-----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, L2fBJFUElHgyIbWsLtJPxGIU7l16VJ0ky6IJP01tZdqpYjeAwz8+P4pP3MxbxsjK ww5cbgXuHbTEhOe7092Ydw== 0000765923-97-000003.txt : 19970401 0000765923-97-000003.hdr.sgml : 19970401 ACCESSION NUMBER: 0000765923-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEAN WITTER REALTY GROWTH PROPERTIES L P CENTRAL INDEX KEY: 0000765923 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133286866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18151 FILM NUMBER: 97569060 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CTR STREET 2: 46TH FLOOR 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 December 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 0-18151 DEAN WITTER REALTY GROWTH PROPERTIES, L.P. (Exact name of registrant as specified in its charter) Delaware 13-3286866 (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 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 (Section 229.405 of this chapter) 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 non-affiliates of the registrant. Not Applicable DOCUMENTS INCORPORATED BY REFERENCE None Page 1 of 35 ITEM 1. BUSINESS The Registrant, Dean Witter Realty Growth Properties, L.P. (the "Partnership") is a limited partnership formed in March 1985 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing primarily in income-producing properties. The Managing General Partner of the Partnership is Dean Witter Realty Growth Properties Inc., a Delaware corporation (the "Managing General Partner"), which is wholly-owned by Dean Witter Realty Inc. ("Realty"). The Associate General Partner is Dean Witter Realty Growth Associates, L.P., a Delaware limited partnership (the "Associate General Partner"), the general partner of which is the Managing General Partner. The Managing General Partner manages and controls all aspects of the Partnership's operations. The terms of transactions between the Partnership and its affiliates are set forth in Item 8 and Item 13 below. The Partnership issued 78,594 units of limited partnership interest (the "Units") with gross proceeds from the offering of $78,594,000. The offering has been terminated and no additional Units will be sold. The proceeds from the offering were used to make leveraged investments in three office properties (one of which was lost through foreclosure in 1992, and one of which was sold in 1996), an industrial park (which was disposed of in 1995 and 1996) and a hotel (which was sold in 1996). 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 set forth in the Partnership's 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 below. 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. During the year ended December 31, 1996, the Partnership owned, through partnership interests, the following property interests. Except for the hotel, the leases pertaining to the properties generally 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 owned at December 31, 1996 is adequately covered by insurance.
Net Rentable Year(s) Acquisition Property, Area Completed/ Cost Type of ownership of Location and Type (000 sq.ft.) Acquired ($000) land and improvements Bayport Plaza Tampa, FL Office building1 259 1984/1985 $11,178 46.25% indirect General Partnership interest in a partnership which owns the building. Hotel2 448 rooms 1985/1985 $26,206 91.6% indirect general partnership interest in a partnership which owned the hotel. Braker Center, Phase III North Austin, TX Land2 28 acres NA/1985 $2,021 99% general partnership interest. Peninsula Office Park San Mateo, CA Six office buildings and restaurant3 379 1972-82/1985 $6,026 49.9% indirect general partnership interest in two limited partnerships which own the buildings.
