<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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(State of organization) (IRS Employer Identification No.)
2 World Trade Center, New York, NY 10048
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 392-1054
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. N/A
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I.
ITEM 1. BUSINESS
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The Registrant, Dean Witter Realty Yield Plus II, L.P. (the "Partnership"), is a
limited partnership formed in February 1988 under the laws of the State of
Delaware for the purpose of investing in income- producing commercial and
industrial properties.
The Managing General Partner of the Partnership is Dean Witter Realty Yield Plus
II Inc. (the "Managing General Partner"), a Delaware corporation which is
wholly-owned by Dean Witter Realty Inc. ("Realty"). The Associate General
Partner is Dean Witter Realty Yield Plus Associates II, L.P. (the "Associate
General Partner"), a Delaware limited partnership, the general partner of which
is the Managing General Partner. The Managing General Partner manages and
controls all aspects of the business of the Partnership. The terms of
transactions between the Partnership and its affiliates are set forth below in
the financial statements in Item 8 and in Item 13.
The Partnership issued 173,164 units of limited partnership interest (the
"Units") for $86,582,000. The offering has been terminated and no additional
Units will be sold.
The proceeds from the offering were used to make investments in three
participating mortgage loans and land leases secured by interests in real
property. The Partnership subsequently acquired equity interests in the real
estate securing all of the loans through foreclosure or transfers of ownership
in lieu of foreclosure. All property interests but one were sold in 1998. The
Partnership's remaining property interest is described in Item 2 below.
The One Congress Street building, the Partnership's remaining property interest,
is currently being marketed for sale, with the objective of completing such sale
in 1999. There can be no assurance that this property will be sold.
The Partnership considers its business to include one industry segment,
investment in real property. Financial information regarding the Partnership is
in the Partnership's financial statements in Item 8 below.
<PAGE>
The One Congress Street property is subject to competition from similar
properties in the vicinity in which it is located. Further information regarding
competition and market conditions is set forth in Item 7 below.
The Partnership has no employees.
All of the Partnership's business is conducted in the United States.
ITEM 2. PROPERTIES
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The Partnership's principal offices are located at Two World Trade Center, New
York, New York 10048. The Partnership has no other offices.
As of December 31, 1998, the Partnership owned a 42% general partnership
interest in GCGA Limited Partnership ("GCGA"), the owner of the One Congress
Street building. Dean Witter Realty Yield Plus, L.P. ("Yield Plus"), an
affiliate of the Partnership, owns the remaining 58% general partnership
interest. Yield Plus and the Partnership jointly made a $59.2 million
participating second mortgage loan to GCGA in 1990; the Partnership's share of
this mortgage loan was approximately $24.9 million. In 1996, GCGA filed for
bankruptcy protection, and in 1997, GCGA entered into a settlement agreement in
which Yield Plus and the Partnership acquired GCGA's equity interests in the
property. Yield Plus and the Partnership recorded these property interests at
$19.5 million and $13.9 million, respectively, the net carrying value of the
loan at the acquisition date (which was lower than the estimated fair value of
the property). The property, which includes an income-producing parking garage,
is located in Boston, MA. The office building has a net rentable area of 283,000
square feet, including 37,000 square feet of retail space. The property is
subject to a first mortgage loan.
The largest office tenant at the One Congress Street building is the Government
Service Administration ("GSA"). In 1998 GSA occupied an average of 69% of the
property's office space, and at December 31, 1998, GSA occupied 82% of the
space.
GSA's lease expires on July 31, 2006; however, after July 31, 2003, GSA has a
one-time option to terminate its lease on all or a portion of its space. The
lease does not include any renewal options. GSA's 1998 rent per annum was
approximately $31.85 per square foot, and will increase periodically to a
maximum of $47.34 per square foot, beginning in August 2005.
During the fourth quarter of 1998, the remaining office space at the One
Congress Street building was leased to the Commonwealth of Massachusetts
<PAGE>
for a five year period beginning in January 1999. The 1999 rent per annum from
this lease will be approximately $38.22 per square foot, and will increase
annually to a maximum of $40.22 per square foot in 2003.
All of the parking space is leased to Kinney Systems Inc. through December 31,
2003, subject to two successive five year renewal options at market rental rates
(but in no event less than 105% of the rent payable in 2003). The 1998 rent per
annum on this lease was approximately $4,036,000, and rents will increase
annually to a maximum rent per annum of $4,498,000 in 2003.
In 1998, GSA also leased approximately 19% of the retail space at the property;
however, the retail space, which is not a significant portion of the overall
space, remains substantially vacant.
The One Congress Street property is managed by an affiliate of the original
general partner of GCGA.
Generally, the leases pertaining to the property provide for pass-throughs to
the tenants of their pro-rata share of certain operating expenses. In the
opinion of the Managing General Partner, the property is adequately covered by
insurance.
The property owner's Federal tax basis of the One Congress Street property is
$47.7 million. The building is depreciated using an accelerated method over a
period of 15 years. The property owner's real estate taxes in 1998 totaled
approximately $3.4 million and were assessed at a rate of $3.14 per $100 of
assessed valuation.
In 1998, the Partnership sold the Century Alameda Distribution Center, located
in Lynwood, California, and the joint venture which owned the Michelson property
(in which the Partnership is a 49.19% general partner) sold its property.
Further information relating to the Partnership's property is included in Item 7
and Notes 4 and 5 to the financial statements in Item 8 below.
ITEM 3. LEGAL PROCEEDINGS
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On December 27, 1995, a purported class action lawsuit (the "Grigsby Action")
naming various public real estate partnerships sponsored by Realty (including
the Partnership and its Managing General Partner and Associate General Partner),
Realty, Dean Witter Reynolds Inc. ("DWR") and others as defendants was filed in
Superior Court in California. The complaint alleged fraud, negligent
misrepresentation, intentional and
<PAGE>
negligent breach of fiduciary duty, unjust enrichment and related claims and
sought compensatory and punitive damages in unspecified amounts and injunctive
and other equitable relief. The defendants removed the case to the United States
District Court for the Southern District of California. Pursuant to an order of
the U.S. District Court for the Southern District of California entered May 24,
1996, the Grigsby Action was transferred to the U.S. District Court for the
Southern District of New York.
On February 14, 1996, a purported class action lawsuit (the "Schectman Action")
naming various public real estate partnerships sponsored by Realty (including
the Partnership and its Managing General Partner), Realty, Dean Witter, Discover
& Co. (now known as Morgan Stanley Dean Witter & co., "MWD") and DWR as
defendants was filed in the Chancery Court of Delaware for New Castle County
(the "Delaware Chancery Court"). On February 23, 1996, a purported class action
lawsuit (the "Dosky Action") naming various public real estate partnerships
sponsored by Realty (including the Partnership and its Managing General
Partner), Realty, MWD, DWR and others as defendants was filed in the Delaware
Chancery Court. On February 29, 1996, a purported class action lawsuit (the
"Segal Action") naming various public real estate partnerships sponsored by
Realty (including the Partnership and its Managing General Partner), Realty,
DWR, MWD and others as defendants was filed in the Delaware Chancery Court. On
March 13, 1996, a purported class action lawsuit (the "Young Action") naming the
Partnership, other unidentified limited partnerships, MWD, DWR and others as
defendants was filed in the Circuit Court for Baltimore City in Baltimore,
Maryland. The defendants removed the Young Action to the United States District
Court for the District of Maryland.
Thereafter, the Schectman Action, the Dosky Action and the Segal Action were
consolidated in a single action (the "Consolidated Action") in the Delaware
Chancery Court. The Young Action was dismissed without prejudice. The plaintiffs
in the Young Action and the Grigsby Action 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 Realty (including the Partnership and its
Managing General Partner), Realty, MWD, DWR 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
<PAGE>
receiver's supervision and other equitable relief. The defendants filed a motion
to dismiss this complaint on December 10, 1996.
On July 17, 1998, the Delaware Chancery Court granted the defendants' motion to
dismiss the complaint in the Consolidated Action. The plaintiffs filed a notice
of appeal from the Chancery Court's order on August 14, 1998. Oral argument on
the appeal was heard by the Delaware Supreme Court on January 5, 1999. The
Delaware Supreme Court affirmed the Chancery Court's dismissal of the
Consolidated Action on January 6, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year to a vote
of Unit holders.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
An established public trading market for the Units does not exist, and it is not
anticipated that such a market will develop in the future. Accordingly,
information as to the market value of a Unit at any given date is not available.
However, the Partnership does allow limited partners (the "Limited Partners") to
transfer their Units if a suitable buyer can be located.
