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, 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<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
ASSETS
<S> <C> <C>
Investment in participating mortgage loan, net $13,755,767 $13,755,767
of allowance of $11,264,750
Investment in unconsolidated partnership 18,982,370 19,166,087
Building and improvements, at cost, net of
accumulated depreciation of $1,062,401 and
$1,012,772 6,242,225 6,291,854
Cash and cash equivalents 2,955,875 2,963,298
Deferred expenses, net 507,748 561,626
Other assets 243,221 265,380
$42,687,206 $43,004,012
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 237,188 $ 205,676
Security deposits 97,919 97,919
335,107 303,595
Partners' capital:
General partners 3,570,915 3,605,746
Limited partners ($500 per Unit, 173,164 Units
issued) 38,781,184 39,094,671
42,352,099 42,700,417
$42,687,206 $43,004,012
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Interest on participating mortgage loan $ 21,860 $ 495,638
Rental 359,123 342,267
Equity in earnings of unconsolidated partnership 224,461 261,189
Other 39,986 33,021
645,430 1,132,115
Expenses:
Property operating 211,422 215,254
Depreciation and amortization 103,507 98,714
General and administrative 77,555 75,976
392,484 389,944
Net income $252,946 $ 742,171
Net income allocated to:
Limited partners $227,651 $ 667,954
General partners 25,295 74,217
$252,946 $ 742,171
Net income per Unit of limited partnership interest $1.31 $3.86
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Three months ended March 31, 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 227,651 25,295 252,946
Cash distributions (541,138) (60,126) (601,264)
Partners' capital at March 31, 1997 $38,781,184 $3,570,915 $42,352,099
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 252,946 $ 742,171
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 103,507 98,714
Equity in earnings of unconsolidated partnership (224,461) (261,189)
Decrease (increase) in other assets 22,159 (356,559)
Increase (decrease) in accounts payable and
other liabilities 31,512 (50,380)
Net cash provided by operating activities 185,663 172,757
Cash flows from investing activities:
Contributions to unconsolidated partnership (132,172) (74,243)
Distributions from unconsolidated partnership 540,350 610,976
Additions to building and improvements - (35,145)
Net cash provided by investing activities 408,178 501,588
Net cash flows used in financing activities:
Cash distributions (601,264) (601,264)
(Decrease) increase in cash and cash equivalents (7,423) 73,081
Cash and cash equivalents at beginning of period 2,963,298 2,233,451
Cash and cash equivalents at end of period $2,955,875 $2,306,532
See accompanying notes to financial statements.
/TABLE
<PAGE>
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
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 borrower on the participating mortgage loan is operating under
Chapter 11 of the U.S. Bankruptcy Code. During the first quarter of
1997, the owner/borrower paid to the Partnership $21,860 of $495,640
total interest due. The Partnership reserved the remaining accrued
but unpaid interest. As of March 31, 1997, the Partnership's total
reserves of accrued but unpaid interest approximate $941,000. 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>
Quarter ended March 31,
1997 1996
<S> <C> <C>
Revenues $1,614,111 $1,650,159
Expenses 1,157,797 1,119,180
Net income $ 456,314 $ 530,979
</TABLE>
4. 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 $30,866 and $31,611 for the
three months ended March 31, 1997 and 1996, 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 three-month periods ended March 31, 1997 and
1996, the Partnership incurred approximately $53,000 for these
services. These amounts are included in general and administrative
expenses.
As of March 31, 1997 Realty and its affiliate were owed a total of
approximately $29,000 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 April 28, 1997, the Partnership paid a cash distribution of
$3.125 per Unit to Limited Partners. The cash distribution
aggregated $601,309 with $541,187 distributed to the Limited
Partners and $60,122 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.
In many regions of the country, continued restraint of new office
construction and steady leasing have reduced supply in office
markets and, in certain areas, property values and rental rates are
rising. Generally, suburban office markets continue to fare better
than downtown markets in major cities. Generally, new construction
remains low by historic standards, and is primarily on a build-to-
suit basis. Currently, the office vacancy level in Boston (the
location of One Congress Street) is approximately 9%. The relative
absence of office construction and growth in demand from high
technology and professional service firms has recently resulted 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 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. Demand continues to remain strong for modern high quality
space and well-located industrial properties.
The Managing General Partner is currently marketing the 2600
Michelson Drive property for sale, and expects to market for sale its
remaining investments over the next two years. However, there is no
assurance that the Partnership will be able to achieve these objectives.
