-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GdCnFUwXA/eT62RvuGK/6chbv9KqZOAe9/K0DvGRWsmwaXC1KaM4ydBYf4+D+W/K L1MS0eFwLd4/dOuxU1UNJA== 0000726315-97-000002.txt : 19970130 0000726315-97-000002.hdr.sgml : 19970130 ACCESSION NUMBER: 0000726315-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970129 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITTER DEAN REALTY INCOME PARTNERSHIP I LP CENTRAL INDEX KEY: 0000726315 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133174553 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13260 FILM NUMBER: 97513468 BUSINESS ADDRESS: STREET 1: 2 WORLD TRADE CENTER STREET 2: 64TH FL CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921054 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 46TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 10-K 1 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 October 31, 1996 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 0-13260 DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. (Exact name of registrant as specified in its charter) Delaware 13-3174553 (State of organization) (IRS Employer Identification No.) 2 World Trade Center, New York, NY 10048 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 392-1054 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 Interests (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's or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. Not Applicable DOCUMENTS INCORPORATED BY REFERENCE None Page 1 of 35 PART I. ITEM 1. BUSINESS The Registrant, Dean Witter Realty Income Partnership I, L.P. (the "Partnership"), is a limited partnership formed in August 1983 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing primarily in income-producing office, industrial and retail properties. The Managing General Partner of the Partnership is Dean Witter Realty Income Properties I 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 Income Associates I, L.P. (the "Associate General Partner"), a Delaware limited partnership, the general partner of which is Dean Witter Realty Income Associates I Inc., a wholly-owned subsidiary of 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 footnote 8 to the Consolidated Financial Statements in Item 8 and in Item 13 below. The Partnership issued 92,780 units of limited partnership interest (the "Units") with gross proceeds from the offering of $92,780,000. The offering has been terminated and no additional Units will be sold. The proceeds from the offering were used to make equity investments in four office properties (one of which was sold in fiscal 1996), two office/research and development properties and one retail property which were acquired without mortgage debt. The properties are described in Item 2 below. The Partnership considers its business to include one industry segment, investment in real property. Financial information regarding the Partnership is included in the Partnership's Consolidated Financial Statements in Item 8 below. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. Further information regarding competition and market conditions where the Partnership's properties are located is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Partnership has no employees. All of the Partnership's business is conducted in the United States. ITEM 2. PROPERTIES 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 October 31, 1996, the Partnership owned directly or through a partnership interest the following six property interests, none of which is encumbered by mortgage debt. Generally, the leases pertaining to the properties provide for pass-throughs to the tenants of their pro-rata share of certain operating expenses. In the opinion of the Managing General Partner, all of the properties are adequately covered by insurance.
Year(s) Acquisition Net Rentable Type of Ownership Completed/ Cost Area of land and Property, location and type Acquired ($000) (000 sq. ft.) Improvements Westwood 10 Westwood, MA 1986/1984,86 $8,952 122 Fee ownership Office/research and development building North Lake Plaza Altamonte Springs, FL 1985/1984,86 $10,110 137 Fee ownership Shopping center Harborgate Los Angeles, CA 1984/1984 $13,000 68 Fee ownership Office Building Arlington Business Center Arlington Heights, IL 1984/1984 $9,721 98 Fee ownership Three office/research and development buildings Carmel Park I and II Charlotte, NC 1985/1985 $18,530 168 Fee ownership Office buildings Century Square Pasadena, CA 1984/1985 $ 9,700 206 25% General Part- Office building nership interest1 1. An affiliate of the Partnership, Dean Witter Realty Income Partnership II, L.P., purchased the remaining 75% general partnership interest in the partnership. The total cost of the property was $38.8 million.
Each property was built with on-site parking facilities. In fiscal 1996, the Partnership sold its 99.9% interest in 1718 Connecticut Avenue, an office building in Washington, D.C. An affiliate of the Partnership is the property manager for Century Square, North Lake Plaza, Westwood 10, Carmel Park and Harborgate. Further information relating to the Partnership's properties is included in Item 7 and footnotes 4 and 5 to the consolidated financial statements in Item 8 below. ITEM 3. LEGAL PROCEEDINGS 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 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. ("DWD") 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, DWD, 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, DWD 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, DWD, 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, DWD, 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 receiver's supervision and other equitable relief. The defendants filed a motion to dismiss this complaint on December 10, 1996. 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 THE REGISTRANT'S COMMON EQUITY AND 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 its limited partners (the "Limited Partners") to transfer their units if a suitable buyer can be located. As of January 22, 1997 there were 14,245 holders of limited partnership interests. The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make quarterly 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 Partnership paid quarterly cash distributions during the year ended October 31, 1996 aggregating $42.28 per Unit (including $12.28 per Unit from proceeds from the sale of the 1718 Connecticut Avenue property). The total distributions aggregated $4,232,069 with $3,922,805 distributed to the Limited Partners and $309,264 to the General Partners. The distribution of proceeds from the sale of the 1718 Connecticut Avenue property was paid 100% to the Limited Partners. For the year ended October 31, 1995, the Partnership paid quarterly cash distributions aggregating $18.75 per Unit. The total distribution aggregated $1,932,915 with $1,739,625 distributed to the Limited Partners and $193,290 to the General Partners. On November 27, 1996, the Partnership paid a cash distribution of $8.95 per Unit. The total distribution aggregated $922,646 with $830,381 distributed to the Limited Partners and $92,265 to the General Partners. The Partnership anticipates making regular distributions to its partners in the future. Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution plus cumulative distributions of distributable cash and sale or financing proceeds in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee, if earned, of up to 3% of the selling price of any equity investment. Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds (except that the General Partners must be allocated at least 1% of taxable income from sales or financings). In the event there is no distributable cash or sale or financing proceeds, taxable income will be allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners. ITEM 6. SELECTED FINANCIAL DATA The following sets forth a summary of the selected financial data for the Partnership: Dean Witter RealtY Income Partnership I, L.P. For the years ended October 31, 1996, 1995, 1994, 1993 and 1992