As of February 28, 1999, there were 7,560 holders of limited partnership
interests.
The Partnership is a limited partnership and, accordingly, does not pay
dividends. It does, however, make distributions of cash to its partners.
Pursuant to the Partnership Agreement, distributable cash, as defined, is paid
90% to the Limited Partners and 10% to the general partners (the "General
Partners").
The Managing General Partner was obligated to (a) defer receipt of its share of
distributable net cash flow, and (b) contribute additional capital to the
Partnership, sufficient to fund any shortfalls between cash flow and a 7.5%
annual distribution rate to Limited Partners during the offering period (which
ended March 1990) and the twelve quarters thereafter. During the offering
period, the Managing General Partner
<PAGE>
deferred receipt of distributions totaling $3,713,000, but was not required to
make any additional capital contributions. Thereafter, the Managing General
Partner contributed a total of $4,807,069 with respect to the twelve quarters
ended March 31, 1993.
The Partnership paid cash distributions during the year ended December 31, 1998
aggregating $246.53 per Unit (including $233.84 per Unit from proceeds from the
sales of Century Alameda and Michelson property interests, which were paid 100%
to the Limited Partners). Total distributions amounted to $42,934,281 with
$42,690,119 distributed to the Limited Partners and $244,162 to the General
Partners. In 1997, the Partnership paid quarterly cash distributions aggregating
$12.50 per Unit to Limited Partners. The total distribution was $2,405,056 with
$2,164,550 distributed to the Limited partners and $240,506 distributed to the
General Partners.
The Partnership did not make a distribution of distributable cash following the
second quarter 1998 cash distribution (paid July 1998), and does not anticipate
making regular distributions to its partners in the future. Generally, future
cash distributions will be paid from proceeds received from the sale of the One
Congress Street property and cash reserves.
Sale or financing proceeds will be distributed, to the extent available: first,
97% to the Limited Partners and 3% to the General Partners until each Limited
Partner has received a return of their invested capital plus an amount
sufficient to provide a 10% cumulative annual return thereon; second, 100% to
the General Partners until they have received an amount equal to (i) any portion
of their share of net cash flow previously deferred and not distributed, and
(ii) any additional capital contributions made by the Managing General Partner
to fund distributions to the Limited Partners in respect of the 7.5% minimum
annual return described above; and third, 85% to the Limited Partners and 15% to
the General Partners.
Taxable income (subject to certain adjustments) will be allocated to the
partners in proportion to the distribution of distributable cash or sale or
financing proceeds, as the case may be (or 90% to the Limited Partners and 10%
to the General Partners if there is no distributable cash or sale or financing
proceeds). At a minimum, the General Partners must be allocated 1% of the
taxable income from a sale or financing. Tax losses, if any, will be allocated
90% to the Limited Partners and 10% to the General Partners.
ITEM 6. SELECTED FINANCIAL DATA
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The following sets forth a summary of selected financial data for the
Partnership:
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
Years ended December 31, 1998, 1997, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1998/1/ 1997/2/ 1996/3/ 1995 1994
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<S> <C> <C> <C> <C> <C>
Total revenues $17,623,800 $ 3,359,076 $ 4,073,429 $ 4,790,945 $ 4,232,379
Net income $16,812,595 $ 1,741,253 $ 1,013,115 $ 3,445,931 $ 2,396,809
Net income per
Unit of limited
partnership interest $ 96.23 $ 9.05 $ 5.27 $ 17.91 $ 12.46
Cash distribution paid
per Unit of limited
partnership interest/4/ $ 246.53/5/ $ 12.50 $ 12.50 $ 16.25 $ 20.00
Total assets at
December 31 $15,996,248 $42,328,088 $43,004,012 $44,487,504 $44,411,118
</TABLE>
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1. Total revenues and net income include gains of $2.7 million and $12.7 million
on the sales of the Century Alameda and Michelson properties, respectively.
2. Total revenues and net income are net of reserves of $1.1 million of accrued
but unpaid interest on the One Congress Street participating mortgage loan.
3. Net income is net of a $1.5 million loss on impairment on the One Congress
Street participating mortgage loan, and total revenues and net income are net
of reserves of $.5 million of accrued but unpaid interest on the loan.
4. Distributions paid to Limited Partners for the year ended December 31, 1998
included a return of capital of $200.77 per Unit, calculated as the excess of
cash distributed per Unit over accumulated earnings per Unit not previously
distributed. All distributions paid to Limited Partners in 1994-1997
represent returns of capital.
5. Includes distributions of sales proceeds of $233.84 from sales of property
Interests.
The above financial data should be read in conjunction with the financial
statements and the related notes appearing in Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
Liquidity and Capital Resources
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The Partnership raised $86,582,000 through a public offering which terminated in
1990. The Partnership has no plans to raise additional capital.
<PAGE>
The Partnership committed the gross proceeds raised in the offering to three
investments. No additional investments are planned.
The Century Alameda and Michelson properties were sold in 1998. The aggregate
net cash received from the sold properties for 1998 operations was approximately
$1,220,000. See Notes 4 and 5 to the Financial Statements.
As a result of the property sales, Partnership cash flow from operations
decreased during 1998 as 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 began 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.
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. In 1998, GCGA
and the Government Services Administration ("GSA") amended their lease to
increase GSA's office space at the property from 70% to 82% starting October
1998. The GSA lease, as amended, is scheduled to expire no earlier than August
1, 2003. Also, in 1998, the remaining vacant office space at the property was
leased to the Commonwealth of Massachusetts for a five year period beginning in
January 1999. The lease for 100% of the parking lot space at the property with
Kinney Systems, Inc. expires in 2003. GSA also leased a small portion of retail
space in 1998; however, the retail space, which is not a significant portion of
the overall space, remains substantially vacant.
As part of the amended lease between GCGA and GSA, GCGA will fund tenant
improvements of up to $2,580,000; $1,300,000 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 $1,409,000. The maximum
amount of the Partnership's share of the above mentioned tenant-related
expenditures (42%) is approximately $1,675,000 (of which $546,000 would be
repaid by GSA, as described above). The Partnership has paid approximately
$946,000 of the expenditures through December 31, 1998.
As of December 31, 1998, the Partnership is also required to fund approximately
$217,000, its share of tenant improvement and leasing commissions, for the new
lease between the Commonwealth of Massachusetts and GCGA.
<PAGE>
During the year ended December 31, 1998, all of the Partnership's property
interests generated positive cash flow from operations, and it is anticipated
that the One Congress Street property will continue to do so in 1999.
During the year ended December 31, 1998, the Partnership contributed $1,143,000
and $171,000 to its GCGA and Michelson joint ventures, respectively, primarily
for tenant improvements and leasing commissions at the properties.
During the year ended December 31, 1998, the Partnership paid cash distributions
of cash flow from operations and proceeds from sale of properties. See Item 5.
During the year ended December 31, 1998, distributions to investors (excluding
distribution of sale proceeds) and contributions to the GCGA and Michelson
partnerships exceeded cash flows from operations and distributions from the GCGA
and Michelson partnerships (excluding the distribution of sale proceeds). This
deficiency was funded from cash reserves.
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 1998 cash distribution
(paid July 1998) from $3.125 per Unit to $1.25 per Unit, and thereafter, did not
pay quarterly cash distributions. Generally, future cash distributions will be
paid from proceeds received from the sale of the One Congress Street property
and cash reserves.
Deferred expenses, other assets, accounts payable and other liabilities and
security deposits decreased in 1998 as a result of the property sales.
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 year ended December
31, 1998 compared to 1997 and 1997 compared to 1996 are primarily attributable
to the following:
<PAGE>
Equity in earnings of unconsolidated partnerships increased in 1998 primarily as
a result of the Partnership's share of the gain from the sale of the Michelson
property in April 1998. See Note 4 to the financial statements. Equity in
earnings also increased by approximately $143,000 and $192,000 during 1998 and
1997 because, effective October 27, 1997, the Partnership began recognizing its
share of earnings from the GCGA 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. Rental income, property operating expenses, depreciation and
amortization expenses, and general and administrative expenses decreased for the
same reason.
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. Interest on this loan to GCGA
decreased in 1997 compared to 1996 because $1,130,000 of reserves of uncollected
interest were recognized from January 1, 1997 to October 27, 1997 (when the
Partnership obtained control of the property) compared to $470,000 in 1996.
There were no other individually significant factors which caused changes in
revenues or expenses.
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>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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DEAN WITTER REALTY YIELD PLUS II, L.P.