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. In
the first quarter of 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
consolidated financial statements, the borrower on the One Congress
Street property is in Chapter 11 bankruptcy proceedings and did not
pay approximately $473,000 of its minimum debt service in the first
quarter of 1997.
During the three months ended March 31, 1997, Partnership cash flows
from operations and distributions from DW Michelson Associates
approximately equaled distributions to investors, capital
expenditures and contributions to DW Michelson Associates.
As of March 31, 1997, the Partnership has commitments to fund
approximately $179,000 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 expires in August 1997.
On October 15, 1996, the owner/borrower filed a voluntary petition
under Chapter 11 of the U.S. bankruptcy code. Since the bankruptcy
filing the owner/borrower has failed to pay interest on the loan
totaling approximately $2,251,000 of which the Partnership's share
is approximately $941,000.
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.
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,
will significantly decrease. Currently, the owner/borrower is
negotiating a new lease covering the space under the lease scheduled
to expire in August 1997 and a portion of the space given up by GSA
in August 1996. 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 extent to which Partnership cash flow from the One Congress
Street property will be reduced for the remainder of 1997 can not be
determined at this time. It is possible that the cash from One
Congress Street along with Partnership cash flow from operations and
distributions from the joint venture will be insufficient to fund
Partnership cash needs. If this were to occur, the Partnership
might need to fund a portion of distributions to investors, capital
expenditures and contributions to its joint ventures from cash
reserves, or to reduce cash distributions.
On April 28, 1997, the Partnership paid a cash distribution of
$3.125 per Unit to the Limited Partners. The cash distribution
aggregated $601,309, with $541,187 distributed to the Limited
Partners and $60,122 distributed to the General Partners.
Except as discussed above and in the financial statements, the
Managing General Partner is not aware of any trends or events,
commitments or uncertainties that may have a material impact on
liquidity.
Operations
Fluctuations in the Partnership's operating results for the three-
months ended March 31, 1997 compared to 1996 are primarily
attributable to the following:
The Partnership's interest on its participating mortgage loan
secured by the One Congress Street property has decreased due to a
failure by the owner/borrower to pay interest on the loan of
approximately $473,000 for the first quarter ending March 31, 1997.
(See Note 2 to the consolidated financial statements).
There were no other significant changes in revenues or expenses
between the two periods.
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 7%. During the first quarter 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 1997. No other leases expire
until 2005.
During the first quarter of 1997, the market vacancy rate for Class
A office space in Irvine, California, the location of 2600 Michelson
Drive, decreased from 16% to 15% because of the continued strong
demand for quality Class A space and the lack of new construction.
Rental rates have also continued to increase in this market. During
the first quarter of 1997, average occupancy at the property was
93%. Leases on approximately 25% and 22% of the space at the
property expire in 1997 and 1998, respectively.
During the first quarter of 1997, the office vacancy level in the
Boston office market, the location of One Congress Street, remained
at 9%. Although this market continues to improve, rental rates have
not increased significantly. 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. As a result of GSA's partial vacancy, occupancy of the
office space remained at 70% during the first quarter 1997. Also,
the retail space, which is not a significant portion of the overall
space, remained substantially vacant at March 31, 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.
<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 14, 1997 By: /s/ E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: May 14, 1997 By: /s/ Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and Accounting
Officer)
<PAGE>
Dean Witter Realty Yield Plus II, L.P.
Quarter Ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,955,875
<SECURITIES> 0
<RECEIVABLES> 243,221
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,687,206<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 42,352,099<F2>
<TOTAL-LIABILITY-AND-EQUITY> 42,687,206<F3>
<SALES> 0
<TOTAL-REVENUES> 645,430<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 392,484<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 252,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 252,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,946
<EPS-PRIMARY> 1.31<F6>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in building and improvements of $6,242,225, investment in unconsolidated
partnership of $18,982,370, net investments in participating mortgage loan
of $13,755,767 and net deferred expenses of $507,748.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $237,188 and
security deposits of $97,919.
<F4>Total revenue includes rent of $359,123, interest on participating
mortgage loan of $21,860, equity in earnings of unconsolidated
partnership of $224,461 and other revenue of $39,986.
<F5>Other expenses include property operating expenses of $211,422,
depreciation and amortization of $103,507 and general and administrative
expenses of $77,555.
<F6>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