19961 1995 1994 1993 1992 Total revenues $ 8,493,737 $ 8,000,566 $ 7,900,587 $ 7,211,147 $ 6,980,117 Net (loss) income $ (5,607,581)2 $ 1,535,137 $(10,175,630)3 $ 191,052 $ 459,493 Net (loss) income per Unit of limited partnership interest $(53.66) $14.89 $(98.71) $ 1.85 $ 4.46 Cash distributions paid per Unit of limited partnership interest4 $42.285 $18.75 $15.00 $15.00 $15.00 Total assets at October 31 $43,069,014 $58,295,735 $58,611.333 $73,292,198 $74,016,333 Loan payable to bank due after one year (See note 6 to the financial statements) $ - $ - $ - $ 2,785,665 $ - 1. Revenues and net income include gain of $0.7 million on the sale of the 1718 Connecticut Avenue property. See Note 4 to the Financial Statements in Item 8. 2. Includes an $8.5 million loss on impairment recorded for the Westwood 10, 1718 Connecticut Avenue, Northlake Plaza and Carmel Park properties. See Item 7 and Note 4 to the Financial Statements in Item 8. 3. Includes a $10.8 million loss on impairment recorded for the Arlington Business Center and Harborgate properties. See Item 7 and Note 4 to the Financial Statements in Item 8. 4. Distributions paid to limited partners include a return of capital per Unit of limited partnership interest of $42.28, $3.86, $15.00, $13.15 and $10.54 for the years ended October 31, 1996, 1995, 1994, 1993, and 1992, respectively, calculated as the excess of cash distributed per Unit over accumulated earnings per Unit not previously distributed. 5. Includes $12.28 per Unit distribution of proceeds from the sale of 1718 Connecticut Avenue. The above financial data should be read in conjunction with the consolidated financial statements and the related notes in Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership raised $92,780,000 in a public offering which was terminated in 1984. The Partnership has no plans to raise additional capital. The Partnership purchased six properties (one of which was sold in fiscal 1996) and has made one investment in a partnership on an all-cash basis. The Partnership's acquisition program has been completed. No additional investments are planned. The sale of the 1718 Connecticut Avenue office building closed on June 24, 1996. See Note 4 to the consolidated financial statements. In 1996, the Partnership's cash flow from operations decreased when compared to 1995 by approximately $275,000 as result of the sale of the building. In many regions of the country, continued restraint of new office construction and steady leasing have reduced office supply in office markets, and, in certain areas, rental rates are rising. Some office markets are faring better than others. For example, Charlotte, NC, the location of the Carmel Park property is approximately 4% vacant. Office properties located in the West are benefiting from expansion by the entertainment, high-technology and telecommunications industries; however, the SouthBay area of Los Angeles (the location of Harborgate) and Pasadena (the location of Century Square) continue to be negatively impacted by corporate mergers and consolidations. Office construction remains primarily on a build-to-suit basis as current rental rates do not justify speculative development. Vacancies at many office/research and development properties are declining as communications, computers and software companies demand additional space. In the Boston area, the location of the Westwood 10 property, growth in the software, health care and telecommunications industries is reducing vacancy levels in this market. Also, the vacancy rate in Arlington Heights, IL, the location of Arlington Business Center, has improved to 14%, and the Partnership expects this vacancy to decline further in 1997. In the retail sector, a changing tenant base caused by the domination of certain power center tenants coupled with bankruptcies and major restructuring of other tenants and reduced consumer spending have resulted in higher vacancies and stagnant rents at many retail properties. The Partnership's liquidity depends on the cash flow from operations of its properties and expenditures for building improvements and tenant improvements and leasing commissions in connection with the leasing of vacant space. During the year ended October 31, 1996, all of the Partnership's properties and its joint venture interest generated positive cash flow from operations, and it is anticipated that they will continue to do so. In addition, the Partnership's liquidity has been and will continue to be affected by sales of the Partnership's properties; when properties are sold, the Partnership's cash from operations available for distribution decreases. As a result of the absence of operating cash flow from the 1718 Connecticut Avenue property, the Partnership decreased its quarterly cash distribution from $10.00 per Unit to $8.95 per Unit (a 4% rate on the gross offering proceeds attributable to the Partnership's remaining investments), beginning with the fourth quarter distribution paid November 27, 1996. The Managing General Partner believes that, barring a change in circumstances, it will market the Partnership's remaining properties for sale in 1997. In the fourth quarter of 1996, the Managing General Partner engaged real estate brokers to market Century Square and Arlington Business Center. However, there can be no assurance that all properties will be sold. During the year ended October 31, 1996, the Partnership's cash flow from operations, net proceeds from the sale of the office building and distributions received from the joint venture exceeded distributions to partners, repayment of the loan from affiliate and contributions to the joint venture. The Partnership used the excess cash inflows in 1996 to fund a portion of capital expenditures and payment of deferred distributions to the General Partners; the remainder of these cash outflows were funded from cash reserves. During the year ended October 31, 1996, the Partnership incurred approximately $465,000 of capital expenditures, primarily in connection with the leasing of space at the Westwood 10 (approxmateily $264,000) and Harborgate (approximately $134,000) office buildings. The Partnership also contributed approximately $131,000 to the Century Square joint venture, primarily for its share of building