INDEX
Page
----
(a) Financial statements
Independent Auditors' Report
Balance Sheets at December 31, 1998 and 1997
Income Statements for the years ended
December 31, 1998, 1997 and 1996
Statements of Partners' Capital for the years
ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
(b) Financial statement schedule
Real Estate and Accumulated Depreciation III
- ------------------
All schedules other than those indicated above have been omitted because either
the required information is not applicable or the information is shown in the
financial statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Partners
Dean Witter Realty Yield Plus II, L.P.
We have audited the accompanying balance sheets of Dean Witter Realty Yield Plus
II, L.P. (the "Partnership") as of December 31, 1998 and 1997, and the related
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included financial
statement schedule III. These financial statements and the financial statement
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Realty Yield Plus II, L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, financial
statement schedule III, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Deloitte & Touche LLP
/s/Deloitte & Touche LLP
New York, New York
March 18, 1999
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
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ASSETS
Investment in unconsolidated partnerships $13,923,431 $32,650,908
Cash and cash equivalents 2,062,767 2,680,667
Building, at cost, net of accumulated
depreciation of $1,211,289 in 1997 - 6,093,337
Deferred expenses, net - 292,703
Other assets 10,050 610,473
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$15,996,248 $42,328,088
===============================================================================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 81,320 $ 193,555
Security deposits - 97,919
- -------------------------------------------------------------------------------
81,320 291,474
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Partners' capital:
General partners 3,444,225 3,539,365
Limited partners ($500 per Unit,
173,164 Units issued) 12,470,703 38,497,249
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Total partners' capital 15,914,928 42,036,614
- -------------------------------------------------------------------------------
$15,996,248 $42,328,088
===============================================================================
See accompanying notes to financial statements.
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
INCOME STATEMENTS
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Revenues:
Equity in earnings of unconsolidated
partnerships $13,554,417 $1,125,625 $ 946,761
Rental 1,118,383 1,564,070 1,475,990
Gain on sale of real estate 2,655,594 - -
Interest on participating mortgage loan - 503,707 1,520,481
Interest on cash and cash equivalents and
other 295,406 165,674 130,197
- -----------------------------------------------------------------------------------------------
17,623,800 3,359,076 4,073,429
- -----------------------------------------------------------------------------------------------
Expenses:
Property operating 508,469 922,107 817,877
Depreciation and amortization 126,208 392,618 402,256
General and administrative 176,528 303,098 363,181
Loss on impairment of participating
mortgage loan - - 1,477,000
- -----------------------------------------------------------------------------------------------
811,205 1,617,823 3,060,314
- -----------------------------------------------------------------------------------------------
Net income $16,812,595 $1,741,253 $1,013,115
===============================================================================================
Net income allocated to:
Limited partners $16,663,573 $1,567,128 $ 911,804
General partners 149,022 174,125 101,311
- -----------------------------------------------------------------------------------------------
$16,812,595 $1,741,253 $1,013,115
===============================================================================================
Net income per Unit of limited partnership
Interest $ 96.23 $ 9.05 $ 5.27
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<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 911,804 101,311 1,013,115
Cash distributions (2,164,550) (240,506) (2,405,056)
- ---------------------------------------------------------------------------------------------------------
Partners' capital at December 31, 1996 39,094,671 3,605,746 42,700,417
Net income 1,567,128 174,125 1,741,253
Cash distributions (2,164,550) (240,506) (2,405,056)
- ---------------------------------------------------------------------------------------------------------
Partners' capital at December 31, 1997 38,497,249 3,539,365 42,036,614
Net Income 16,663,573 149,022 16,812,595
Cash Distributions (42,690,119) (244,162) (42,934,281)
- ---------------------------------------------------------------------------------------------------------
Partners' Capital at December 31, 1998 $12,470,703 $3,444,225 $15,914,928
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $16,812,595 $ 1,741,253 $1,013,115
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in earnings of unconsolidated
partnerships (13,554,417) (1,125,625) (946,761)
Gain on sale of real estate (2,655,594) - -
Depreciation and amortization 126,208 392,618 402,256
Loss on impairment of participating
mortgage loan - - 1,477,000
Decrease (increase) in operating assets:
Other assets 402,151 (345,093) 145,217
Deferred expenses 18,624 - -
Decrease in operating liabilities:
Accounts payable and other liabilities (114,385) (12,121) (91,551)
Security deposits (97,919) - -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 937,263 651,032 1,999,276
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Distributions from unconsolidated partnerships 33,595,903 1,884,766 2,297,113
Contributions to unconsolidated partnerships (1,314,009) (413,373) (949,484)
Proceeds from sale of real estate 9,097,224 - -
Additions to building and improvements - - (212,002)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 41,379,118 1,471,393 1,135,627
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash distributions (42,934,281) (2,405,056) (2,405,056)
- ------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (617,900) (282,631) 729,847
Cash and cash equivalents at beginning of year 2,680,667 2,963,298 2,233,451
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,062,767 $ 2,680,667 $2,963,298
==============================================================================================================================
Supplemental disclosure of non-cash investing activities:
Reclassification of investment in participating
mortgage loan to investment in unconsolidated
partnership:
Investment in participating mortgage loan, net $ - $13,755,767 $ -
Deferred expenses, net - 74,822 -
- ------------------------------------------------------------------------------------------------------------------------------
Addition to investment in unconsolidated
partnership $ - $13,830,589 $ -
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<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 to invest
in participating mortgage loans collateralized by income-producing commercial
and industrial properties. 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 issued 173,164 units of limited partnership interest (the
"Units") for $86,582,000. No additional Units will be sold.
The Partnership expects to sell its remaining real estate investment in 1999.
Pursuant to the Partnership Agreement, the sale of the Partnership's last such
investment will cause the dissolution of the Partnership. Thereafter, the
Partnership will wind up its affairs, make a final cash distribution, and
terminate.
2. Summary of Significant Accounting Policies
------------------------------------------
The Partnership's records are maintained on the accrual basis of accounting for
financial reporting and tax purposes. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Partnership's 49.19% general partnership interest in DW Michelson Associates
("DMA") and, effective October 27, 1997, the Partnership's 42% general
partnership interest in GCGA Limited Partnership ("GCGA"), the owner/borrower of
the One Congress Street property, are accounted for on the equity method. See
Note 4.
Real estate and the investments in unconsolidated partnerships, all of which
were acquired in settlement of loans, were recorded at the lower of the carrying
value of the original participating mortgage loan or estimated fair value of the
real estate investment at the date of foreclosure or in-substance foreclosure.
Costs of improvements to real
<PAGE>
estate are capitalized and repairs are expensed. Depreciation is recorded on the
straight-line method.
Cash and cash equivalents consist of cash and highly liquid investments with
maturities, when purchased, of three months or less.
At least annually, and more often if circumstances dictate, the Partnership
evaluates the recoverability of the net carrying value of its real estate (and
any related assets), including the real estate (and related assets) owned by the
unconsolidated partnerships. As part of this evaluation, the Partnership
assesses, among other things, whether there has been a significant decrease in
the market value of any of its properties. If events or circumstances indicate
that the net carrying value of a property may not be recoverable, the expected
future net cash flows from the property are estimated for a period of
approximately five years (or a shorter period if the Partnership expects that
the property may be disposed of sooner), along with estimated sales proceeds at
the end of the period. If the total of these future undiscounted cash flows were
less than the carrying amount of the property, the property would be written
down to its fair value as determined (in some cases with the assistance of
outside real estate consultants) based on discounted cash flows, and a loss on
impairment recognized by a charge to earnings.
The Partnership also periodically evaluated the collectibility of both interest
and principal of its investment in the participating mortgage loan to determine
whether it was impaired. The mortgage loan was considered to be impaired when,
based on then-current information and events, it was probable that the
Partnership would be unable to collect all amounts due according to the existing
contractual terms of the loan. When the mortgage loan was considered to be
impaired, the Partnership established a valuation allowance which was equal to
the difference between a) the carrying value of the loan, and b) the present
value of the expected cash flows from the loan at its effective interest rate,
or, for practical purposes, at the estimated fair value of the real estate
collateralizing the loan.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1998. The cash flows used to evaluate the
recoverability of the assets and to determine fair value are based on good faith
estimates and assumptions developed by the Managing General Partner.
Unanticipated events and circumstances may occur and some assumptions may not
materialize;
<PAGE>
therefore actual results may vary from the estimates and the variances may be
material. The Partnership may provide additional write-downs, which could be
material, in subsequent years if real estate markets or local economic
conditions change.
Deferred expenses consisted of leasing commissions and, prior to October 27,
1997, origination fees in connection with the participating mortgage loan.
