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 September 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>
September 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Investment in participating mortgage loan,
net of allowance of $11,264,750 and
$9,787,750 $13,755,767 $15,232,767
Investment in unconsolidated partnership 19,587,670 19,566,955
Building and improvements, at cost, net of
accumulated depreciation of $960,195 and
$824,572 6,344,431 6,268,052
Cash and cash equivalents 2,523,994 2,233,451
Deferred expenses, net 615,165 775,682
Other assets 447,352 410,597
$43,274,379 $44,487,504
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 233,614 $ 297,227
Security deposits 97,919 97,919
331,533 395,146
Partners' capital:
General partners 3,629,991 3,744,941
Limited partners ($500 per Unit,
173,164 Units issued) 39,312,855 40,347,417
Total partners' capital 42,942,846 44,092,358
$43,274,379 $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 nine months ended September 30, 1996 and 1995
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Interest on participating
mortgage loan $ 501,085 $ 501,085 $1,497,808 $1,492,362
Rental 393,212 431,941 1,090,414 1,031,088
Equity in earnings of
unconsolidated partnership 181,231 87,579 596,807 350,454
Interest and other 36,255 28,581 96,899 64,654
1,111,783 1,049,186 3,281,928 2,938,558
Expenses:
Property operating 196,760 220,680 607,804 605,530
Depreciation and amortization 98,713 88,084 296,140 282,990
General and administrative 92,619 77,855 246,704 239,143
Loss on impairment of
participating mortgage loan 1,477,000 - $1,477,000 -
1,865,092 386,619 2,627,648 1,127,663
Net income (loss) $ (753,309) $ 662,567 $ 654,280 $1,810,895
Net income (loss) allocated to:
Limited Partners $ (677,978) $ 596,310 $ 588,852 $1,629,805
General Partners (75,331) 66,257 65,428 181,090
$ (753,309) $ 662,567 $ 654,280 $1,810,895
Net income (loss) per Unit of
limited partnership interest $(3.92) $3.44 $3.40 $9.41
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Nine months ended September 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 588,852 65,428 654,280
Cash distributions (1,623,414) (180,378) (1,803,792)
Partners' capital at
September 30, 1996 $39,312,855 $3,629,991 $42,942,846
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 654,280 $1,810,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 296,140 282,990
Equity in earnings of unconsolidated partnership (596,807) (350,454)
Loss on impairment of participating mortgage loan 1,477,000 -
(Increase) decrease in operating assets:
Deferred expenses - (210,272)
Other assets (36,755) 39,236
Decrease in operating liabilities:
Accounts payable and other liabilities (63,613) (72,513)
Net cash provided by operating activities 1,730,245 1,499,882
Cash flows from investing activities:
Additions to building and improvements (212,002) -
Contributions to unconsolidated partnership (914,514) (482,543)
Distributions from unconsolidated partnership 1,490,606 1,403,743
Net cash provided by investing activities 364,090 921,200
Cash flows used in financing activities:
Cash distributions (1,803,792) (2,525,280)
Increase (decrease) in cash and cash equivalents 290,543 (104,198)
Cash and cash equivalents at beginning of period 2,233,451 2,057,891
Cash and cash equivalents at end of period $ 2,523,994 $ 1,953,693
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 (loss) per Unit amounts were calculated by dividing net income (loss)
allocated to Limited Partners, in accordance with the Partnership Agreement, by
the weighted average number of Units outstanding.
In the opinion of management, the accompanying financial statements, which have
not been audited, include all adjustments necessary to present fairly the
results for the interim periods. Except for the loss on impairment of the
participating mortgage loan, such adjustments consist only of normal
recurring accruals.
These financial statements should be read in conjunction with the annual
financial statements and notes thereto included in the Partnership's annual
report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1995. Operating results of interim periods may not be
indicative of the operating results for the entire year.
2. Investment in Participating Mortgage Loan
In 1991, one of the general partners of the general partner of the owner/
borrower of the One Congress Street property filed a voluntary petition
under Chapter 11 of the Bankruptcy Code. In 1996, as part of the
reorganization, control over this general partner's interest in the
property was transferred to a trustee in bankruptcy.