improvements. As of October 31, 1996, the Partnership has commitments to fund approximately $300,000 of capital expenditures, primarily relating to the Harborgate building. During 1997, the Partnership expects that its cash flow from operations and distributions received from its joint ventures will exceed distributions to its investors (other than distributions of net proceeds from future property sales) and contributions to its joint ventures; the Partnership expects to fund a portion of capital expenditures and deferred distributions payable to the General Partners from cash reserves. Except as discussed above and in the consolidated financial statements in Item 8 below, the Managing General Partner is not aware of any trends or events, commitments or uncertainties that may have a material impact on liquidity. On November 27, 1996, the Partnership paid the fourth quarter cash distribution of $8.95 per Unit. The total distribution aggregated $922,646 with $830,381 distributed to the Limited Partners and $92,265 distributed to the General Partners. The Partnership also paid the remaining $1,233,837 of deferred distributions to the General Partners. Operations Fluctuations in the Partnership's operating results for the year ended October 31, 1996 compared to 1995 and for the year ended October 31, 1995 compared to 1994 are primarily attributable to the following: No individual factor accounted for a significant change in rental revenue, equity in earnings of joint venture, property operating expenses and general and administrative expenses from 1995 to 1996 or 1994 to 1995. The 1996 gain on the sale of the 1718 Connecticut property is described in Note 4 to the consolidated financial statements. Interest and other revenue decreased in 1996 compared to 1995 and increased in 1995 compared to 1994 primarily due to tenant reimbursements for certain expenses by tenants at Arlington Business Center in 1995. In 1996, depreciation and amortization decreased by approximately $405,000 because the depreciable bases of the Westwood 10, Northlake Plaza and Carmel Park properties were written down in the first quarter of 1996. There are no other significant individual factors which account for the remaining change in depreciation and amortization in 1996 compared to 1995. The decreases in depreciation and amortization for the year ended 1995 compared to 1994 are due to the lower depreciable basis of the Harborgate office building and Arlington Business Center properties, as a result of writedowns recorded in October 1994. See Note 4 to the consolidated financial statements. In 1996, interest expense decreased because the loan from affiliate was repaid by the Partnership in June 1996. See Note 8 to the consolidated financial statements. In 1995, interest expense decreased because the loan payable to the bank was repaid by the Partnership in September 1994. See Note 6 to the consolidated financial statements. In the first quarter of fiscal 1996, the Partnership recorded losses on impairment of the Westwood 10, 1718 Connecticut, Northlake Plaza and Carmel Park properties totalling $8,510,000. In fiscal 1994, the Partnership recorded losses on impairment of the Harborgate and Arlington Business Center properties totalling approximately $10,800,000. See Note 4 to the consolidated financial statements. A summary of the office, retail and research and development building markets where the Partnership's properties are located and the performance of each property is as follows: In Pasadena, California, the location of the Century Square office building, the overall office market vacancy rate was approximately 15% during 1996, and the Partnership does not expect the market to improve in the near term. However, Century Square remained 100% leased during the year. The property is currently occupied by three tenants, and the leases of the property's largest tenant, Countrywide Credit Industries Inc. (which occupies 84% of the property's space), expire in 2010. There are no other tenants occupying more than 10% of the property. The office market in the SouthBay area of Los Angeles, California, the location of Harborgate has not recovered from the severe cutbacks by the defense industries in this area. In addition, the depressed conditions in the nearby downtown Los Angeles office market continue to negatively impact the SouthBay market. The vacancy rate (including sublet space) in this market is currently 26% (a 3% improvement from the end of 1995). There is a limited number of tenants seeking to lease space in this market. During 1996, average occupancy at the property was approximately 88%, and at October 31, 1996, occupancy at the property was approximately 91% compared to 84% at the prior year-end. The property is leased to 12 tenants. U.S. Sprint, which occupies approximately 52% of the property's space, exercised a termination option on approximately 33% of the property's space effective December 31, 1996. The lease on U.S. Sprint's remaining space expires in 2000; however, it may terminate its lease on this space earlier. There are no other tenants occupying more than 10% of the property. Arlington Business Center, a research and development building, is located in Arlington Heights, Illinois. The vacancy in this market has decreased from 17% in 1995 to 14% in 1996. This decrease has caused rental rates to increase in 1996. During 1996, average occupancy at the property was approximately 99%. At October 31, 1996, occupancy at the property was 100% vs. 95% at the prior year- end. The property is leased to 9 tenants. Tenants occupying more than 10% of rentable space are CTC International, Inc. (26%), Racal Data Communications (16%), Digital Equipment (16%), Pitney Bowes (14%) and Electronic Prepress (11%). Leases at the property expire as follows: 21% in 1997, 21% in 1999, 16% in 2000 and 42% in 2001. Westwood 10, located in Westwood, Massachusetts, is experiencing increasing demand from high tech and office tenants, which should lead to a decline in the vacancy rate in this market. In 1996, vacancy in this market decreased from 22% to 15%, and rental rates are increasing. During 1996, average occupancy at the property was 91%; at October 31, 1996, occupancy at the property was 100% vs. 85% at the prior year-end. The property is leased to 7 tenants. Tenants occupying more than 10% of rentable space are Mitek Surgical Products (30%), Executone Information Systems (18%), QCC Inc. (15%), Mobile Media X-Ray (12%), and LIDS, L.P. (12%). Leases at the property expire as follows: 30% in 1997, 12% in 2000, 33% in 2001 and 15% in 2003. The vacancy rate in the Charlotte, North Carolina office market, in which Carmel Park is located, decreased slightly in 1996, while rental rates increased slightly and concessions decreased. There is little new construction in this market. During 1996, average occupancy at the property was 99%; at October 31, 1996, occupancy at the property was 100% vs. 98% at the prior year-end. The property is occupied by 18 tenants. The leases of CIGNA (for approximately 32% of the property's space) and Royal Indemnity (for approximately 41% of the space) expire in 1997 and 2000, respectively. There are no other tenants occupying more than 10% of the property. Altamonte Springs, Florida, the location of the North Lake Plaza Shopping Center, is an improving retail market, and has a vacancy rate of approximately 8%. During 1996, average occupancy at the property was 85%, and at October 31, 1996, the occupancy was approximately 80% compared to 91% at October 31, 1995. The property is currently occupied by 8 tenants. Development of nearby office projects and the scheduled expansion of North Lake Boulevard are anticipated to increase traffic at the property. The leases for Home Depot (for approximately 50% of the property's space) and Marshalls Inc. (for approximately 21% of the space) expire in 1998 and 2002, respectively. In 1992, Home Depot sub-leased its space to Burlington Coat Factory for the remainder of its lease term. Home Depot will remain obligated to pay rent under the lease until it expires. There are no other tenants occupying more than 10% of the property. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. INDEX Page (a) Financial statements Independent Auditors' Report 14 Consolidated Balance Sheets at October 31, 1996 and 1995 15 Consolidated Statements of Operations for the years ended October 31, 1996, 1995 and 1994 16 Consolidated Statements of Partners' Capital for the years ended October 31, 1996, 1995 and 1994 17 Consolidated Statements of Cash Flows for the years ended October 31, 1996, 1995 and 1994 18 Notes to Consolidated Financial Statements 19-26 (b) Financial statement schedule Real Estate and Accumulated Depreciation III 33-34 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 consolidated financial statements or notes thereto. Independent Auditors' Report To The Partners of Dean Witter Realty Income Partnership I, L.P.: We have audited the accompanying consolidated balance sheets of Dean Witter Realty Income Partnership I, L.P. and consolidated partnerships (the "Partnership") as of October 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital, and cash flows for each of the three years in the period ended October 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the 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 consolidated financial statements present fairly, in all material respects, the financial position of Dean Witter Realty Income Partnership I, L.P. and consolidated partnerships as of October 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP New York, New York January 24, 1997 DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. CONSOLIDATED BALANCE SHEETS October 31, 1996 and 1995
ASSETS 1996 1995 Cash and cash equivalents $ 2,954,592 $ 3,572,041 Real estate: Land 10,367,200 12,230,400 Buildings and improvements 42,683,414 56,550,871 53,050,614 68,781,271 Accumulated depreciation 22,598,452 24,089,561 30,452,162 44,691,710 Investment in joint venture 8,423,845 8,626,606 Deferred leasing commissions, net 252,819 260,912 Other assets 985,596 1,144,466 $43,069,014 $ 58,295,735 LIABILITIES AND PARTNERS' CAPITAL Accounts payable and accrued liabilities $ 748,320 $ 808,003 Security deposits 149,389 210,413 Loan from affiliate - 4,032,527 Deferred distributions 1,233,837 2,467,674 2,131,546 7,518,617 Partners' capital (deficiency) General partners (4,228,169) (3,289,800) Limited partners ($1,000 per Unit, 92,780 Units issued) 45,165,637 54,066,918 Total partners' capital 40,937,468 50,777,118 $43,069,014 $ 58,295,735 See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended October 31, 1996, 1995 and 1994
1996 1995 1994 Revenues: Rental $ 7,013,164 $7,110,106 $ 7,141,940 Gain on sale of real estate 683,471 - - Equity in earnings of joint venture 589,362 474,263 586,104 Interest and other 207,740 416,197 172,543 8,493,737 8,000,566 7,900,587 Expenses: Property operating 3,085,939 2,963,316 3,064,472 Depreciation 1,745,666 2,534,549 2,949,356 Amortization 138,008 219,225 292,590 Interest 218,159 342,221 490,260 General and administrative 403,546 406,118 442,475 Losses on impairment of real estate 8,510,000 - 10,837,064 14,101,318 6,465,429 18,076,217 Net (loss) income $(5,607,581) $1,535,137 $(10,175,630) Net (loss) income allocated to: Limited partners $(4,978,476) $1,381,623 $ (9,158,067) General partners (629,105) 153,514 (1,017,563) $(5,607,581) $1,535,137 $(10,175,630) Net (loss) income per Unit of limited partnership interest $(53.66) $14.89 $(98.71) See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL For the years ended October 31, 1996, 1995 and 1994
Limited General Partners Partners Total Partners' capital (deficiency) at November 1, 1993 $64,974,687 $(2,077,828) $ 62,896,859 Net loss (9,158,067) (1,017,563) (10,175,630) Distributions (1,391,700) (154,633) (1,546,333) Partners' capital (deficiency) at October 31, 1994 54,424,920 (3,250,024) 51,174,896 Net income 1,381,623 153,514 1,535,137 Distributions (1,739,625) (193,290) (1,932,915) Partners' capital (deficiency) at October 31, 1995 54,066,918 (3,289,800) 50,777,118 Net loss (4,978,476) (629,105) (5,607,581) Distributions (3,922,805) (309,264) (4,232,069) Partners' capital (deficiency) at October 31, 1996 $45,165,637 $(4,228,169) $ 40,937,468 See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended October 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: Net (loss) income $(5,607,581) $ 1,535,137 $(10,175,630) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 1,745,666 2,534,549 2,949,356 Amortization 138,008 219,225 292,590 Equity in earnings of joint venture (589,362) (474,263) (586,104) Gain on sale of real estate (683,471) - - Losses on impairment of real estate 8,510,000 - 10,837,064 (Increase) decrease to operating assets: Deferred leasing commissions (129,915) (61,412) (204,225) Other assets 19,568 (442,889) (64,652) (Decrease) increase to operating liabilities: Accounts payable and accrued liabilities (51,471) 16,107 (1,521) Security deposits (19,544) 43,195 4,607 Net cash provided by operating activities 3,331,898 3,369,649 3,051,485 Cash flows from investing activities: Proceeds from disposition of real estate 5,092,559 - - Additions to real estate (335,596) (720,356) (692,220) Distributions from joint venture 922,699 989,365 1,162,129 Investments in joint venture (130,576) (387,503) (11,557) Net cash provided by (used in) investing activities 5,549,086 (118,494) 458,352 Cash flows from financing activities: Decrease in deferred distributions (1,233,837) - - Decrease in loan from affiliates (4,032,527) (15,780) - Cash distributions (4,232,069) (1,894,257) (1,391,700) Repayment of loan payable to bank - - (3,116,621) Decrease in restricted cash - - 250,000 Net cash used in financing activities (9,498,433) (1,910,037) (4,258,321) (Decrease) increase in cash and cash equivalents (617,449) 1,341,118 (748,484) Cash and cash equivalents at beginning of year 3,572,041 2,230,923 2,979,407 Cash and cash equivalents at end of year $ 2,954,592 $ 3,572,041 $ 2,230,923 Supplemental disclosure of cash flow information: Cash paid for interest $ 218,159 $ 342,221 $ 490,260 See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements 1. The Partnership Dean Witter Realty Income Partnership I, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware in 1983. The Partnership is managed by Dean Witter Realty Income Properties I Inc. (the "Managing General Partner"). The Partnership's fiscal year ends on October 31. In 1984, the Partnership issued 92,780 units of limited partnership interest (the "Units") for $92,780,000. No additional Units will be sold. The proceeds of the offering were used to make equity investments in income-producing office, industrial and retail properties which were not encumbered by debt when acquired. 