Leasing commissions were amortized over the applicable lease terms. Origination
fees were amortized over the loan term, which approximated the effective yield
method.
Rental income was accrued on a straight-line basis over the terms of the leases.
Accruals in excess of amounts payable by tenants pursuant to their leases
(resulting from rent concessions or rents which periodically increase over the
term of a lease) were recorded as receivables and included in other assets.
Net income per Unit amounts are calculated by dividing net income allocated to
Limited Partners, in accordance with the Partnership Agreement, by the weighted
average number of Units outstanding.
No provision for income taxes has been made in the financial statements, since
the liability for such taxes is that of the partners rather than the
Partnership.
The accounting policies used for tax reporting purposes differ from those used
for financial reporting as follows: (a) depreciation is calculated using
accelerated methods, (b) rental income is recognized based on the payment terms
in the applicable leases, and (c) write-downs for impairments of real estate and
the participating mortgage loan are not deductible. For tax purposes, the
Partnership continues to recognize taxable interest income on its loans secured
by the Michelson (until the property was sold) and One Congress Street
properties. The Partnership also recognized its share of DMA's taxable income
(which was net of interest expense on the participating mortgage loans which
were still outstanding). In addition, offering costs are treated differently for
tax and financial reporting purposes. The tax basis of the Partnership's assets
and liabilities is approximately $24.8 million higher than the amounts reported
for financial statement purposes at December 31, 1998.
The implementation in 1998 of Financial Accounting Standards Board Statement No.
130 "Reporting Comprehensive Income" and Statement No. 131 "Disclosures about
Segments of an Enterprise and Related Information" effective for the
Partnership's 1998 year-end financial statements did not have any impact on the
Partnership's financial statements.
<PAGE>
3. Partnership Agreement
---------------------
The Partnership Agreement provides that net cash flow, as defined, will be paid
90% to the Limited Partners and 10% to the General Partners. However, during the
offering period (which ended in March 1990) and the twelve quarters thereafter,
the Managing General Partner was obligated to (a) defer receipt of its share of
distributable net cash flow, which totaled $3,713,000; and (b) contribute
additional capital to the Partnership sufficient to fund the difference between
cash flow and a 7.5% annual distribution rate to Limited Partners, a total of
$4,807,069.
Sale or financing proceeds will be distributed, to the extent available: first,
97% to the Limited Partners and 3% to the General Partners until each Limited
Partner has received a return of their invested capital plus an amount
sufficient to provide a 10% cumulative annual return thereon; second, 100% to
the General Partners until they have received an amount equal to (i) any portion
of their share of net cash flow previously deferred and not distributed, and
(ii) any additional capital contributions made by the Managing General Partner
to fund distributions to the Limited Partners in respect of the 7.5% minimum
annual return described above; and third, 85% to the Limited Partners and 15% to
the General Partners.
Taxable income (subject to certain adjustments) will be allocated to the
partners in proportion to the distribution of distributable cash or sale or
financing proceeds, as the case may be (or 90% to the Limited Partners and 10%
to the General Partners if there is no distributable cash or sale or financing
proceeds). At a minimum, the General Partners must be allocated 1% of the
taxable income from a sale or financing. Tax losses, if any, will be allocated
90% to the Limited Partners and 10% to the General Partners.
Distributions paid to Limited Partners in 1998 included a return of capital of
$200.77 per Unit, calculated as the excess of cash distributed over accumulated
earnings not previously distributed. All distributions paid to Limited Partners
in 1997 and 1996 represent returns of capital.
4. Investments in Participating Mortgage Loan and Unconsolidated
-------------------------------------------------------------
Partnerships
------------
One Congress Street, Boston, Massachusetts
The Partnership and Dean Witter Realty Yield Plus, L.P. ("Yield Plus"; and
collectively, with the Partnership, the "Lender"), an affiliate, made
<PAGE>
a $59.2 million participating second mortgage loan on the One Congress Street
building (the "Loan") to GCGA. The loan is due in 2001. Base interest was
originally payable at 8% and the first $250,000 of net revenues in any calendar
year from the property was payable as additional interest. The Lender also owned
a 58% interest in adjusted net revenue and capital proceeds generated by the
property. The property is subject to a first mortgage loan.
In October 1996, GCGA defaulted on the Loan by failing to timely pay its debt
service. Thereafter, the Lender accelerated the Loan and attempted to take
possession of the property. On October 15, 1996, GCGA filed a voluntary petition
under Chapter 11 of the U.S. Bankruptcy Code. On October 27, 1997, the Lender
entered into a settlement agreement with GCGA (the "Agreement"). As part of the
Agreement, a new corporation which is jointly owned by the Partnership (42%) and
Yield Plus (58%) became the sole general partner of GCGA (the "New General
Partner") (with an aggregate 19.81% ownership interest in the property). The
Partnership and Yield Plus have agreed to make all decisions concerning the
property jointly. The Lender has retained an affiliate of GCGA's original
general partner as property manager.
The Agreement also provides the following:
(a) as a result of their interests in the New General Partner, the
Partnership and Yield Plus are required to make additional loans to
fund future tenant improvements and leasing commissions at the property
(the "New Loans") in proportion to their ownership of the New General
Partner. Any New Loans will bear interest at 12%, payable monthly from
available cash flow generated by the property after payment of debt
service on the first mortgage loan and certain operating escrows;
(b) the interest rate on the principal of the Loan and past due interest
thereon (aggregating approximately $12.3 million at the date of the
Agreement) has been increased to 10%, payable monthly from available
cash flow generated by the property after payment of debt service on
the New Loans;
(c) any future unpaid debt service will accrue interest at 10%; and
(d) the Partnership's and Yield Plus' interest in adjusted net revenue and
capital proceeds generated by the property was increased to 80%.
<PAGE>
The Agreement effectively changed the Lender from a participating lender to GCGA
into the general partner in a partnership which owns the One Congress Street
property. The Partnership, through the New General Partner, owns an 8.3%
partnership interest in GCGA and, accordingly, at October 27, 1997, the
Partnership recorded its investment at an amount equal to the net carrying value
of its investment in the participating mortgage loan and related assets (which
carrying value was less than the estimated fair value of the property at that
date). The Partnership began, effective October 27, 1997, to account for its
investment on the equity method (and stopped recognizing interest income from
its participating mortgage loan). Because the Partnership and Yield Plus control
GCGA and are entitled to receive substantially all the cash flow and other
economic benefits from the property, the Partnership and Yield Plus recognize
all of GCGA's profits and losses in proportion to their ownership of the New
General Partner.
The Partnership believed that during the period of the bankruptcy it would be
unable to collect its interest on the Loan in full and that the bankruptcy could
adversely impact future leasing at the property. Accordingly, in 1996, the
Partnership determined that the Loan was impaired and recorded an additional
valuation allowance of $1,477,000 to reduce the carrying value of the Loan to
its estimated fair value. The Partnership had previously recognized an
impairment allowance of $9.8 million in 1993.
In 1997 (prior to the Agreement) and 1996, the Partnership reserved accrued but
unpaid interest on the Loan of $1,130,000 and $470,000, respectively. At October
27, 1997, the Partnership's total reserves against accrued but unpaid interest
approximated $1,600,000.
Summarized financial information of GCGA is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Land and building net $60,698,880 $59,921,306
Other 6,394,881 8,333,385
- ------------------------------------------------------------------------------------------------------------
Total assets $67,093,761 $68,254,691
============================================================================================================
LIABILITIES AND PARTNERS CAPITAL DEFICIENCY
First mortgage loan $37,750,000 $37,750,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Second mortgage loan and accrued
interest 79,023,308 72,148,266
Other liabilities 3,190,814 3,036,017
Partners' capital deficiency (52,870,361) (44,679,592)
- ------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital deficiency $67,093,761 $68,254,691
============================================================================================================
<CAPTION>
STATEMENTS OF OPERATIONS
Years ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental $11,513,818 $ 11,498,722 $ 13,380,683
Other 79,390 238,937 63,455
- --------------------------------------------------------------------------------------------------------
$11,593,208 11,737,659 13,444,138
- --------------------------------------------------------------------------------------------------------
Expenses:
Interest on second mortgage loan 8,078,420 8,036,377 9,357,983
Other interest 3,798,362 3,768,876 3,816,304
Property operating and other 5,946,569 5,075,676 4,874,545
Depreciation and amortization 1,960,626 1,940,143 2,226,861
- --------------------------------------------------------------------------------------------------------
19,783,977 18,821,072 20,275,693
- --------------------------------------------------------------------------------------------------------
Net loss $(8,190,769) $(7,083,413) $(6,831,555)
========================================================================================================
</TABLE>
GCGA's second mortgage loan consists of the Loan. The accounting policies of
GCGA are consistent with those of the Partnership.
