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 September 30, 1998
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
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
<CAPTION>
September 30,
December 31,
1998 1997
<S> <C>
<C>
ASSETS
Investment in unconsolidated partnerships $13,691,945
$32,650,908
Building and improvements, net of accumulated
depreciation of $1,211,289 in 1997 -
6,093,337
Cash and cash equivalents 2,209,203
2,680,667
Deferred expenses, net -
292,703
Other assets 7,657
610,473
$15,908,805
$42,328,088
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 166,996 $
193,555
Security deposits -
97,919
166,996
291,474
Partners' capital:
General partners 3,418,738
3,539,365
Limited partners ($500 per Unit, 173,164 Units issued)
12,323,071 38,497,249
Total partners' capital 15,741,809
42,036,614
$15,908,805
$42,328,088
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
INCOME STATEMENTS
Three and nine months ended September 30, 1998 and 1997
<CAPTION>
Three months ended Nine
months ended
September 30,
September 30,
1998 1997 1998 1997
<S> <C> <C> <C>
<C>
Revenues:
Equity in earnings of unconsolidated
partnerships $ 197,012 $212,069
$13,338,007 $ 646,125
Gain on sale of real estate 2,722,277 -
2,722,277 -
Rental 203,940 394,127
1,118,383 1,156,478
Interest on participating mortgage
loan - 125,929 - 251,849
Interest on cash equivalents and
other revenues 54,133 39,098
268,143 122,833
3,177,362 771,223
17,446,810 2,177,285
Expenses:
Property operating 77,058 212,476
503,672 664,880
Depreciation and amortization 3,767 103,507
126,208 310,520
General and administrative 61,033 116,955
177,454 290,551
141,858 432,938
807,334 1,265,951
Net income $3,035,504 $338,285
$16,639,476 $ 911,334
Net income allocated to:
Limited partners $3,004,181 $304,457
$16,515,941 $ 820,201
General partners 31,323 33,828
123,535 91,133
$3,035,504 $338,285
$16,639,476 $ 911,334
Net income per Unit of limited
partnership interest $ 17.35 $ 1.76 $
95.38 $ 4.74
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Nine months ended September 30, 1998
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C>
<C>
Partners' capital at January 1, 1998 $ 38,497,249
$3,539,365 $ 42,036,614
Net income 16,515,941 123,535
16,639,476
Cash distributions (42,690,119)
(244,162) (42,934,281)
Partners' capital at September 30, 1998 $ 12,323,071
$3,418,738 $ 15,741,809
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 16,639,476 $
911,334
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of unconsolidated partnerships
(13,338,007) (646,125)
Gain on sale of real estate (2,722,277)
Depreciation and amortization 126,208
310,520
Decrease in deferred expenses 18,624
- -
Decrease (increase) in other assets 404,543
(12,890)
(Decrease) increase in accounts payable and other
liabilities (28,709)
62,170
Decrease in security deposits payable (97,919)
- -
Net cash provided by operating activities
1,001,939 625,009
Cash flows from investing activities:
Proceeds from sale of real estate 9,163,908
- -
Distributions from unconsolidated partnerships
32,897,180 1,490,772
Contributions to unconsolidated partnerships
(600,210) (311,484)
Net cash provided by investing activities
41,460,878 1,179,288
Net cash flows used in financing activities:
Cash distributions (42,934,281)
(1,803,792)
(Decrease) increase in cash and cash equivalents
(471,464) 505
Cash and cash equivalents at beginning of period
2,680,667 2,963,298
Cash and cash equivalents at end of period $ 2,209,203 $
2,963,803
See accompanying notes to 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 ("DMA") and, effective October 27, 1997, GCGA
Limited Partnership ("GCGA") 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 the gain on the sale of the
Century Alameda Distribution Center in the third quarter of
1998, the gain on sale of the Michelson property included in
equity in earnings of unconsolidated partnerships in the
second quarter of 1998 and reserves of uncollected interest
relating to the participating mortgage loan in each quarter
of 1997, such adjustments consist only of normal recurring
accruals.
The Partnership adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" and
Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" during the first quarter
of 1998. Adoption of these standards had no impact on the
Partnership's computation or presentation of net income per
Unit of Limited Partnership interest or other disclosures.
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, 1997. Operating results of
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
interim periods may not be indicative of the operating
results for the entire year.
2. Sale of Real Estate
On August 11, 1998, the Partnership sold the Century Alameda
Distribution Center to an unaffiliated party for $9.35
million. The Partnership recognized a gain on this sale of
approximately $2.7 million, which was allocated 100% to the
Limited Partners in accordance with the Partnership
Agreement. On August 26, 1998, the Partnership distributed
approximately $9.1 million ($52.75 per Unit), the net
proceeds from the sale of the property, 100% to the Limited
Partners.
