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 March 31, 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
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
March 31, 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 19,291,411 19,566,955
Building and improvements, at cost, net of
accumulated depreciation of $869,780 and
$824,572 6,257,989 6,268,052
Cash and cash equivalents 2,306,532 2,233,451
Deferred expenses, net 722,176 775,682
Other assets 767,156 410,597
$44,578,031 $44,487,504
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 246,847 $ 297,227
Security deposits 97,919 97,919
344,766 395,146
Partners' capital:
General partners 3,759,032 3,744,941
Limited partners ($500 per Unit,
173,164 Units issued) 40,474,233 40,347,417
Total partners' capital 44,233,265 44,092,358
$44,578,031 $44,487,504
See accompanying notes to financial statements.
/TABLE
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<TABLE>
<CAPTION>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF INCOME
Three months ended March 31, 1996 and 1995
1996 1995
<S> <C> <C>
Revenues:
Interest on participating mortgage loan $ 495,638 $ 490,192
Rental 342,267 311,387
Equity in earnings of unconsolidated
partnership 261,189 163,536
Other 33,021 20,738
1,132,115 985,853
Expenses:
Property operating 215,254 172,258
Depreciation and amortization 98,714 97,453
General and administrative 75,976 81,401
389,944 351,112
Net income $ 742,171 $ 634,741
Net income allocated to:
Limited partners $ 667,954 $ 571,267
General partners 74,217 63,474
$ 742,171 $ 634,741
Net income per Unit of limited
partnership interest $3.86 $3.30
See accompanying notes to financial statements.
/TABLE
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<TABLE>
<CAPTION>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Three months ended March 31, 1996
Limited General
Partners Partners Total
<S> <C> <C>
Partners' capital at
January 1, 1996 $40,347,417 $3,744,941 $44,092,358
Net income 667,954 74,217 742,171
Cash distributions (541,138) (60,126) (601,264)
Partners' capital at
March 31, 1996 $40,474,233 $3,759,032 $44,233,265
See accompanying notes to financial statements.
/TABLE
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<TABLE>
<CAPTION>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net income $ 742,171 $ 634,741
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 98,714 97,453
Equity in earnings of unconsolidated partnership (261,189) (163,536)
Increase in operating assets:
Deferred expenses - (9,692)
Other assets (356,559) (66,605)
Decrease in operating liabilities:
Accounts payable and other liabilities (50,380) (20,309)
Net cash provided by operating activities 172,757 472,052
Cash flows from investing activities:
Additions to building and improvements (35,145) -
Contributions to unconsolidated partnership (74,243) (219,730)
Distributions from unconsolidated partnership 610,976 287,630
Net cash provided by investing activities 501,588 67,900
Net cash flows used in financing activities:
Cash distributions (601,264) (962,022)
Increase (decrease) in cash and cash equivalents 73,081 (422,070)
Cash and cash equivalents at beginning of period 2,233,451 2,057,891
Cash and cash equivalents at end of period $ 2,306,532 $ 1,635,821
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 $31,661 and $26,933 for the three months ended March
31, 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 three-month periods ended March 31, 1996 and 1995, the
Partnership incurred approximately $53,000 for these services. These
amounts are included in general and administrative expenses.
As of March 31, 1996, the affiliates were owed a total of approximately
$30,000 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 five 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 have
not yet responded to the complaints and 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 April 29, 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. Most new warehouse construction is on a build-to-
suit basis. The demand for modern high-quality space has grown,
especially for well-located and easily accessible properties. Technology
advances have changed the warehouse sector from strictly storage type
facilities to distribution center operations.
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 tenant improvements and leasing commissions in
connection with the leasing of space. During the three months ended March
31, 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 three months ended March 31, 1996, Partnership cash flow from
operations and distributions from DW Michelson Associates exceeded
distributions to investors, capital expenditures and contributions to DW
Michelson Associates. The Partnership expects that such cash flows and
increased cash reserves resulting from the reduction of the distribution
rate in 1995 will be sufficient to fund capital expenditures,
contributions to DW Michelson Associates and cash distributions during
the remainder of 1996.