Michelson, Irvine, California
The property, which consists of three office buildings, is owned by Michelson
Company Limited Partnership (the "Company"). The 90% general partner of the
Company was DMA, a general partnership owned 49.19% by the Partnership and
50.81% by Yield Plus, and the 10% limited partner of DMA was SC Enterprises
("SCE"), an affiliate of the property's developer.
In April 1998, DMA sold its 90% general partnership interest in the Company to
SCE along with two promissory notes (totaling approximately $1.2 million) due
from SCE for a negotiated aggregate sale price of $64 million. 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
<PAGE>
($181.09 per Unit), its share of the net proceeds from the sale, 100% to the
Limited Partners. The Partnership's share of the gain on sale of the property
was approximately $12.7 million; such gain was allocated 100% to Limited
Partners in accordance with the Partnership Agreement.
Summarized financial information of DW Michelson is as follows:
INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental $ 1,809,111 $6,814,131 $6,600,303
Gain on sale of property 25,221,250 - -
Other 114,859 110,244 41,640
- -------------------------------------------------------------------------------------------------------------
27,145,220 6,924,375 6,641,943
- -------------------------------------------------------------------------------------------------------------
Expenses:
Property operating 736,120 2,917,322 2,506,666
Depreciation and amortization 64,745 2,108,642 2,210,576
- -------------------------------------------------------------------------------------------------------------
800,865 5,025,964 4,717,242
- -------------------------------------------------------------------------------------------------------------
Net income $ 26,344,355 $1,898,411 $1,924,701
=============================================================================================================
</TABLE>
Yield Plus and the Partnership received cash flow and profits and losses from
operations according to their interests in DMA.
The accounting policies of DMA and the Company were consistent with those of the
Partnership.
5. Sale of Real Estate
-------------------
On August 11, 1998, the Partnership sold the Century Alameda Distribution Center
to an unaffiliated party for a negotiated sale price of $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 100% to the Limited
Partners approximately $9.1 million ($52.75 per Unit), the proceeds from the
sale of the property (net of closing costs).
<PAGE>
6. Related Party Transactions
--------------------------
An affiliate of Realty provided property management services for the Michelson
and the Century Alameda Distribution Center properties. For the years ended
December 31, 1998, 1997 and 1996, the affiliate received property management
fees of approximately $40,000, $126,000, and $130,000, respectively. These
amounts are included in property operating expenses.
Realty performs administrative functions and processes certain investor tax
information for the Partnership. For the years ended December 31, 1998, 1997,
and 1996, the Partnership incurred approximately $145,000, $212,000, and
$212,000, respectively, for these services. These amounts are included in
general and administrative expenses.
As of December 31, 1998, the affiliates were owed a total of approximately
$9,500 for these services.
7. 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. On August 14, 1998, the plaintiffs filed a notice
of appeal from the Court's order. On January 6, 1999, the Delaware Supreme Court
affirmed the Chancery Court's dismissal of the complaint.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The Partnership is a limited partnership which has no directors or officers.
The directors and executive officers of the Managing General Partner are as
follows:
Position with the
Name Managing General Partner
- ---- -------------------------------------------
William B. Smith Chairman of the Board of Directors
E. Davisson Hardman, Jr. President and Director
Lawrence Volpe Director
Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the next annual meeting of
the shareholder of the Managing General Partner or until their successors are
elected and qualify. Each of the executive officers has been elected to serve
until his successor is elected and qualifies.
William B. Smith, age 55, has been a Managing Director of Morgan Stanley and
co-head of Morgan Stanley Realty Incorporated since July 1997, and a Managing
Director of Dean Witter Realty Inc., which he joined in 1982. He is an Executive
Vice President of Dean Witter Reynolds Inc.
E. Davisson Hardman, Jr., age 49, has been a Managing Director of Morgan Stanley
Asia, Ltd. since July 1997, and a Managing Director of Dean Witter Realty Inc.,
which he joined in 1982.
Lawrence Volpe, age 51, is a Senior Vice President of Dean Witter Realty Inc.,
which he joined in 1983. Since June 1998, he has served in an advisory capacity
in connection with Dean Witter Realty Inc. and related entities. Prior to June
1998, he was the Controller of Dean Witter Reynolds Inc., the Managing General
Partner, and Dean Witter Realty, Inc., and a Director of Dean Witter Realty Inc.
<PAGE>
Ronald T. Carman, age 47, is a Director and the Secretary of Dean Witter Realty
Inc. He has been an Assistant Secretary of MWD and a Managing Director of Morgan
Stanley and Co. Inc. since July 1998. Previously, he was a Senior Vice President
and Associate General Counsel of Dean Witter Reynolds Inc., which he joined in
1984.
There is no family relationship among any of the foregoing persons.
ITEM 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The General Partners are entitled to receive cash distributions, when and as
cash distributions are made to the Limited Partners, and a share of taxable
income or tax loss. Descriptions of such distributions and allocations are
contained in Item 5 above. The General Partners received cash distributions of
$244,162, $240,506 and $240,506 during the years ended December 31, 1998, 1997,
and 1996, respectively.
The General Partners and their affiliates were paid certain fees and reimbursed
for certain expenses. Information concerning such fees and reimbursements is
contained in Note 6 to the Financial Statements in Item 8 above.
The directors and officers of the Partnership's Managing General Partner
received no remuneration from the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
(a) No person is known to the Partnership to be the beneficial owner of
more than five percent of the Units.
(b) The directors and executive officers of the Managing General Partner
own the following Units as of February 28, 1999:
Amount and
Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership
- -------------- ------------------------ --------------------
Limited All directors and executive *
Partnership officers of the Managing
Interests General Partner, as a group
- ---------
*Own, by virtue of ownership of limited partnership interests in the Associate
General Partner, less than 1% of the Units of the Partnership.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
As a result of their being partners of a limited partnership which is the
limited partner of the Associate General Partner, certain current and former
officers and directors of the Managing General Partner also own indirect
partnership interests in the Partnership. The Partnership Agreement of the
Partnership provides that cash distributions and allocations of income and loss
to the General Partners shall be distributed or allocated 50% to the Managing
General Partner and 50% to the Associate General Partner. The General Partners'
share of cash distributions and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the Managing General Partner
are owned by Dean Witter Realty Inc., a Delaware corporation which is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The general partner
of the Associate General Partner is the Managing General Partner. The limited
partner of the Associate General Partner is LSYP 88, L.P., a Delaware limited
partnership. Realty and certain current and former officers and directors of the
Managing General Partner are partners of LSYP 88, L.P. Additional information
with respect to the directors and executive officers and compensation of the
Managing General Partner and affiliates is contained in Items 10 and 11 above.
The One Congress Street property was developed by a partnership between a
Maryland-based developer and an entity comprised of former Realty executives,
some of whom were formerly executive officers of the Managing General Partner.
This entity withdrew as a partner of the borrower in September 1993, so the
borrower partnership was controlled solely by the Maryland-based developer until
control of the borrower was transferred to the Partnership and Yield Plus in
1997.
The General Partners and their affiliates were paid certain fees and reimbursed
for certain expenses. Information concerning such fees and reimbursements is
contained in Note 6 to the Financial Statements in Item 8 above. The Partnership
believes that the payment of fees and the reimbursement of expenses to the
General Partners and their affiliates are on terms as favorable as would be
obtained from unrelated third parties.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see Index to Financial Statements filed
as part of Item 8 of this Annual Report).
2. Financial Statement Schedules (see Index to Financial
Statements filed as part of Item 8 of this Annual Report).
3. Exhibits
(3)(a) Amended and Restated Agreement of Limited Partnership dated as
of June 24, 1988 set forth in Exhibit A to the Prospectus
included in Registration Statement Number 33-20475 is
incorporated herein by reference.
(3)(b) Certificate of Limited Partnership dated as of June 24, 1988
set forth in Registration Statement Number 33-20475 is
incorporated herein by reference.
(4)(a) Amended and Restated Agreement of Limited Partnership dated as
of June 24, 1988 set forth in Exhibit A to the Prospectus
included in Registration Statement Number 33-20475 is
incorporated herein by reference.
(4)(b) Certificate of Limited Partnership dated as of June 24, 1988
set forth in Registration Statement Number 33-20475 is
incorporated herein by reference.