3. Investments in Unconsolidated Partnerships
Pursuant to a Purchase and Sale Agreement dated as of
December 26, 1997, DMA agreed to sell to SC Enterprises
("SCE") DMA's 90% general partnership interest in Michelson
Company Limited Partnership (the "Company"), owner of the
Michelson property, and two promissory notes (totaling
approximately $1.2 million) due from SCE for a negotiated
aggregate sale price of $64 million. SCE, an affiliate of
the developer of the property, owned the remaining 10%
limited partnership interest in the Company. SCE assigned
its right to purchase the interest in the Company to Spieker
Properties, L.P., which is not affiliated with the
Partnership, its affiliated partnerships or SCE.
The sale price was received in cash at closing on April 3,
1998. On April 28, 1998, the Partnership distributed
approximately $31.4 million ($181.09 per Unit), its share of
the net proceeds from the sale, 100% to the Limited
Partners. The Partnership's share of gain on sale of the
property was approximately $12.7 million; such gain was
allocated 100% to the Limited Partners in accordance with
the Partnership Agreement.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
<TABLE>
Summarized financial information of DMA is as follows:
<CAPTION>
Three months ended Nine
months ended
September 30,
September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating revenues $ - $1,688,465 $
1,910,365 $5,021,044
Gain on sale of property - - 25,251,899
- -
Expenses - 1,257,343
778,649 3,707,515
Net income $ - $ 431,122 $26,383,615
$1,313,529
</TABLE>
<TABLE>
Summarized financial information of GCGA is as follows:
<CAPTION>
Three months ended Nine
months ended
September 30,
September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 3,141,144 $ 2,995,764
$ 8,294,913 $ 8,732,021
Expenses:
Interest on second
mortgage loan 1,946,877 2,073,987
5,522,127 6,154,330
Other interest 948,068 886,182
2,845,186 2,658,544
Property operating 1,521,155 1,148,417
4,468,924 3,408,139
Depreciation and
amortization 459,082 485,036
1,377,246 1,455,108
4,875,182 4,593,622
14,213,483 13,676,121
Net loss $(1,734,038) $(1,597,858)
$(5,918,570) $(4,944,100)
</TABLE>
GCGA's second mortgage loan is the participating mortgage
loan from the Partnership (42%) and Dean Witter Realty Yield
Plus L.P., an affiliated public partnership (58%). Prior to
October 27, 1997, the Partnership recognized interest income
on this loan and reserved any interest not paid by GCGA
(during the first nine months of 1997, GCGA paid to the
Partnership $251,849 of $1,486,915 total interest due).
Effective October 27, 1997, the Partnership began
recognizing its share of GCGA's earnings exclusive of GCGA's
interest expense on the second mortgage loan.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
4. Related Party Transactions
An affiliate of Realty provided property management services
for the Michelson and Century Alameda properties during 1998
and 1997. The affiliate received property management fees of
$40,115 and $93,925 for the nine months ended September 30,
1998 and 1997, 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 the nine-month periods ended September
30, 1998 and 1997, the Partnership incurred approximately
$117,000 and $159,000, respectively, for these services.
These amounts are included in general and administrative
expenses. As of September 30, 198, Realty was owed
approximately $10,000 for these services.
5. Litigation
Various public partnerships sponsored by Realty (including
the Partnership and its Managing General Partner) were
defendants in a class action lawsuit. On July 17, 1998, the
Delaware Chancery Court granted the defendants' motion to
dismiss the complaint in the lawsuit. The Plaintiffs filed
a notice of appeal from the Court's order.
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 completed a $86,582,000 public offering 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 partnership which owned the Michelson property (in which
the Partnership is a 49.19% general partner) sold the
property on April 3, 1998 (see Note 3 to the financial
statements). On April 28, 1998, the Partnership distributed
approximately $31.4 million ($181.09 per Unit), its share of
the net proceeds from the sale, 100% to Limited Partners.
The Partnership's share of the 1998 operating cash flow from
the Michelson property was approximately $562,000.
On August 11, 1998, the Partnership sold the Century Alameda
property (see Note 2 to the financial statements). On
August 26, the Partnership distributed approximately $9.1
million ($52.75 per Unit), the net proceeds from the sale,
100% to Limited Partners. The Partnership received
approximately $640,000 of operating cash flow from the
Century Alameda property in 1998.
As a result of the 1998 property sales, Partnership cash
flow from operations decreased during the nine-months ended
September 30, 1998 compared to 1997.
Effective August 11, 1998, the Partnership's interest in the
partnership which owns the One Congress Street property
("GCGA") is the Partnership's sole property interest. GCGA
has begun to market its property for sale during the fourth
quarter of 1998; however, there can be no assurance that the
One Congress Street property will be sold.
During the nine months ended September 30, 1998, all of the
Partnership's property interests generated positive cash
flow from property operations, and it is anticipated that
the investment in GCGA will continue to do so during the
period the Partnership continues to own it.
DEAN WITTER REALTY YIELD PLUS II, L.P.
During the nine months ended September 30, 1998, Partnership
distributions to investors (excluding the distribution of
sale proceeds) and contributions to the Michelson and GCGA
partnerships exceeded cash flows from operations and
distributions from the Michelson (excluding the distribution
of sale proceeds) and GCGA partnerships. This deficiency
was funded with Partnership cash reserves.