As of March 31, 1996, the Partnership has commitments to fund
approximately $247,000 at the Century Alameda property and to contribute
approximately $1,000,000 to DW Michelson Associates, primarily for lease-
related capital expenditures.
The Partnership's participating mortgage loan is secured by the One
Congress Street property. In March 1996, the 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 June 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 the GSA in connection with the original construction of its
space are also ongoing. The owner remains current on its first and
second mortgage loans secured by the property.
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, substantial
funds may be required to re-lease the space. 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.
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. As a result of this
renewal, which is effective January 1, 1996, rental revenue and cash flow
from the property will decrease 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.
The increase in other assets is primarily due to interest receivable on
the participating mortgage loan. The interest was received in April
1996.
On April 29, 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 three-months
ended March 31, 1996 compared to 1995 are primarily attributable to the
following:
The increase in equity in earnings of the unconsolidated partnership
resulted from higher rental income because of the leasing of 22% of the
property's space in the third quarter of 1995.
Property operating expenses were lower in 1995 primarily due to the
receipt of a real estate tax refund.
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 the recent completion of the Century Freeway is
anticipated to increase demand. As a result, space in this market is
being absorbed at a slow and steady pace, and the current vacancy rate
in this market is approximately 9.5%. During the first 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 has decreased to 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
first quarter of 1996, occupancy at the property decreased slightly to
91%. No significant leases expire before 1998.
The vacancy level in the Boston office market, the location of One
Congress Street, has increased slightly to approximately 11% and, as
discussed above, may worsen in the near future. The property may be
affected by the worsening market, because GSA has announced it will
vacate 67,500 square feet of the property's space in June 1996 and its
lease on the remaining space terminates in August 1997. Also, the retail
space has been difficult to lease. During the first 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.
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 13, 1996, a class action lawsuit (the "Young Action") naming
Dean Witter Realty Income Partnership III, L.P., other unidentified
limited partnerships, Dean Witter, Discover & Co., Dean Witter Reynolds
Inc., and others as defendants was filed in the Circuit Court for
Baltimore City in Baltimore, Maryland. The defendants have removed the
case to the United States District Court for the District of Maryland.
The complaint alleges fraud, negligent misrepresentation, breach of
fiduciary duty, unjust enrichment and related claims and seeks an
accounting of records, compensatory and punitive damages in unspecified
amounts and other equitable relief. The defendants have not yet
responded to the complaint and intend to vigorously defend the action.
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 - not applicable.
<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: May 15, 1996 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: May 15, 1996 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and Accounting
Officer)
<PAGE>
<TABLE>
<CAPTION> Exhibit Index
Dean Witter Realty Yield Plus II, L.P.
Quarter Ended March 31, 1996
Exhibit Sequentially
No. Description Numbered Page
<C> <S>
27 Financial Data Schedule
E1
</TABLE>
<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>
<NAME> DEAN WITTER REALTY YIELD PLUS II, LP
<CIK> 0000830340
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,306,532
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,578,031<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 44,233,265<F2>
<TOTAL-LIABILITY-AND-EQUITY> 44,578,031<F3>
<SALES> 0
<TOTAL-REVENUES> 1,132,115<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 389,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 742,171
<INCOME-TAX> 0
<INCOME-CONTINUING> 742,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 742,171
<EPS-PRIMARY> 3.86<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investment
in building and improvements of $6,257,989, investment in unconsolidated
partnership of $19,291,411, net investment in participating mortgage loan of
$15,232,767, net deferred expenses of $722,176 and other assets of $767,156.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $246,847
and security deposits of $97,919.
<F4>Total revenue includes rent of $342,267, interest on participating
mortgage loan of $495,638, equity in earnings of unconsolidated part-
nership of $261,189 and other revenue of $33,021.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