(10)(a) Partnership Agreement for DW Michelson Associates dated March
14, 1988 was filed as Exhibit 10.1 (a) to Amendment No. 1 to
Registrant's Registration Statement on Form S-11 and is
incorporated herein by reference.
(10)(b) First Mortgage Promissory Note, dated April 26, 1989, between
the Government Center Garage Realty Trust (Maker) and Dean
Witter Realty Yield Plus II, L.P.(Holder) was filed as Exhibit
to Amendment No. 2 to Current Report on Form 8-K on April 26,
1989 and is incorporated herein by reference.
<PAGE>
(10)(c) Construction Loan Agreement, dated April 26, 1989, between
Government Center Garage Realty Trust, as Borrower and Dean
Witter Realty Yield Plus, L.P. and Dean Witter Realty Yield
Plus II, L.P., as Lender was filed as Exhibit to Amendment No.
2 to Current Report on Form 8-K on April 26, 1989 and is
incorporated herein by reference.
(10)(d) Intercreditor Agreement among Dean Witter Realty Yield Plus,
L.P., Dean Witter Realty Yield Plus II, L.P., and Realty
Management Services Inc. dated as of April 26, 1989 was filed
as Exhibit to Amendment No. 2 to Current Report on Form 8-K on
April 26, 1989 and is incorporated herein by reference.
(10)(e) First Amendment to Construction Loan Agreement dated October
12, 1989 between Government Center Garage Realty Trust, as
Borrower and Dean Witter Realty Yield Plus, L.P. and Dean
Witter Realty Yield Plus II, L.P., as Lender. Filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference herein.
(10)(f) Amended and Restated Construction Loan/Office Loan Promissory
Note dated October 12, 1989 between Government Center Garage
Realty Trust (Maker) and Dean Witter Realty Yield Plus II,
L.P. (Holder). Filed as Exhibit 10(f) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated by reference herein.
(10)(g) Second Amendment to Construction Loan Agreement dated June 22,
1990 between Government Center Garage Realty Trust, as
Borrower and Dean Witter Realty Yield Plus, L.P. and Dean
Witter Realty Yield Plus II, L.P., as Lender. Filed as Exhibit
10(g) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference herein.
(10)(h) First Amendment to Amended and Restated Construction
Loan/Office Loan Promissory Note dated June 22, 1990 between
Government Center Garage Realty Trust (Maker) and Dean Witter
Realty Yield Plus II, L.P. (Holder). Filed as Exhibit 10(h) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
(10)(i) Supplemental Loan Agreement dated September 20, 1993 between
Government Center Garage Realty Trust, as Borrower and Dean
<PAGE>
Witter Realty Yield Plus, L.P. and Dean Witter Realty Yield
Plus II, L.P., as Lender. Filed as Exhibit 10(i) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
(10)(j) Second Amendment to Notes dated September 20, 1993 between
Government Center Garage Realty Trust (Maker) and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty Yield Plus II,
L.P., (Holders). Filed as Exhibit 10(j) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated by reference herein.
(10)(k) Supplement and Amendment to Construction Loan Agreement dated
October 27, 1997 between Government Center Garage Realty Trust
(Borrower) and Dean Witter Realty Yield Plus, L.P. and Dean
Witter Realty Yield Plus II, L.P. (Lenders) was filed as an
Exhibit to Form 8-K on October 27, 1997 and is incorporated
herein by reference.
(10)(l) Third Amendment to Notes dated October 27, 1997 between
Government Center Garage Realty Trust (Maker) and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty Yield Plus II,
L.P. (Holder) was filed as an Exhibit to Form 8-K on October
27, 1997 and is incorporated herein by reference.
(10)(m) "Purchase and Sale Agreement" dated as of December 26, 1997
among DW Michelson Associates as Seller, Michelson Company
Limited Partnership as Acquired Partnership and SC Enterprises
as Purchaser, First Amendment to Purchase and Sale Agreement
dated as of February 3, 1998 and Assignment and Assumption
Agreement dated as of April 3, 1998 were collectively filed as
an Exhibit to Form 8-K on April 3, 1998 and are incorporated
herein by reference.
(10)(n) "Purchase and Sale Agreement" dated as of July 1, 1998 between
Dean Witter Realty Yield Plus II, L.P. as Seller and St. Paul
Properties, Inc. as Purchaser was filed as an Exhibit to Form
8-K on August 11, 1998 and is incorporated herein by
reference.
(27) Financial Data Schedule
<PAGE>
(b) No Forms 8-K were filed by the Partnership during the last quarter of
the period covered by this report.
(d) Financial statements of GCGA Limited Partnership, owner of an office
building/parking garage complex located in Boston, Massachusetts.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ E. Davisson Hardman, Jr. Date: March 24, 1999
--------------------------------------
E. Davisson Hardman, Jr.
President
By: /s/ Charles M. Charrow Date: March 24, 1999
--------------------------------------
Charles M. Charrow
Controller
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
DEAN WITTER REALTY YIELD PLUS II INC.
Managing General Partner
/s/ William B. Smith Date: March 24, 1999
- -------------------------------------
William B. Smith
Chairman of the Board of Directors
/s/ E. Davisson Hardman, Jr. Date: March 24, 1999
- -------------------------------------
E. Davisson Hardman, Jr.
Director
/s/ Lawrence Volpe Date: March 24, 1999
- -------------------------------------
Lawrence Volpe
Director
/s/ Ronald T. Carman Date: March 24, 1999
- -------------------------------------
Ronald T. Carman
Director
<PAGE>
SCHEDULE III
------------
DEAN WITTER REALTY YIELD PLUS II, L.P.
Real Estate and Accumulated Depreciation
December 31, 1998
Initial Cost to Partnership (A)
-------------------------------
Reconciliation of real estate owned:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $7,304,626 $7,304,626 $7,092,624
Improvements - - 212,002
Sale of real estate (7,304,626) - -
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period - $7,304,626 $7,304,626
===============================================================================================================
Reconciliation of accumulated depreciation:
Balance at beginning of period $1,211,289 $1,012,772 $ 824,572
Depreciation expense 99,258 198,517 188,200
Sale of real estate (1,310,547) - -
- ---------------------------------------------------------------------------------------------------------------
Balance end of period - $1,211,289 $1,012,772
===============================================================================================================
</TABLE>
<PAGE>
DEAN WITTER REALTY YIELD PLUS II, L.P.
Year ended December 31, 1998
Exhibit Index
Exhibit No. Description
----------------------------------------------------------------------------
(3)(a) Amended and Restated Agreement of Limited Partnership
dated as of June 24, 1988 set forth in Exhibit A to the
Prospectus included in Registration Statement Number 33-
20475 is incorporated herein by reference.
(3)(b) Certificate of Limited Partnership dated as of June 24,
1988 set forth in Registration Statement Number 33-20475
is incorporated herein by reference.
(4)(a) Amended and Restated Agreement of Limited Partnership
dated as of June 24, 1988 set forth in Exhibit A to the
Prospectus included in Registration Statement Number 33-
20475 is incorporated herein by reference.
(4)(b) Certificate of Limited Partnership dated as of June 24,
1988 set forth in Registration Statement Number 33-20475
is incorporated herein by reference.
(10)(a) Partnership Agreement for DW Michelson Associates dated
March 14, 1988 was filed as Exhibit 10.1 (a) to Amendment
No. 1 to Registrant's Registration Statement on Form S-11
and is incorporated herein by reference.
(10)(b) First Mortgage Promissory Note, dated April 26, 1989,
between the Government Center Garage Realty Trust (Maker)
and Dean Witter Realty Yield Plus II, L.P. (Holder) was
filed as Exhibit to Amendment No. 2 to Current Report on
Form 8-K on April 26, 1989 and is incorporated herein by
reference.
(10)(c) Construction Loan Agreement, dated April 26, 1989, between
Government Center Garage Realty Trust, as Borrower and
Dean Witter Realty Yield Plus, L.P. and Dean Witter Realty
Yield Plus II, L.P., as Lender was filed as Exhibit to
Amendment No. 2 to Current Report on Form 8-K on April 26,
1989 and is incorporated herein by reference.
<PAGE>
(10)(d) Intercreditor Agreement among Dean Witter Realty Yield
Plus, L.P., Dean Witter Realty Yield Plus II, L.P., and
Realty Management Services Inc. dated as of April 26, 1989
was filed as Exhibit to Amendment No. 2 to Current Report
on Form 8-K on April 26, 1989 and is incorporated herein
by reference.
(10)(e) First Amendment to Construction Loan Agreement dated
October 12, 1989 between Government Center Garage Realty
Trust, as Borrower and Dean Witter Realty Yield Plus, L.P.
and Dean Witter Realty Yield Plus II, L.P., as Lender.