In August 1996, the General Services Administration ("GSA"), which leased all of
the office space at the property, vacated approximately 70,000 square feet
(approximately 30% of the office space) pursuant to its one-time cancellation
option on a portion of its space. The GSA's annual rent for this space
approximated $2.5 million.
Subsequent to September 30, 1996, the owner/borrower defaulted on the
participating mortgage loan by failing to timely pay its debt service.
Thereafter, the Partnership and Dean Witter Realty Yield Plus, L.P., accelerated
the loan and attempted to take possession of the One Congress Street property.
On October 15, 1996, the owner/borrower filed a voluntary petition under Chapter
11 of the U.S. Bankruptcy Code. The Partnership is currently considering what
actions to take in response to the bankruptcy filing.
The Partnership believes that during the period of the bankruptcy it will be
unable to collect its interest on the loan in full and that the bankruptcy may
adversely impact future leasing at the property. Accordingly, the Partnership
has determined that its loan is impaired and has recorded an additional
valuation allowance of $1,477,000 to reduce the carrying value of the loan to
its estimated fair value.
3. Related Party Transactions
An affiliate of Realty provided property management services for two of the
Partnership's properties during 1996 and 1995. The affiliate received property
management fees of $96,560 and $78,658 for the nine months ended September 30,
1996 and 1995, respectively, for these services. These amounts are included in
property operating expenses.
Realty performs administrative functions, processes investor transactions and
prepares tax information for the Partnership. During each of the nine-month
periods ended September 30, 1996 and 1995, the Partnership incurred
approximately $159,000 for these services. These amounts are included in
general and administrative expenses.
As of September 30, 1996 Realty and its affiliate were owed a total of
approximately $29,000 for these services.
4. Litigation
Various public partnerships sponsored by Realty (including the Partnership and
its Managing General Partner) are defendants in a consolidated class action
lawsuit pending in state court. The complaint alleges breach of fiduciary duty,
and seeks compensatory damages and equitable relief. The defendants intend to
vigorously defend the action. It is impossible to predict the effect, if any,
the outcome of this action might have on the Partnership's financial statements.
5. Subsequent Event
On October 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>
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; for example, office
vacancy levels in Boston (the location of One Congress Street) have decreased by
2%. 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 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.
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 nine months
ended September 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 nine months ended September 30, 1996, Partnership cash flow from
operations and distributions from DW Michelson Associates exceeded distributions
to investors, capital expenditures and contributions to DW Michelson
Associates.
As of September 30, 1996, the Partnership has commitments to fund approximately
$45,000 to DW Michelson Associates, for capital expenditures.
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.
As described in Note 2 to the financial statements, the General Services
Administration ("GSA"), the sole tenant of the office space at the One Congress
Street property, vacated approximately 30% of the space at the property in
August 1996, and the lease on its remaining space expires in August 1997. As
also described in Note 2, on October 15, 1996, the owner/borrower filed a
voluntary petition under Chapter 11 of the U.S. bankruptcy code. The owner/
borrower ceased paying interest on the Partnership's portion of the loan of
approximately $165,000 per month. The Partnership is currently considering
what actions to take in response to the bankruptcy filing.
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, current market rental rates in Boston are significantly less than in
the early 1990's when the GSA lease was entered into. Therefore, the rent to
be received after re-leasing the office space at the property, as well as the
Partnership's cash flow from the property, will significantly decrease. 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 the
space.
The Partnership believes that during the period of the bankruptcy it will be
unable to collect its interest on the loan in full and that the bankruptcy may
adversely impact future leasing at the property. Accordingly, the Partnership
has determined that its loan is impaired and has recorded an additional
valuation allowance of $1,477,000 to reduce the carrying value of the loan to
its estimated fair value.
