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 March 31, 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> March 31,
December 31,
1998 1997
<S> <C>
<C>
ASSETS
Investment in unconsolidated partnerships $32,740,700
$32,650,908
Building and improvements, net of accumulated
depreciation of $1,260,918 and $1,211,289 6,043,708
6,093,337
Cash and cash equivalents 3,174,053
2,680,667
Deferred expenses, net 278,007
292,703
Other assets 276,675
610,473
$42,513,143
$42,328,088
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 223,649 $
193,555
Security deposits 97,919
97,919
321,568
291,474
Partners' capital:
General partners 3,554,862
3,539,365
Limited partners ($500 per Unit, 173,164 Units issued)
38,636,713 38,497,249
Total partners' capital 42,191,575
42,036,614
$42,513,143
$42,328,088
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF INCOME
Three months ended March 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Revenues:
Rental $ 478,330 $
359,123
Equity in earnings of unconsolidated partnerships 565,867
224,461
Interest on short-term investments and other 48,270
39,986
Interest on participating mortgage loan - 21,860
1,092,467
645,430
Expenses:
Property operating 198,427
211,422
Depreciation and amortization 64,325
103,507
General and administrative 73,490
77,555
336,242
392,484
Net income $ 756,225 $
252,946
Net income allocated to:
Limited partners $ 680,602 $
227,651
General partners 75,623
25,295
$ 756,225 $
252,946
Net income per Unit of limited partnership interest $ 3.93
$ 1.31
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENT OF PARTNERS' CAPITAL
Three months ended March 31, 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 680,602 75,623
756,225
Cash distributions (541,138)
(60,126) (601,264)
Partners' capital at March 31, 1998 $38,636,713
$3,554,862 $42,191,575
See accompanying notes to financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 756,225 $
252,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of unconsolidated partnerships
(565,867) (224,461)
Depreciation and amortization 64,325
103,507
Decrease in other assets 333,798
22,159
Increase in accounts payable and other liabilities 30,094
31,512
Net cash provided by operating activities 618,575
185,663
Cash flows from investing activities:
Distributions from unconsolidated partnerships 630,000
540,350
Contributions to unconsolidated partnerships
(153,925) (132,172)
Net cash provided by investing activities 476,075
408,178
Net cash flows used in financing activities:
Cash distributions (601,264)
(601,264)
Increase (decrease) in cash and cash equivalents 493,386
(7,423)
Cash and cash equivalents at beginning of period 2,680,667
2,963,298
Cash and cash equivalents at end of period $3,174,053
$2,955,875
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 reserves
of uncollected interest relating to the participating
mortgage loan in 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
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
and Exchange Commission for the year ended December 31,
1997. Operating results of interim periods may not be
indicative of the operating results for the entire
year.
2. 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, owns 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. The Partnership's 49.19% share of proceeds
from the sale, net of closing costs, were approximately
$31.4 million; such proceeds were distributed 100% to
the Limited Partners ($181.09 per Unit) on April 28,
1998. At March 31, 1998, the Partnership's investment
in DMA approximated $19.2 million.
Summarized financial information of DMA is as follows:
Quarter ended
March 31,
1998 1997
Revenues $1,789,796
$1,614,111
Expenses 711,138
1,157,797
Net income $1,078,658 $
456,314
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
In 1998, DMA accounted for its investment in the
property as real estate held for sale. Accordingly,
DMA did not record depreciation expense on the property
and related improvements in 1998 (such expense was
approximately $470,000 in 1997).
Summarized financial information of GCGA is as follows:
Quarter ended
March 31,
1998 1997
Revenue $
2,495,901 $ 2,888,298
Expenses:
Interest on second mortgage loan 1,787,625
2,028,900
Other interest 948,903
886,181
Property operating 1,192,435
1,133,613
Depreciation and amortization 459,082
485,036
4,388,045
4,533,730
Net loss $(1,892,144)
$(1,645,432)
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 quarter of 1997, GCGA paid to the Partnership
$21,860 of $495,640 total interest due). Effective
October 27, 1997, the Partnership recognizes its share
of GCGA's earnings exclusive of GCGA's interest expense
on the second mortgage loan.
3. Related Party Transactions
An affiliate of Realty provided property management
services for two of the Partnership's properties during
1998 and 1997. The affiliate received property
management fees of $22,825 and $30,866 for the three
months ended March 31, 1998 and 1997, respectively,
DEAN WITTER REALTY YIELD PLUS II, L.P.
Notes to Financial Statements
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, 1998 and 1997, the Partnership incurred
approximately $53,000 for these services. These amounts
are included in general and administrative expenses.
As of March 31, 1998, Realty and its affiliate were
owed a total of approximately $23,000 for these
services.
4. 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 courts. The
complaints allege a number of claims, including breach
of fiduciary duty, fraud, misrepresentation and related
claims, and seek compensatory and other damages and
equitable relief. The defendants intend to vigorously
defend against these actions. It is impossible to
predict the effect, if any, the outcome of these
actions might have on the Partnership's financial
statements.
5. Subsequent Event
On April 27, 1998, 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.
On May 8, 1998, the Partnership distributed a portion
of its cash reserves ($5.19 per Unit) to the Limited
Partners. The total distribution aggregated $998,579
with $898,721 distributed to the Limited Partners and
$99,858 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 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 owns the Michelson property (in
which the Partnership is a 49.19% general partner) sold
the property on April 3, 1998 (see Note 2 to the
financial statements). During the three months ended
March 31, 1998, the property generated cash flow from
operations of approximately $1,142,000; however,
because of the pending sale of the property, the
partnership did not distribute any cash flow to the
Partnership. 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 Managing General Partner is marketing for sale the
Century Alameda Distribution Center and the partnership
which owns the One Congress Street property (in which a
subsidiary of the Partnership is a general partner)
plans to market this property for sale later in 1998.