Filed as Exhibit 10(e) Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated
by reference herein.
(10)(f) Amended and Restated Construction Loan/Office Loan
Promissory Note dated October 12, 1989 between Government
Center Garage Realty Trust (Maker) and Dean Witter Realty
Yield Plus II, L.P. (Holder). Filed as Exhibit 10(f) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
(10)(g) Second Amendment to Construction Loan Agreement dated June
22, 1990 between Government Center Garage Realty Trust, as
Borrower and Dean Witter Realty Yield Plus, L.P. and Dean
Witter Realty Yield Plus II, L.P., as Lender. Filed as
Exhibit 10(g) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference herein.
(10)(h) First Amendment to Amended and Restated Construction
Loan/Office Loan Promissory Note dated June 22, 1990
between Government Center Garage Realty Trust (Maker) and
Dean Witter Realty Yield Plus II, L.P. (Holder). Filed as
Exhibit 10(h) to Registrant's Annual Report on Form 10-K
for the
<PAGE>
year ended December 31, 1995 and incorporated by
reference herein.
(10)(i) Supplemental Loan Agreement dated September 20, 1993
between Government Center Garage Realty Trust, as Borrower
and Dean Witter Realty Yield Plus, L.P. and Dean Witter
Realty Yield Plus II, L.P., as Lender. Filed as Exhibit
10(i) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated by reference
herein.
(10)(j) Second Amendment to Notes dated September 20, 1993 between
Government Center Garage Realty Trust (Maker) and Dean
Witter Realty Yield Plus, L.P. and Dean Witter Realty
Yield Plus II, L.P., (Holders). Filed as Exhibit 10(j)
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
(10)(k) Supplement and Amendment to Construction Loan Agreement
dated October 27, 1997 between Government Center Garage
Realty Trust (Borrower) and Dean Witter Realty Yield Plus,
L.P. and Dean Witter Realty Yield Plus II, L.P. (Lenders)
was filed as an Exhibit to Form 8-K on October 27, 1997
and is incorporated herein by reference.
(10)(l) Third Amendment to Notes dated October 27, 1997 between
Government Center Garage Realty Trust (Maker) and Dean
Witter Realty Yield Plus, L.P. and Dean Witter Realty
Yield Plus II, L.P. (Holder) was filed as an Exhibit to
Form 8-K on October 27, 1997 and is incorporated herein by
reference.
(10)(m) "Purchase and Sale Agreement" dated as of December 26,
1997 among DW Michelson Associates as Seller, Michelson
Company Limited Partnership as Acquired Partnership and SC
Enterprises as Purchaser, First Amendment to Purchase and
Sale Agreement dated as of February 3, 1998 and Assignment
and Assumption Agreement dated as of April 3, 1998 were
collectively filed as an Exhibit to Form 8-K on April 3,
1998 and are incorporated herein by reference.
(10)(n) "Purchase and Sale Agreement" dated as of July 1, 1998
between Dean Witter Realty Yield Plus II, L.P. as Seller
and St. Paul Properties, Inc. as Purchaser was filed as an
Exhibit to Form 8-K on August 11, 1998 and is incorporated
herein by reference.
(27) Financial Data Schedule
(99) Financial statements of GCGA Limited Partnership, owner of
an office building/parking garage complex located in
Boston, Massachusetts.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Registrant is a limited partnership which invests in real estate, and real
estate joint ventures. In accordance with industry practice, its balance sheet
is unclassified. For full information, refer to the accompanying audited
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,062,767
<SECURITIES> 0
<RECEIVABLES> 10,050
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,996,248<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,914,928<F2>
<TOTAL-LIABILITY-AND-EQUITY> 15,996,248<F3>
<SALES> 0
<TOTAL-REVENUES> 17,623,800<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 811,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,812,595
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,812,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,812,595
<EPS-PRIMARY> 96.23<F5>
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include investment in
unconsolidated partnership of $13,923,431.
<F2>Represents partners' capital.
<F3>Liabilities include accounts payable and other liabilities of $81,320.
<F4>Total revenue includes rent of $1,118,383, gain on sale of real estate of
$2,655,594, equity in earnings of unconsolidated partnerships of $13,554,417
and other revenue of $295,406.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
<PAGE>
GCGA LIMITED PARTNERSHIP
Financial Statements
For the years ended December 31, 1998 and 1997
Independent Auditors' Report
<PAGE>
Independent Auditors' Report
To the Partners of
GCGA Limited Partnership
We have audited the accompanying balance sheets of GCGA Limited Partnership (the
"Partnership") as of December 31, 1998 and 1997 and the related statements of
operations, partners' capital deficiency, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of GCGA Limited Partnership as of December 31,
1998 and 1997 and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
/s/ Deloitte & Touche, LLP
New York, New York
March 18, 1999
<PAGE>
GCGA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1998 and 1997
1998 1997
- --------------------------------------------------------------------------------
Assets
Real estate, at cost:
Land $ 4,892,336 $ 4,892,336
Building and improvements 73,624,779 70,951,977
- --------------------------------------------------------------------------------
78,517,115 75,844,313
Accumulated depreciation (17,818,235) (15,923,007)
- --------------------------------------------------------------------------------
60,698,880 59,921,306
Cash 385,172 2,117,296
Escrow deposits 808,617 772,378
Accounts receivable 4,761,502 4,975,179
Deferred expenses, net 325,806 258,342
Other assets 113,784 210,190
- --------------------------------------------------------------------------------
$ 67,093,761 $ 68,254,691
===============================================================================
Liabilities and Partners' Capital Deficiency
Liabilities:
First mortgage loan $ 37,750,000 $ 37,750,000
Second mortgage loan and accrued interest 79,023,308 72,148,266
Note payable 2,446,428 2,514,255
Accounts payable and other liabilities 744,386 521,762
- --------------------------------------------------------------------------------
119,964,122 112,934,283
Partners' capital deficiency (52,870,361) (44,679,592)
- --------------------------------------------------------------------------------
$ 67,093,761 $ 68,254,691
===============================================================================
See accompanying notes to financial statements.
2
<PAGE>
GCGA LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1998 and 1997
1998 1997
- --------------------------------------------------------------------------------
Revenue:
Rental $ 11,513,818 $ 11,498,722
Interest and other 79,390 238,937
- --------------------------------------------------------------------------------
11,593,208 11,737,659
- --------------------------------------------------------------------------------
Expenses:
Interest 11,876,782 11,805,253
Property operating 4,996,224 4,393,023
Depreciation 1,895,228 1,774,048
Amortization 65,398 166,095
General and administrative 950,345 682,653
- --------------------------------------------------------------------------------
19,783,977 18,821,072
- --------------------------------------------------------------------------------
Net loss $ (8,190,769) $ (7,083,413)
================================================================================
See accompanying notes to financial statements.
3
<PAGE>
GCGA LIMITED PARTNERSHIP
Statements of Changes in Partners' Capital Deficiency
Years ended December 31, 1998 and 1997
Total
- --------------------------------------------------------------------------------
Partners' capital deficiency at
January 1, 1997 $(37,719,179)
Contributions 200,000
Distributions (77,000)
Net loss (7,083,413)
- --------------------------------------------------------------------------------
Partners' capital deficiency
at December 31, 1997 (44,679,592)
Net loss (8,190,769)
- --------------------------------------------------------------------------------
Partners' capital deficiency at December 31, 1998 $(52,870,361)
================================================================================
See accompanying notes to financial statements.
4
<PAGE>
GCGA LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities: $(8,190,769) $(7,083,413)
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Interest accrual on second mortgage loan in excess
of payments 4,154,099 6,856,266
Depreciation and amortization 1,960,626 1,940,143
(Increase) decrease in operating assets:
Escrow deposits (36,239) (188,802)
Accounts receivable 213,677 (36,403)
Deferred expenses (132,862) (29,417)
Other assets 96,406 (98,627)
Increase (decrease) in accounts payable and
other liabilities 222,624 (92,377)
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,712,438) 1,267,370
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to building and improvements (2,672,802) --
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under second mortgage loan 2,720,943 --
Repayment of note payable (67,827) (80,571)
Partner contributions -- 200,000
Partner distributions -- (77,000)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 2,653,116 42,429
- -------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (1,732,124) 1,309,799
Cash at beginning of year 2,117,296 807,497
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 385,172 $ 2,117,296
=============================================================================================================
Supplemental disclosure of cash paid during the year
for interest $ 7,752,794 $ 4,948,987
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
1. Organization
GCGA Limited Partnership (the "Partnership") is a limited partnership organized
under the laws of the Commonwealth of Massachusetts. The Partnership is the sole
beneficiary of the Government Center Garage Realty Trust (the "Trust") which
owns One Congress Street (the "Property"), an 11-story structure containing
approximately 283,000 square feet of office and retail space and a 2,200-space
parking garage, located in Boston, Massachusetts.
