697,202, interest on participating
mortgage loan of $996,723, equity in earnings of unconsolidated partnership
of $415,576 and other revenue of $60,644.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