On May 8, 1998, the Partnership distributed $5.19 per Unit
from cash reserves to the Limited Partners. This cash
distribution aggregated $998,579, with $898,721 distributed
to the Limited Partners and $99,858 distributed to the
General Partners.
GCGA and the Government Services Administration ("GSA"), the
sole tenant of the office space at the One Congress Street
property, amended their lease to expand GSA's occupancy by
approximately 20,000 square feet and postpone GSA's right to
exercise its one-time option to terminate its lease of all
or a portion of its space to the year ending July 31, 2004.
In return, GCGA will fund tenant improvements of up to
$2,580,000; $1,250,000 of this amount (plus interest at 8%)
will be repaid by GSA in monthly installments over five
years. In addition, GCGA is required to fund leasing
commissions of up to $1,560,000. The maximum amount of the
Partnership's share of the above-mentioned tenant-related
expenditures (42%) is approximately $1,739,000 (of which
$525,000 would be repaid by GSA, as described above). The
Partnership has paid approximately $429,000 of the
expenditures through September 30, 1998.
GCGA is currently negotiating to lease the remaining vacant
office space at the One Congress Street property
(approximately 23% of the space) to a new tenant; as a
result, GCGA may incur significant capital expenditures and
leasing commissions to fill the vacant space. The
Partnership will be required to fund its 42% share of GCGA's
capital expenditures.
The Managing General Partner believed that the Partnership
would not have sufficient cash reserves to fully fund its
potential liability for its share of capital expenditures
and leasing commissions at the One Congress Street property
and other Partnership cash requirements. Therefore, in
order to increase cash reserves, the Partnership decreased
its second quarter cash distribution (paid in July 1998)
from $3.125 per Unit to $1.25 per Unit and did not pay its
third quarter cash distribution. Generally, future cash
distributions will be paid from proceeds received from the
sale of the One Congress Street property and cash reserves.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Deferred expenses, other assets and security deposits
payable decreased in 1998 primarily as a result of the sale
of the Century Alameda property.
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- and nine-month periods ended September 30, 1998
compared to 1997 were primarily attributable to the
following:
Equity in earnings of unconsolidated partnerships increased
during the nine-month period primarily as a result of the
Partnership's share of the gain from the sale of the
Michelson property in April 1998. See Note 3 to the
financial statements. Equity in earnings also increased by
approximately $197,000 and $104,000 during the three- and
nine-month periods because, effective October 27, 1997, the
Partnership began recognizing its share of earnings from the
property using the equity method of accounting.
The gain on sale of real estate in 1998 resulted from the
sale of the Century Alameda property.
During the three- and nine-month periods, rental income,
property operating expenses and depreciation and
amortization expenses decreased as a result of the sale of
the Century Alameda property.
In 1998, there was no interest income recorded on the
Partnership's participating mortgage loan to GCGA because
the loan is now accounted for as an investment in
unconsolidated partnership.
During the nine-month period, interest on cash equivalents
increased primarily due to interest earned on the proceeds
from the Michelson and Century Alameda sale before such
proceeds were distributed to Limited Partners.
There were no other individually significant factors which
caused changes in revenues or expenses.
DEAN WITTER REALTY YIELD PLUS II, L.P.
Currently, the vacancy rate in the downtown Boston office
market, the location of One Congress Street, is
approximately 7% and rental rates in this market are stable.
There is no significant new construction in this market. The
lease with GSA has been amended to include additional space
that was occupied starting October 1998. The current lease
with GSA is scheduled to expire no earlier than August 1,
2003. The remaining 23% of the office space is currently
vacant. The lease for 100% of the parking lot space at the
property with Kinney Systems, Inc. expires in 2003. As part
of the amended lease with GSA, GSA also leased a small
portion of retail space; however, 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
On August 14, 1998, the plaintiff in the
Consolidated Action filed a notice of appeal from
the order of the Delaware Chancery Court which
granted the defendants' motion to dismiss the
complaint.
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 August 11, 1998 regarding the sale
of the Century Alameda property.
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: November 16, 1998 By: /s/E. Davisson Hardman,
Jr.
E. Davisson Hardman, Jr.
President
Date: November 16, 1998 By: /s/Charles M.
Charrow
Charles M. Charrow
Controller
(Principal Financial and
Accounting Officer)
DEAN WITTER REALTY YIELD PLUS II, L.P.
Quarter Ended September 30, 1998
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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,209,203
<SECURITIES> 0
<RECEIVABLES> 7,657
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,908,805<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,741,809<F2>
<TOTAL-LIABILITY-AND-EQUITY> 15,908,805<F3>
<SALES> 0
<TOTAL-REVENUES> 17,446,810<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 807,334<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,639,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,639,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,639,476
<EPS-PRIMARY> 95.38<F6>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include investment in
unconsolidated partnerships of $13,691,945.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $166,996.
<F4>Total revenue includes rent of $1,118,383, equity in earnings of
unconsolidated partnerships of $13,338,007 and other revenue of $268,143.
<F5>Other expenses include property operating expenses of $503,672,
depreciation and amortization of $126,208 and general and administrative
expenses of $177,454.
<F6>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