Prior to October 27, 1997, the partners of the Partnership were Government
Center Garage Associates Limited Partnership ("GCA"), which owned a 1% general
partnership interest and a 98% limited partnership interest, and an individual
affiliated with the developer of the property who owned a 1% limited partnership
interest (the "Affiliate").
In October 1996, the Partnership defaulted on its second mortgage loan by
failing to timely pay its debt service. Thereafter, the second mortgage lenders
(Dean Witter Yield Plus, L.P. ("Yield Plus") and Dean Witter Yield Plus II, L.P.
("Yield Plus II"), collectively, (the "Lender")) accelerated the loan and
attempted to take possession of the property. On October 15, 1996, the
Partnership and the Trust filed a voluntary petition for relief under Chapter 11
of Title 11 of the United States Code in the United States Bankruptcy Court for
the District of Maryland (the "Bankruptcy Court"). While in bankruptcy, the
Partnership operated as a debtor-in-possession, whereby the Partnership could
not engage in transactions outside of the ordinary course of business without
approval of the Bankruptcy Court, after notice and hearing.
On October 27, 1997, the Partnership entered into a settlement agreement with
the Lender (the "Agreement"). As part of the Agreement, two new corporations
each of which are jointly owned by Yield Plus (58%) and Yield Plus II (42%),
became the sole general partners (the "New General Partners") of the Partnership
(with an aggregate 19% ownership interest) and GCA (with an aggregate 1%
ownership interest). Yield Plus and Yield Plus II have agreed to make all
decisions concerning the Partnership and its property jointly, and retained an
affiliate of the Partnership's
6
<PAGE>
CGA LIMITED PARTNERSHIP
Notes to Financial Statements
1. Organization (continued)
original general partner as property manager. As part of the Agreement, the
second mortgage loan was also restructured (see Note 4).
Pursuant to the Agreement, GCA's limited partnership interest in the Partnership
was reduced to 81% and the Affiliate's 1% interest in the Partnership was
eliminated.
2. Summary of Significant Accounting Policies
The Partnership's records are maintained on the accrual basis of accounting for
financial reporting and tax purposes. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Real estate is recorded at cost less accumulated depreciation. Cost includes
land, improvements, direct construction costs, indirect project costs, and
carrying costs, including real estate taxes, interest and loan costs incurred
during the construction period. Depreciation is recorded on the straight-line
method. Repairs are expensed.
Cash and cash equivalents consist of cash and highly liquid investments with
maturities, when purchased, of three months or less.
At least annually, and more often if circumstances dictate, the Partnership
evaluates the recoverability of the net carrying value of the Property and any
related assets. As part of this evaluation, the Partnership assesses, among
other things, whether there has been a significant decrease in the market value
of the Property. If events or circumstances indicate that the net carrying value
of the Property may not be recoverable, the expected future net cash flows from
the Property are estimated for a period of approximately five years (or a
shorter period if the Partnership expects that the Property may be disposed of
7
<PAGE>
sooner), along with estimated sales proceeds at the end of the period.
8
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
If the total of these future undiscounted cash flows were less than the carrying
amount of the Property, the Property would be written down to its fair value as
determined (in some cases with the assistance of outside real estate
consultants) based on discounted cash flows, and a loss on impairment recognized
by a charge to earnings.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1998. The cash flows used to evaluate the
recoverability of the assets and to determine fair value are based on good faith
estimates and assumptions developed by the New General Partners. Unanticipated
events and circumstances may occur and some assumptions may not materialize;
therefore actual results may vary from the estimates and the variances may be
material. The Partnership may provide additional write-downs, which could be
material, in subsequent years if real estate markets or local economic
conditions change.
Deferred expenses consist of origination fees in connection with the mortgage
loans and leasing commissions. Origination fees are amortized over the
applicable loan terms. Leasing Commissions are amortized over the applicable
lease terms. In 1997, fully amortized deferred expenses (with an original cost
of $2,300,762) were written off.
Rental income is accrued on a straight-line basis over the terms of the leases.
Accruals in excess of amounts payable by tenants pursuant to their leases
(resulting from rent concessions or rents which periodically increase over the
term of a lease) are recorded as receivables and included in other assets.
No provision for income taxes has been made in the financial statements, since
the liability for such taxes is that of the partners rather than the
Partnership.
9
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
The accounting policies used for tax reporting purposes differ from those used
for financial reporting as follows: (a) depreciation is calculated using
accelerated methods and (b) rental income is recognized based on the payment
terms in the applicable leases. The tax basis of the Partnership's assets and
liabilities is approximately $11.7 million lower than the amounts reported for
financial statement purposes at December 31, 1998.
The implementation in 1998 of the Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" and Statement NO. 131, "Disclosures
about Segments of an Enterprise and Related Information" effective for the
Partnership's 1998 year-end financial statements did not have any impact on the
Partnership's financial statements.
3. Partnership Agreement
The Partnership Agreement and subsequent amendments (the "Agreement") provide
that net cash flow, as defined in the Agreement, generally will be paid to the
partners pro rata, in accordance with their partnership interests.
Net capital proceeds arising from a transaction involving the disposition of all
or substantially all the beneficial interest in the Trust or the Property or
involving the liquidation of the Partnership shall be distributed in accordance
with the partners capital accounts, as adjusted, pursuant to the Agreement.
10
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
4. Mortgage Loans Payable
The Trust has a $37,750,000 first mortgage loan payable to a major insurance
company. The loan requires monthly payments of interest only, payable at 9.39%
and matures November 1, 2001. For each of the years ended December 31, 1998 and
1997, the Partnership incurred interest expense of $3,544,725 on this loan.
The Trust also has a participating second mortgage loan payable to the Lender
which is due in 2001. Prior to October 27, 1997, principal of the loan was
$59,200,000, base interest was payable monthly at 8% and the first $250,000 of
net revenues in any calendar year from the property was payable as additional
interest. The Lender also owned a 58% interest in adjusted net revenues and
capital proceeds generated by the property.
The second mortgage loan was restructured as follows:
(a) any New Loans (the "New Loans") made by the New General Partners will bear
interest at 12%, payable monthly from available cash flow generated by the
property after payment of debt service on the first mortgage loan and
certain operating escrows;
(b) the interest rate on the principal and past due interest on the second
mortgage loan (aggregating approximately $12.3 million at October 27,
1997) has been increased to 10%, payable monthly from available cash flow
generated by the property after payment of debt service on the New Loans;
(c) any future unpaid debt service will accrue interest at 10%; and
11
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
4. Mortgage Loans Payable (continued)
(d) Yield Plus' and Yield Plus II's interest in adjusted net revenue and
capital proceeds generated by the property was increased to 80%.
In 1998, the Partnership borrowed $2,720,943 as a New Loan.
The Partnership incurred interest expense on the second mortgage loan of
$8,078,420 and $8,036,377 in 1998 and 1997, respectively.
5. Note Payable
At the inception of the parking garage lease with Kinney System of Sudbury St.,
Inc., a wholly owned subsidiary of Kinney System, Inc., the lessee granted a
$3,000,000 loan to the Partnership, which is payable in monthly payments of
$26,350, which include interest at 10 percent per annum. The lease provides for
supplemental rental payments to the Partnership of $26,350 per month to cover
loan principal and interest payments. These amounts are included in rental
income. The lease also provides that the unpaid principal of the loan may be
forgiven if certain conditions described in the note agreement are met. Interest
expense incurred on this loan in 1998 and 1997 were approximately $248,000 and
$224,000, respectively.
12
<PAGE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
6. Leases
Minimum future rental income under noncancelable operating leases as of December
31, 1998 is as follows:
Year ended December 31 Future minimum rentals
- --------------------------------------------------------------------------------
1999 $10,647,316
2000 10,911,285
2001 11,130,690
2002 11,413,015
2003 8,570,642
-----------
$52,672,948
===========
The Partnership has determined that all leases relating to its properties are
operating leases. Lease terms range from six to twenty one years.
7. Related-Party Transactions
The Property is managed by an affiliate of the Partnership. For the years ended
December 31, 1998 and 1997, the affiliate earned management fees of
approximately $105,000 and $124,000, respectively. These amounts are included in
property operating expenses.
13
