5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1997
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 14
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
<CAPTION>
June 30, December
31,
1997 1996
ASSETS
<S> <C>
<C>
Investment in participating mortgage loan, net of
allowance of $11,264,750 $13,755,767
$13,755,767
Investment in unconsolidated partnership 18,838,348
19,166,087
Building and improvements, net of accumulated
depreciation of $1,112,031 and $1,012,772 6,192,595
6,291,854
Cash and cash equivalents 2,821,685
2,963,298
Deferred expenses, net 453,872
561,626
Other assets 307,428
265,380
$42,369,695
$43,004,012
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 200,838 $
205,676
Security deposits 97,919
97,919
298,757
303,595
Partners' capital:
General partners 3,542,798
3,605,746
Limited partners ($500 per Unit, 173,164 Units issued)
38,528,140 39,094,671
Total partners' capital 42,070,938
42,700,417
$42,369,695
$43,004,012
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF INCOME
Three and six months ended June 30, 1997 and 1996
<CAPTION>
Three months ended Six
months ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C>
<C>
Revenues:
Interest on participating
mortgage loan $104,060 $ 501,085 $ 125,920
$ 996,723
Rental 403,228 354,935 762,351
697,202
Equity in earnings of
unconsolidated partnership 209,595 154,387
434,056 415,576
Interest and other 43,749 27,623 83,735
60,644
760,632 1,038,030 1,406,062
2,170,145
Expenses:
Property operating 240,982 195,790 452,404
411,044
Depreciation and amortization 103,506 98,713
207,013 197,427
General and administrative 96,041 78,109
173,596 154,085
440,529 372,612 833,013
762,556
Net income $320,103 $ 665,418 $ 573,049
$1,407,589
Net income allocated to:
Limited partners $288,093 $ 598,876 $ 515,744
$1,266,830
General partners 32,010 66,542 57,305
140,759
$320,103 $ 665,418 $ 573,049
$1,407,589
Net income per Unit of Limited
partnership interest $ 1.67 $ 3.46 $ 2.98
$ 7.32
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Six months ended June 30, 1997
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C>
<C>
Partners' capital at January 1, 1997 $39,094,671
$3,605,746 $42,700,417
Net income 515,744 57,305
573,049
Cash distributions (1,082,275)
(120,253) (1,202,528)
Partners' capital at June 30, 1997 $38,528,140 $3,542,798
$42,070,938
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 573,049 $
1,407,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 207,013
197,427
Equity in earnings of unconsolidated partnership
(434,056) (415,576)
Increase in operating assets:
Other assets (42,048)
(14,728)
Decrease in operating liabilities:
Accounts payable and other liabilities (4,838)
(75,780)
Net cash provided by operating activities
299,120 1,098,932
Cash flows from investing activities:
Additions to building and improvements -
(35,145)
Contributions to unconsolidated partnership (162,474)
(871,029)
Distributions from unconsolidated partnership
924,269 1,015,599
Net cash provided by investing activities
761,795 109,425
Cash flows used in financing activities:
Cash distributions (1,202,528)
(1,202,528)
(Decrease) increase in cash and cash equivalents
(141,613) 5,829
Cash and cash equivalents at beginning of period
2,963,298 2,233,451
Cash and cash equivalents at end of period $ 2,821,685 $
2,239,280
See accompanying notes to consolidated financial
statements.
</TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
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 necessary to present fairly the
results for the interim periods. Except for reserves
of uncollected interest relating to 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,
1996. Operating results of interim periods may not be
indicative of the operating results for the entire
year.
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" in February 1997. This
pronouncement establishes standards for computing and
presenting earnings per share, and is effective for the
Partnership's 1997 year-end financial statements. The
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
Partnership's management has determined that this
standard will have no impact on the Partnership's
computation or presentation of net income per unit of
limited partnership interest.
2. Investment in Participating
Mortgage Loan
The owner/borrower on the participating mortgage loan
is operating under Chapter 11 of the U.S. Bankruptcy
Code. During the first six months of 1997, the
owner/borrower paid to the Partnership $125,920 of
$985,830 total interest due. The Partnership reserved
the remaining accrued but unpaid interest. As of June
30, 1997, the Partnership's total reserves against
accrued but unpaid interest approximate $1,327,000.
The ultimate outcome of the bankruptcy proceedings is
uncertain at this time.