2. Summary of Significant Accounting Policies The financial statements include the accounts of the Partnership and 1718 Connecticut, Ltd. on a consolidated basis. The Partnership's 25% interest in the Century Square property is accounted for on the equity method. 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. Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less. The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method. 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. 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 DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements 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's accounting policy complies with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". 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 October 31, 1996. The cash flows used to evaluate the recoverability of the properties 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; 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 leasing commissions are amortized over the applicable lease terms. 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. Net income (loss) per Unit amounts are calculated by dividing net income (loss) 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. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements For income tax purposes, Partnership results are reported for the calendar year. 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) writedowns for impairment of real estate are not deductible. 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 $10 million higher than the amounts reported for financial statement purposes. 3. Partnership Agreement The Partnership Agreement provides that distributable cash, as defined, will be paid 90% to the Limited Partners and 10% to the General Partners. Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution, plus cumulative distributions of distributable cash and sale or financing proceeds, in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee, if earned, of up to 3% of the selling price of any equity investment. Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds (except that the General Partners must be allocated at least 1% of taxable income from sales or financings). In the event there is no distributable cash or sale or financing proceeds, taxable income will be allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners. Distributions paid to limited partners include a return of capital per Unit of limited partnership interest of $42.28, $3.86, and $15.00, for the years ended October 31, 1996, 1995 and 1994, respectively, calculated as the excess of cash distributed per Unit over the accumulated earnings per Unit not previously distributed. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements 4. Real Estate Investments The locations, years of acquisition and net carrying values of the properties are as follows:
Net Carrying Value Year of at October 31, Acquisition 1996 1995 Westwood 10, Westwood, MA 1984, 1986 $ 5,614,689 $ 8,330,901 North Lake Plaza, Altamonte Springs, FL 1984, 1986 6,877,537 8,431,300 Harborgate, Los Angeles, CA 1984 3,926,202 3,953,133 Arlington Business Center, Arlington Heights, IL 1984 3,084,915 3,303,088 Carmel Park, Charlotte, NC 1985 10,948,819 14,501,220 1718 Connecticut, Washington, D.C. 1984 - 6,172,068 $30,452,162 $44,691,710
On June 24, 1996, the Partnership sold the 1718 Connecticut property to an unaffiliated party for a sales price of approximately $5.1 million (net of closing costs). The Partnership recognized a gain on this sale of approximatley $683,000, which was allocated 100% to the Limited Parters in accordance with the Partnership Agreement. In the first quarter of fiscal 1996, in accordance with the impairment evaluation policy described in Note 2, the Partnership evaluated the recoverability of its investments in real estate and concluded that, based on revised expectations as to the holding periods of the properties, the Partnership would be unable to recover its investments in the Westwood 10, 1718 Connecticut, Northlake Plaza and Carmel Park properties. Accordingly, the Partnership wrote these properties down to their estimated fair values (based on independent appraisals) and recorded losses on impairment of $2,634,000, $1,742,000, $1,377,000 and $2,757,000, respectively. In fiscal 1994, the Partnership concluded that the values of the Harborgate office building and Arlington Business Center were impaired. Accordingly, in fiscal 1994, in accordance with its policies for evaluating the recoverability of its real estate, the Partnership recognized losses on impairment of these properties of approximately $6,130,000 and $4,707,000, respectively. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements 5. Investment in Joint Venture Century Square, Pasadena, California In 1985, the Partnership purchased, for $9.7 million, a 25% general partnership interest in the partnership (the "Joint Venture") which owns the property, an office building. An affiliate of the Partnership, Dean Witter Realty Income Partnership II, L.P., purchased the remaining 75% general partnership interest. Cash flow and profits and losses are allocated to the Partnership and the affiliate according to their interests in the Joint Venture. Summarized balance sheet information of the Joint Venture is as follows:
1996 1995 Land and building, net $31,312,446 $32,185,831 Other 2,567,434 2,519,804 Total assets $33,879,880 $34,705,635 Liabilities $ 184,503 $ 199,212 Partners' capital 33,695,377 34,506,423 Total liabilities and capital $33,879,880 $34,705,635 Summarized results of operations of the Joint Venture are as follows: Year ended October 31, 1996 1995 1994 Rental income $5,761,715 $5,403,499 $5,941,457 Other income 69,838 21,519 31,383 5,831,553 5,425,018 5,972,840 Property operating expenses 1,926,040 1,917,052 2,110,092 Depreciation and amotization 1,548,067 1,610,915 1,518,333 3,474,107 3,527,967 3,628,425 Net income $2,357,446 $1,897,051 $2,344,415
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements Activity in the Investment in Joint Venture is as follows:
Year ended October 31, 1996 1995 1994 Investment at beginning of year $8,626,606 $ 8,754,205 $ 9,318,673 Equity in earnings 589,362 474,263 586,104 Distributions (922,699) (989,365) (1,162,129) Additional investments 130,576 387,503 11,557 Investment at end of year $8,423,845 $ 8,626,606 $ 8,754,205