However, there can be no assurance that these
properties will be sold.
Employment growth, especially in the communications,
technology and financial services industries, has
increased demand for space in many office markets.
Such increasing demand and a controlled amount of
speculative construction has resulted in falling
vacancies and rising rents. Improved property
performance along with an influx of capital from REITs,
pension funds and foreign investors are increasing
property values. Some office markets, especially
suburban markets, are faring better than others and, in
certain areas, improved market conditions can support
new construction. Currently, the office vacancy rate
in the downtown
DEAN WITTER REALTY YIELD PLUS II, L.P.
financial market and government center of Boston (the
location of One Congress Street) is less than 7% and
rental rates in this market are still increasing but at
a slower pace. In Orange County, CA (the location of
the Michelson property), the strong demand for quality
office space combined with a lack of new construction
have decreased vacancy and increased rental rates. The
industrial property market in the South Bay area of Los
Angeles (the location of the Century Alameda
Distribution Center) currently has a vacancy rate of
approximately 7% and is experiencing increasing rental
rates.
During the remainder of 1998, the Partnership's
liquidity will be primarily affected by sales of the
Partnership's properties; when properties are sold, the
Partnership will have fewer income-producing
investments, Partnership cash from operations will
decrease and Partnership distributions will decline.
The Partnership will also require less cash reserves to
fund capital expenditures and leasing commissions.
Future cash distribution levels will fluctuate based on
cash flow generated by the Partnership's remaining
property interests, requirements for capital
expenditures and leasing commissions as discussed
below, and proceeds received from property sales.
During the quarter ended March 31, 1998, all of the
Partnership's properties generated positive cash flow
from operations, and it is anticipated that the
remaining properties will continue to do so during the
period the Partnership continues to own its property
interests in 1998.
During the first quarter of 1998, Partnership cash
flows from operations and distributions from the
partnership which owns the One Congress Street building
("GCGA") ($630,000) exceeded distributions to investors
and contributions to the Michelson partnership
($153,925).
The current lease between GCGA and the Government
Services Administration ("GSA"), the sole tenant of the
office space at the One Congress Street property,
requires GCGA to fund tenant
DEAN WITTER REALTY YIELD PLUS II, L.P.
improvements aggregating between $1,110,000 and
$1,935,000; any amount funded over $1,110,000 will be
repaid monthly by GSA over five years plus interest at
8%. In addition, GCGA is required to fund leasing
commissions of up to $1,475,000. The maximum amount of
the Partnership's share of the above-mentioned tenant-
related expenditures (42%) is approximately $1,432,000
(of which $346,500 would be repaid by GSA, as discussed
above); the Partnership has not paid any of these
expenditures through March 31, 1998.
In 1998, the Partnership expects to use its cash
reserves to fund its share of the lease-related
expenditures at the One Congress Street property, and
distribute any excess cash reserves to investors. 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.
On April 27, 1998, the Partnership paid the first
quarter 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.
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, 1998 compared to 1997
are primarily attributable to the following:
Since the partnership which owned the Michelson
property classified the property as real estate held
for sale on December 31, 1997, no depreciation expense
was recorded at the property in 1998. As a result, the
Partnership's equity in earnings of joint ventures
increased by approximately $230,000 in 1998.
DEAN WITTER REALTY YIELD PLUS II, L.P.
In 1998, there was no interest recorded on the
Partnership's participating mortgage loan to GCGA
because, effective October 27, 1997, the Partnership
began recognizing its share of income from the property
using the equity method of accounting ($38,000 in
1998).
There were no other individually significant factors
which caused changes in revenues or expenses.
A summary of the markets where the Partnership's
remaining properties 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.
The demand for space in industrial properties in this
market remained strong, and, currently, the vacancy
rate is approximately 7%. Also, rental rates have
increased in this market as a result of a limited
supply of Class A space. During the first quarter
1998, the property remained 100% leased to 3 tenants.
No lease expires until 2003.
Currently, the vacancy rate in the downtown Boston
office market, the location of One Congress Street, is
less than 7% and rental rates are still increasing but
at a slower pace. There is no significant new
construction in this market. The lease with GSA (for
approximately 70% of the office space) is scheduled to
expire no earlier than July 31, 2002. The remaining
30% of the office space remained vacant. The lease for
100% of the parking lot space at the property with
Kinney Systems, Inc. expires in 2003. In 1998, the
retail space, which is not a significant portion of the
overall space, remained substantially vacant.
DEAN WITTER REALTY YIELD PLUS, L.P.
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 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.
None.
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: May 15, 1998 By: /s/E. Davisson
Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: May 15, 1998 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
DEAN WITTER REALTY YIELD PLUS II, L.P.
Quarter Ended March 31, 1998
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
E1
[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.
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] MAR-31-1998
[CASH] 3,174,053
[SECURITIES] 0
[RECEIVABLES] 276,675
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 42,513,143<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 42,191,575<F2>
[TOTAL-LIABILITY-AND-EQUITY] 42,513,143<F3>
[SALES] 0
[TOTAL-REVENUES] 1,092,467<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 336,242<F5>
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 756,225
[INCOME-TAX] 0
[INCOME-CONTINUING] 756,225
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 756,225
[EPS-PRIMARY] 3.93<F6>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in building and improvements of $6,043,708, investment in unconsolidated
partnerships of $32,740,700 and net deferred expenses of $278,007.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $223,649 and
security deposits of $97,919.
<F4>Total revenue includes rent of $478,330, equity in earnings of
unconsolidated partnerships of $565,867 and other revenue of $48,270.
<F5>Other expenses include property operating expenses of $198,427,
depreciation and amortization of $64,325 and general and administrative
expenses of $73,490.
<F6>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