3. Investment in Unconsolidated
Partnership
Summarized financial information of DW Michelson is as
follows:
<TABLE>
<CAPTION>
Three months ended Six months
ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $1,718,468 $1,647,704 $3,332,579
$3,297,863
Expenses 1,292,375 1,333,844 2,450,172
2,453,024
Net income $ 426,093 $ 313,860 $ 882,407
$ 844,839
</TABLE>
4. Related Party Transactions
An affiliate of Realty provided property management
services for two of the Partnership's properties during
1997 and 1996. The affiliate received property
management fees of $62,238 and $63,695 for the six
months ended June 30, 1997 and 1996, respectively, for
these services. These amounts are included in property
operating expenses.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
Realty performs administrative functions, processes
investor transactions and prepares tax information for
the Partnership. During each of the six-month periods
ended June 30, 1997 and 1996, the Partnership incurred
approximately $106,000 for these services. These
amounts are included in general and administrative
expenses.
As of June 30, 1997 Realty and its affiliate were owed
a total of approximately $28,000 for these services.
5. Litigation
Various public partnerships sponsored by Realty
(including the Partnership and its Managing General
Partner) are defendants in purported class action
lawsuits pending in state and federal court. The
complaints allege a number of claims, including breach
of fiduciary duty, fraud and misrepresentation, and
seek an accounting of profits, compensatory and other
damages in an unspecified amount, possible liquidation
of the Partnership under a receiver's supervision and
other equitable relief. The defendants are vigorously
defending these actions. It is impossible to predict
the effect, if any, the outcome of these actions might
have on the Partnership's financial statements.
6. Subsequent Event
On July 29, 1997, the Partnership paid a cash
distribution of $3.125 per Unit to Limited Partners.
The cash distribution aggregated $601,264 with $541,137
distributed to the Limited Partners and $60,127
distributed to the General Partners.
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.
The economic expansion continues and has provided for a
rebound in the commercial property markets. Employment
growth, especially in business services and technology
industries, has increased demand for office space. The
steady demand and the limited amount of speculative
office construction has resulted in falling vacancies,
rising rents and increasing property values in many
markets. Some office markets are faring better than
others and, in certain areas, improved market
conditions can support new construction. Currently,
the demand for large blocks of available office space
in the downtown financial markets of Boston (the
location of One Congress Street) exceeds supply. The
relative absence of office construction and growth in
demand from professional service firms is resulting
in an absorption of office space and an increase in
rental rates in the Class A office market in
Orange County, CA (the location of 2600 Michelson
Drive). The demand for space in industrial
properties, such as the Century Alameda Distribution
Center, correlates to national economic cycles, and has
been rising during the current economic expansion.
The Managing General Partner has identified a potential
purchaser of the 2600 Michelson Drive property and has
begun to negotiate a sale agreement. The Managing
General Partner expects to market its remaining
investments over the next two years. However, there
is no assurance that the Partnership will be able to
sell its properties in the near future.
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
DEAN WITTER REALTY YIELD PLUS II, L.P.
improvements and leasing commissions in connection with
the leasing of space. During the six months ended June
30, 1997, 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 for the remainder of 1997. As
described below and in Note 2 to the financial
statements, the owner/borrower of the One Congress
Street property is in Chapter 11 bankruptcy proceedings
and did not pay approximately $386,000 and $860,000 of
its minimum debt service during the three- and six-
month periods ending June 30, 1997, respectively.
The Partnership's liquidity will also be affected by
sales of the Partnership's property interests; as
interests are sold, Partnership cash from operations
available to fund investor distributions and capital
expenditures decreases.
During the six months ended June 30, 1997,
distributions to investors and contributions to DW
Michelson Associates exceeded Partnership cash flows
from operations, interest on the participating mortgage
loan and distributions from DW Michelson Associates.
The cash shortfall was funded from the Partnership's
cash reserves.
As of June 30, 1997, the Partnership has commitments to
fund approximately $396,000 to DW Michelson Associates,
primarily for lease-related capital expenditures.
The Partnership's participating mortgage loan is
secured by the One Congress Street property. The
General Services Administration ("GSA"), the sole
tenant of the office space at the property, vacated
approximately 30% of the space at the property in
August 1996, and the lease on its remaining space
expired July 31, 1997. On October 15, 1996, the
owner/borrower filed a voluntary petition under Chapter
11 of the U.S. bankruptcy code.
The cash flow generated from the lease of the garage at
the One Congress Street property is projected to be
sufficient to pay the debt service due under the first
mortgage loan on the property.
DEAN WITTER REALTY YIELD PLUS II, L.P.