The accounting policies employed by the Joint Venture are the same as those of the Partnership. 6. Loan Payable to Bank In December 1992, the Partnership established a $3.8 million secured line of credit with a bank. Borrowings bore interest, at the prime rate plus three quarters percent. In September 1994, this loan was repaid in its entirety. 7. Leases Minimum future rental income under noncancellable operating leases as of October 31, 1996 is as follows:
Year ending October 31: 1997 $4,530,319 1998 3,507,507 1999 3,092,289 2000 2,344,634 2001 1,043,646 Thereafter 385,215 Total $14,903,610
The Partnership has determined that all leases relating to its properties are operating leases. The lease terms range from three to fifteen years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses. 8. Related Party Transactions An affiliate of the Managing General Partner provided property management services for six properties in 1996, 1995 and 1994. The Partnership paid the affiliate management fees (included in property operating expenses) of $225,800, $186,538 and $232,272 for the years DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements ended October 31, 1996, 1995 and 1994, respectively. Another affiliate of the Managing General Partner performs administrative functions and processes certain investor and tax information on behalf of the Partnership. In 1996, 1995 and 1994 the affiliate was reimbursed $259,076, $247,518 and $278,250, respectively (included in general and administrative expenses) for these services. As of October 31, 1996, the affiliates were owed $40,208 for these services. Prior to 1990, the Partnership borrowed funds from an affiliate of the Managing General Partner to fund the cost of tenant improvements, capital expenditures and other Partnership expenditures. The loan bore interest at the prime rate. During the first quarter of 1996, the Partnership and the affiliate amended and restated the Partnership's borrowing relationship. The Partnership agreed to repay all outstanding amounts borrowed from the affiliate no later than October 31, 1997. Advances to the Partnership under the Partnership's line of credit were capped at $4,500,000. In June 1996, the loan was repaid with a portion of the proceeds from the sale of the 1718 Connecticut Avenue property. Interest expense amounted to $218,159, $342,221 and $281,361 in 1996, 1995 and 1994, respectively. Through January 31, 1995, the General Partners deferred receipt of an aggregate amount of $2,467,674 of distributions to which they are entitled, including distributions of $38,658 and $154,633 for the years ended October 31, 1995 and 1994, respectively; amounts deferred were charged against partners' capital and recorded as liabilities to the General Partner. Beginning with the February 28, 1995 distribution, the General Partners began to receive their distributions currently. In September 1996, the Partnership paid $1,233,837 of deferred distributions, and, in November 1996, paid the remaining deferred distributions to the General Partners. 9. Litigation Various public partnerships sponsored by Dean Witter Realty Inc. (including the Partnership and its Managing General Partner) are defendants in purported class action lawsuits pending in state and federal courts. The complaints allege a number of claims, including breach of fiduciary duty, fraud and misrepresentation, and seek an accounting of profits, compensatory and other damages in an unspecified amount, possible liquidation of the Partnership under a receiver's supervision and other equitable relief. The defendants are vigorously defending these actions. It is impossible to predict DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Notes to Consolidated Financial Statements the effect, if any, the outcome of these actions might have on the Partnership's financial statements. 10. Subsequent Event On November 27, 1996, the Partnership paid a cash distribution of $8.95 per Unit. The distribution was $922,646 with $830,381 distributed to the Limited Partners and $92,265 distributed to the General Partners. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. 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 Controller and 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 53, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since 1982. He is an Executive Vice President of Dean Witter Reynolds, Inc. E. Davisson Hardman, Jr., age 47, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since 1982. Lawrence Volpe, age 49, is a Director and the Controller of Dean Witter Realty Inc. He is a Senior Vice President and Controller of Dean Witter Reynolds Inc., which he joined in 1983. Ronald T. Carman, age 45, is a Director and the Secretary of Dean Witter Realty, Inc. He is a Senior Vice President and Associate General Counsel of Dean Witter Discover & Co. and Dean Witter Reynolds Inc., which he joined in 1984. There is no family relationship among any of the foregoing persons. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. 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 in Item 5 above. At October 31, 1995, the General Partners had deferred receipt of a total of $2,467,674 of cash distributions to which they were entitled, including $38,658 and $154,633 for the years ended October 31, 1995 and 1994, respectively. The General Partners receive their share of cash distributions currently, beginning with the distribution made in February 1995, and received cash distributions of $309,264 and $154,632 for fiscal years 1996 and 1995, respectively. In September 1996, the Partnership paid $1,233,837 of deferred distributions to the General Partners, and, in November 1996, paid the remaining deferred distributions. 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 8 to the Consolidated 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 January 1, 1997: (1) (2) (3) Amount and Title of Name of Nature of Class Beneficial Owner Beneficial Ownership Limited All directors and executive * Partnership officers of Managing General Interests Partner, as a group *Own, by virtue of their ownership of Limited Partnership interests in the Associate General Partner, less than 1% of the Units of the Partnership. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. 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 general 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 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 Realty, a Delaware corporation which is a wholly-owned subsidiary of Dean Witter, Discover & Co. The general partner of the Associate General Partner is Dean Witter Realty Income Associates I Inc., which is a wholly-owned subsidiary of the Managing General Partner. The limited partner of the Associate General Partner is LSA 84 L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of Realty are partners of LSA 84 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 General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 8 to the Consolidated 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. Prior to 1990, the Partnership borrowed funds from an affiliate of the Managing General Partner to fund the cost of tenant improvements, capital expenditures and other Partnership expenditures. The loan bore interest at the prime rate. During the first quarter of 1996, the Partnership and the affiliate amended and restated the Partnership's borrowing relationship. The Partnership agreed to repay all outstanding amounts borrowed from the affiliate no later than October 31, 1997. Advances to the Partnership under the Partnership's line of credit were capped at $4,500,000. In June 1996, the loan was repaid with a portion of the proceeds from the sale of the 1718 Connecticut Avenue property. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Through January 31, 1995, the General Partners deferred receipt of an aggregate amount of $2,467,674 of distributions to which they are entitled, including distributions of $38,658 and $154,633 for the years ended October 31, 1995 and 1994, respectively; amounts deferred were charged against partners' capital and recorded as liabilities to the General Partner. Beginning with the February 28, 1995 distribution, the General Partners began to receive their distributions currently. In September 1996, the Partnership paid $1,233,837 of deferred distributions, and, in November 1996, paid the remaining deferred distributions to the General Partners. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. 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 (a) Amended and Restated Agreement of Limited Partnership dated as of August 15, 1983 set forth in Exhibit A to the Prospectus included in Registration Statement Number 286041 is incorporated herein by reference. (b) Certificate of Limited Partnership included in Registration Statement Number 286041 is incorporated herein by reference. (4)(a) Amended and Restated Agreement of Limited Partnership dated as of August 15, 1983 set forth in Exhibit A to the Prospectus included in Registration Statement Number 286041 is incorporated herein by reference. (b) Certificate of Limited Partnership included in Registration Statement Number 286041 is incorporated herein by reference. (10)(a) Purchase and Sale Agreements for properties purchased were filed as Exhibits to Form 8-K on April 26, 1984, October 17, 1984, October 26, 1984, October 31, 1984, December 20, 1984, July 15, 1985 and October 29, 1985 and are incorporated herein by reference. (b) "Purchase Agreement" dated as of May 31, 1996 for sale of the 1718 Connecticut Avenue property was filed as an Exhibit to Form 8-K on June 24, 1996 and is incorporated herein by reference. (21) Subsidiary: 1718 Connecticut, Ltd., a District of Columbia limited partnership. (27) Financial Data Schedule. DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. (b) No Forms 8-K were filed by the Partnership during the last quarter of the period covered by this report. (d)(2) Financial Statements of Century Square Venture, the joint venture which owns the Century Square property. SCHEDULE III DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Real Estate and Accumulated Depreciation October 31, 1996 Initial Cost to Partnership (A)
Cost Capitalized Building and Subsequent Description Land Improvements Total Acquisition Office/R&D Building Westwood, MA $ 1,750,000 $6,780,006 $8,530,006 $2,686,793 Shopping Center Altamonte Springs, FL 2,300,000 7,626,517 9,926,517 870,004 Office Building Los Angeles, CA 2,630,000 10,919,123 13,549,123 780,381 Office Buildings Arlington Heights, IL 2,280,000 7,860,616 10,140,616 1,812,597 Office Buildings Charlotte, NC 1,934,000 17,186,456 19,120,456 3,239,185 $10,894,000 $50,372,718 $61,266,718 $9,388,960 Gross Amount at which Carried at End of Period (B) Losses on Impairment of Buildings & Description Real Estate Land Improvements Total Office/R&D Building Westwood, MA $ (2,634,000) $ 1,486,600 $7,096,199 $ 8,582,799 Shopping Center Altamonte Springs, FL (1,377,000) 2,312,300 7,107,221 9,419,521 Office Building Los Angeles, CA (6,129,699) 2,630,000 5,569,805 8,199,805 Office Buildings Arlington Heights, IL (4,707,365) 2,280,000 4,965,848 7,245,848 Office Buildings Charlotte, NC (2,757,000) 1,658,300 17,944,341 19,602,641 $(17,605,064) $10,367,200 $42,683,414 $53,050,614
SCHEDULE III (continued)
Life on which Depreciation in Latest Income Accumulated Date of Date Statements is Description Depreciation Construction Acquired Computed Office/R&D Building Westwood, MA $2,968,110 1983-1986 April 1984 5-40 years Shopping Center Altamonte Springs, FL 2,541,984 1981-1985 October 1984 5-40 years Office Building Los Angeles, Ca 4,273,603 1984 October 1984 5-40 years Office Buildings Arlington Heights, IL 4,160,933 1984 December 1984 5-40 years Office Buildings Charlotte, NC 8,653,822 1983-1985 July 1985 5-40 years $22,598,452 Notes: (A) The initial cost includes the purchase price paid by the Partnership and acquisition fees and expenses. No carrying costs have been capitalized subsequent to acquisition. There is no difference between cost for financial reporting purposes and federal income tax purposes. (B) Reconciliation of real estate owned at October 31: 1996 1995 1994 Balance at beginning of period $68,781,271 $68,060,915 $ 78,205,759 Additions during period: Improvements 335,596 720,356 692,220 Sale of real estate (7,556,253) - - Losses on impairments of real estate (8,510,000) - (10,837,064) Balance at end of period $53,050,614 $68,781,271 $ 68,060,915 (C) Reconciliation of accumulated depreciation: Balance at beginning of period $24,089,561 $21,555,012 $ 18,605,656 Depreciation expense 1,745,666 2,534,549 2,949,356 Sale of real estate (3,236,775) - - Balance end of period $22,598,452 $24,089,561 $ 21,555,012 /TABLE 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 INCOME PARTNERSHIP I, L.P. By: Dean Witter Realty Income Properties I Inc. Managing General Partner By: /s/E. Davisson Hardman, Jr. Date: January 29, 1997 E. Davisson Hardman, Jr. President By: /s/Lawrence Volpe Date: January 29, 1997 Lawrence Volpe 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 INCOME PROPERTIES I INC. Managing General Partner /s/William B. Smith Date: January 29, 1997 William B. Smith Chairman of the Board of Directors /s/E. Davisson Hardman, Jr. Date: January 29, 1997 E. Davisson Hardman, Jr. Director /s/Lawrence Volpe Date: January 29, 1997 Lawrence Volpe Director /s/Ronald T. Carman Date: January 29, 1997 Ronald T. Carman Director DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P. Year Ended October 31, 1996 Exhibit Index Exhibit No. 27 Financial Data Schedule d.2 Financial Statements of Century Square Venture E1 EX-27 2
5 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. 12-MOS OCT-31-1996 OCT-31-1996 2,954,592 0 985,596 0 0 0 0 0 43,069,014 0 0 0 0 0 40,937,468 43,069,014 0 8,493,737 0 0 5,373,159 8,510,000 218,159 (5,607,581) 0 (5,607,581) 0 0 0 (5,607,581) (53.66) 0 In addition to cash and receivables, total assets include net investments in real estate of $30,452,162, investment in joint venture of $8,423,845, and net deferred leasing commissions of $252,819. Represents partners' capital. Liabilities include accounts payable and accrued liabilities of $748,320, security deposits payable of $149,389 and other liabilities of $1,233,837. Total revenue includes rent of $7,013,164, gain on sale of real estate of $683,471, equity in earnings of joint venture of $589,362, and interest and other revenue of $207,740. Represents net income per Unit of limited partnership interest.