Since the Partnership does not expect to receive interest on its participating
mortgage loan in the near future, it expects that for the remainder of 1996 and
in 1997, it will need to fund distributions to investors, capital expenditures
and contributions to its joint ventures from cash flow from operations,
distributions from DW Michelson Associates and existing cash reserves.
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 October 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 nine- and three-
month periods ended September 30, 1996 compared to 1995 are primarily
attributable to the following:
Rental income increased during the nine-month period due to higher occupancy at
the Century Alameda property resulting from the leasing of approximately 28% of
the property's space at the beginning of the third quarter of 1995, partially
offset by decreased rent from the California Feather & Down lease described
above, which also resulted in decreased rent during the three-month period.
The Partnership's equity in earnings of the unconsolidated partnership which
owns the Michelson property increased. Rental income increased due to the
leasing of 22% of the property's space in the second quarter of 1995. Real
estate tax costs decreased due to reduced current assessments and refunds of
prior years taxes. These increases in earnings were partially offset by
higher depreciation and amortization due to increased capital expenditures
relating to the above-mentioned leasing activity.
During the third quarter of 1996, the Partnership recorded a loss on the
impairment of its participating mortgage loan. See Note 2 to the financial
statements.
A summary of the office, retail and industrial building markets where the
Partnership's properties, and the property underlying the Partnership's
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.
Space is being absorbed at a slow and steady pace and there is a shortage of
space for larger tenants in this market. During the three months ended
September 30, 1996, the vacancy rate in this market decreased slightly.
During the third quarter of 1996, the property remained 100% leased to 3
tenants. The Partnership is negotiating the renewal of the lease of Tools
Exchange (for approximately 22% of the property's space) which expires in
1997.
During the third quarter of 1996, the market vacancy rate in Irvine, California,
the location of 2600 Michelson Drive, increased slightly. However, the
Partnership considers Irvine to be an improving market because the steady
absorption of space and the lack of new construction are leading to a decrease
in the amount of available quality office space. Rental rates have also
recently begun to increase in this market. During the third quarter of 1996,
occupancy at the property remained at 92%. No significant leases expire
before 1998.
The office vacancy level in the Boston office market, the location of One
Congress Street, has recently improved to 9%. As discussed above, GSA vacated
approximately 70,000 square feet of the property's office 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 third quarter of 1996, occupancy at the
office space decreased to 70% 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>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings [WILL CHANGE]
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.
The Schechtman Action, the Dosky Action and the Segal Action have been
consolidated in a single action (the "Consolidated Action") in the Delaware
Court of Chancery for New Castle County. The plaintiffs in the Young Action
and the Grigbsy Action have 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 Dean Witter Realty Inc. ("Realty")
(including the Partnership and its Managing General Partner), Realty, Dean
Witter, Discover & Co., Dean Witter Reynolds Inc. 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 have not yet responded to this 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.
Report dated October 15, 1996 relating to the voluntary
bankruptcy filing of the owner of the property subject to
and collateralizing the Partnership's investment in the
participating mortgage loan.
<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: November 14, 1996 By: /s/ E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: November 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 September 30, 1996
Exhibit Index
Exhibit
No. Description
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,523,994
<SECURITIES> 0
<RECEIVABLES> 447,352
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,274,379<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 42,942,846<F21>
<TOTAL-LIABILITY-AND-EQUITY> 43,274,379<F3>
<SALES> 0
<TOTAL-REVENUES> 3,281,928<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,627,648<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 654,280
<INCOME-TAX> 0
<INCOME-CONTINUING> 654,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654,280
<EPS-PRIMARY> 3.40<F6>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in building and improvements of $6,344,431, investment in unconsolidated
partnership of $19,587,670, net investments in participating mortgage loan
of $13,755,767 and net dferred expenses of $615,165.
<F21>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $233,614 and
security deposits of $97,919.
<F4>Total revenue includes rent of $1,090,414, interest on participating
mortgage loan of $1,497,808, equity in earnings of unconsolidated
partnership of $596,807 and other revenue of $96,899.
<F5>Other expenses include loss on impairment of participating mortgage loan
of $1,477,000.
<F6>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