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 Partnership
believes that the rent to be received by the
owner/borrower after re-leasing the office space at the
property and, as a result, the Partnership's cash flow
from the property, may significantly decrease. GSA
continues to occupy its remaining office space, and GSA
and the owner/borrower are negotiating a new lease. If
the negotiations with the GSA are not successful, 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.
The Partnership can not determine the extent to which
cash flow from the One Congress Street property will be
reduced for the remainder of 1997. It is possible that
the cash flow from One Congress Street along with
Partnership cash flow from operations and distributions
from the joint venture will continue to be insufficient
to fund Partnership cash needs. If the Partnership
continues to incur cash shortfalls, the Partnership
will continue to use its cash reserves to fund a
portion of cash distributions to investors and it might
need to reduce cash distributions.
On July 29, 1997, the Partnership paid a cash
distribution of $3.125 per Unit to the Limited
Partners. The cash distribution aggregated $601,264,
with $541,137 distributed to the Limited Partners and
$60,127 distributed to the General Partners.
Except as discussed above and in the financial
statements, the Managing General Partners is not aware
of any trends or events, commitments or uncertainties
that may have a material impact on liquidity.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Operations
Fluctuations in the Partnership's operating results for
the three- and six-month periods ended June 30, 1997
compared to 1996 are primarily attributable to the
following:
The Partnership's interest income on its participating
mortgage loan secured by the One Congress Street
property decreased in 1997 compared to 1996 due to
reserves of accrued but uncollected interest as
described above in "Liquidity and Capital Resources".
There were no other individually significant factors
which caused changes in revenues or expenses.
A summary of the markets where the Partnership's
properties, and the property underlying the
Partnership's investment in 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 in this market is being absorbed at a slow and
steady pace, and demand remains strong with a current
vacancy rate of 8%. Also, rental rates continue to
increase in this market. During the six-month period
ended June 30, 1997, 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 October 1997. No other leases expire until
2005.
During the second quarter of 1997, the market vacancy
rate for Class A office space in Irvine, California,
the location of 2600 Michelson Drive, remained at 15%.
Rental rates have continued to increase in this market
because of the continued strong demand for quality
Class A space and the lack of significant new
construction. During the second quarter of 1997,
occupancy at the property decreased slightly to 91%.
Leases on approximately 25% and 17% of the space at the
property expire in 1998 and 1999, respectively.
DEAN WITTER REALTY YIELD PLUS II, L.P.
During the six months ended June 30, 1997, the Boston
office market, the location of One Congress Street,
continued to strengthen and rental rates increased. As
discussed above, GSA is the sole tenant of the office
space, which is 70% occupied at June 30, 1997. The
owner/borrower is negotiating a new lease with GSA
because GSA's existing lease expired July 31, 1997. GSA
still occupies its space while it negotiates a new
lease. Also, the retail space, which is not a
significant portion of the overall space, remained
substantially vacant at June 30, 1997.
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.
PART II - OTHER INFORMATION
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) Report on Form 8-K.
Report dated April 4, 1997 of the Valuation
per Unit of Limited Partnership
Interest at December 31, 1996.
DEAN WITTER REALTY YIELD PLUS II, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
DEAN WITTER REALTY YIELD
PLUS II, L.P.
By: Dean Witter Realty Yield
Plus II Inc.
Managing General Partner
Date: August 14, 1997 By: /s/E. Davisson
Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: August 14, 1997 By: /s/Lawrence
Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
DEAN WITTER REALTY YIELD PLUS II, L.P.
Quarter Ended June 30, 1997
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,821,685
<SECURITIES> 0
<RECEIVABLES> 307,428
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,369,695<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 42,070,938<F2>
<TOTAL-LIABILITY-AND-EQUITY> 42,369,695<F3>
<SALES> 0
<TOTAL-REVENUES> 1,406,062<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 833,013<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 573,049
<INCOME-TAX> 0
<INCOME-CONTINUING> 573,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 573,049
<EPS-PRIMARY> 2.98<F6>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investment
in building and improvements of $6,192,595, investment in unconsolidated
partnership of $18,838,348, net investment in participating mortgage loan
of $13,755,767 and net deferred expenses of $453,872.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $200,838 and
security deposits of $97,919.
<F4>Total revenue includes rent of $762,351, net interest on participating
mortgage loan of $125,920, equity in earnings of unconsolidated
partnership of $434,056 and other revenue of $83,735.
<F5>Other expenses include property operating expenses of $452,404,
depreciation and amortization of $207,013 and general and administrative
expenses of $173,596.
<F6>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