EX-99 3 Independent Auditors' Report To the Partners of Century Square Venture We have audited the accompanying balance sheets of Century Square Venture (a California general partnership) as of October 31, 1996 and 1995, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended October 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the 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 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 statements 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 Century Square Venture as of October 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP New York, New York January 24, 1997 CENTURY SQUARE VENTURE (a California general partnership) BALANCE SHEET October 31, 1996 and 1995 ASSETS
1996 1995 Cash and cash equivalents $ 351,134 $ 307,341 Real estate: Land 6,429,000 6,429,000 Buildings and improvements 38,307,211 37,784,915 44,736,211 44,213,915 Accumulated depreciation 13,423,765 12,028,084 31,312,446 32,185,831 Deferred leasing commissions, net 986,908 1,139,294 Other assets 1,229,392 1,073,169 $33,879,880 $ 34,705,635 LIABILITIES AND PARTNERS' CAPITAL Accounts payable and other liabilities $ 184,503 $ 199,212 Partners' capital 33,695,377 34,506,423 $33,879,880 $ 34,705,635 See accompanying notes to financial statements. /TABLE CENTURY SQUARE VENTURE (a California general partnership) STATEMENTS OF OPERATIONS For the years ended October 31, 1996, 1995 and 1994
1996 1995 1994 Revenues: Rental $ 5,761,715 $5,403,499 $ 5,941,457 Interest and other 69,838 21,519 31,383 5,831,553 5,425,018 5,972,840 Expenses: Property operating 1,926,040 1,917,052 2,110,092 Depreciation and amortization 1,548,067 1,610,915 1,518,333 3,474,107 3,527,967 3,628,425 Net income $ 2,357,446 $1,897,051 $ 2,344,415 See accompanying notes to financial statements. /TABLE CENTURY SQUARE VENTURE (a California general partnership) STATEMENTS OF PARTNERS' CAPITAL For the years ended October 31, 1996, 1995 and 1994
Partners' capital at November 1, 1993 $37,274,695 Net income 2,344,415 Contributions 46,226 Distributions (4,648,515) Partners' capital at October 31, 1994 35,016,821 Net income 1,897,051 Contributions 1,550,011 Distributions (3,957,460) Partners' capital at October 31, 1995 34,506,423 Net income 2,357,446 Contributions 522,302 Distributions (3,690,794) Partners' capital at October 31, 1996 $33,695,377 See accompanying notes to financial statements. /TABLE CENTURY SQUARE VENTURE (a California general partnership) STATEMENTS OF CASH FLOWS For the years ended October 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: Net income $ 2,357,446 $ 1,897,051 $ 2,344,415 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,548,067 1,610,915 1,518,333 (Increase) decrease in operating assets Deferred leasing commissions - (1,031,230) (7,089) Other assets (156,223) 269,025 250,898 Decrease in accounts payable and other liabilities (14,709) (6,726) (85,832) Net cash provided by operating activities 3,734,581 2,739,035 4,020,725 Cash flows from investing activities: (Additions) reductions to real estate (522,296) (491,669) 724,335 Cash flows from financing activities: Cash distributions (3,690,794) (3,957,460) (4,648,515) Contributions to partnership 522,302 1,550,011 46,226 Net cash used in financing activities (3,168,492) (2,407,449) (4,602,289) Increase (decrease) in cash and cash equivalents 43,793 (160,083) 142,771 Cash and cash equivalents at beginning of year 307,341 467,424 324,653 Cash and cash equivalents at end of year $ 351,134 $ 307,341 $ 467,424 See accompanying notes to financial statements. /TABLE CENTURY SQUARE VENTURE (a California general partnership) NOTES TO FINANCIAL STATEMENTS October 31, 1996 1. The Partnership Century Square Venture (the "Partnership") is a general partnership organized under the laws of the State of California in 1985 to own and lease an office building in Pasadena California. The partners are Dean Witter Realty Income Partnership I, L.P. and Dean Witter Realty Income Partnership II, L.P., with partnership interests of 25% and 75%, respectively. Profits, losses and distributions are allocated to the partners in accordance with their partnership interests. 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. Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less. The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method. 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. 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 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 2. Summary of Significant Accounting Policies (continued) 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's accounting policy complies with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". 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 October 31, 1996. The cash flows used to evaluate the recoverability of the property 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; 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 leasing commissions are amortized over the applicable lease terms. 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. For income tax purposes, Partnership results are reported for the calendar year. 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 $5 million less than the amounts reported for financial statement purposes. 3. Leases Minimum future rental income under noncancellable operating leases as of October 31, 1996 is as follows:
Year ending October 31: 1997 $ 4,842,938 1998 4,865,108 1999 4,887,278 2000 4,930,064 2001 4,951,667 Thereafter 38,959,119 Total $63,436,174
The Partnership has determined that all leases relating to its properties are operating leases. The lease terms range from eight to fifteen years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses. 4. Related Party Transactions An affiliate of the partners provided property management services to the Partnership in 1996, 1995 and 1994. The Partnership paid the affiliate management fees (included in property operating expenses) of approximately $131,000, $132,000 and $149,000 for the years ended October 31, 1996, 1995 and 1994, respectively. As of October 31, 1996, the Partnership owed the affiliate approximately $11,000 for these services. -----END PRIVACY-ENHANCED MESSAGE-----