1. The property is subject to a mortgage loan. See note 5 to the consolidated financial statements in Item 8. 2. Sold in 1996. See Note 4 to the consolidated financial statements. 3. Sold in 1996. See Note 5 to the consolidated financial statements. Each improved property was built with on-site parking facilities. Further information relating to the Partnership's properties is included in Item 7 and Notes 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 REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 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 March 17, 1997 there were 6,124 holders of limited partnership interests. The Partnership is a limited partnership and, accordingly, does not pay dividends. However, the Partnership Agreement permits distributions of "Distributable Cash", as defined, to its partners. Pursuant to the Partnership Agreement, Distributable Cash is to be paid 96% to the Limited Partners, after the Managing General Partner has received a management fee of 6.25% of Distributable Cash. The Managing General Partner did not receive a management fee in 1996, 1995 or 1994 because the Partnership did not make a cash distribution of Distributable Cash in any of those years. Sale or refinancing proceeds will generally be distributed (i) to the Limited Partners until they have received a return of their capital contributions; (ii) to the General Partners until they have received 1.01% of the amount distributed to the Limited Partners; (iii) 99% of any remaining amounts to the Limited Partners and 1% to the General Partners until the Limited Partners have received cumulative distributions in an amount sufficient to provide a 6% cumulative annual return on their adjusted capital contributions; and (iv) 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee, if earned, not in excess of 3% of the aggregate gross sales prices of all properties. In 1996, the Partnership distributed approximately $29.3 million ($373 per Unit) of proceeds primarily from the sale of the Bayport Hyatt Hotel; the distribution was paid 100% to the Limited Partners. During the year ended December 31, 1995, the Partnership did not distribute any sale or refinancing proceeds. In January 1997, the Partnership made a distribution to Limited Partners of approximately $10.7 million ($136 per Unit) from the net proceeds from the sale of the joint venture interest in Peninsula Office Park, the sale of land at Braker Center and the remaining proceeds from the sale of the Hotel. The Partnership does not anticipate making regular distributions to its partners until the Partnership's remaining property is sold or refinanced. Taxable income and tax loss generally are allocated to the partners in proportion to the distribution of Distributable Cash (after payment of the Managing General Partner's management fee) or sale or financing proceeds (or 96% to the Limited Partners and 4% to the General Partners if there is no Distributable Cash). ITEM 6. SELECTED FINANCIAL DATA The following sets forth a summary of selected financial data for the Partnership: DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Years ended December 31, 1996, 1995, 1994, 1993 and 1992
19961 19952 1994 1993 1992 Total revenues $76,022,162 $27,481,867 $28,095,985 $27,391,611 $28,243,603 Income (loss) before extraordinary item $58,556,334 $(2,387,229) $(1,105,050) $(5,550,240)3 $(6,421,433) Extraordinary item $ - $ 1,938,4654 $ - $ - $ 422,1234 Net income (loss) $58,556,334 $ (448,584) $(1,105,050) $(5,520,240)3 $(5,999,310) Per unit of Limited Partnership interest: Income (loss) before extra- ordinary item $ 744,64 $ (29.64) $ (13.50) $ (67.79) $ (78.44) Extraordinary gain $ - $ 24.42 $ - $ - $ 5.16 Net income (loss) $ 744.64 $ (5.22) $ (13.50) $ (67.79) $ (73.28) Cash distribution $ 372.98 $ - $ - $ - $ - Total assets $12,253,161 $41,836,913 $55,097,988 $58,385,005 $87,483,150 Long-term debt due after one year $ - $ - $54,936,984 $57,844,135 $84,193,991
1Revenues and income include gains on sale of real estate and partnership interests totaling approximately $58 million. See Notes 4 and 5 to the consolidated financial statements in Item 8. The cash distribution represents a return of capital. 2Revenues and losses include a loss on sale of real estate of approximately $1.2 million. See Note 4 to the consolidated financial statements. 3Includes a $334,988 loss on the sale of real estate. 4Gain on extinguishment of debt due to foreclosure of a property. Note: The above financial data should be read in conjunction with the consolidated financials statements and the related notes in Item 8. ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Liquidity and Capital Resources The Partnership raised $78,594,000 in a public offering which terminated in 1986. The Partnership has no plans to raise additional capital. The Partnership used the proceeds from the offering to make leveraged investments in five properties. One of the properties was lost through foreclosure in 1992; all of the remaining properties other than the Bayport office building were sold prior to December 31, 1996. No additional investments are planned. In July 1996, the Partnership sold, for $72.2 million, the Bayport Plaza Hyatt hotel (the "Hotel"). See Note 4 to the consolidated financial statements in Item 8. $42 million of the sales proceeds were used to repay the mortgage note encumbering the Hotel. The Managing General Partner believes that the timing of the sale took advantage of both the Hotel's improved operating performance and the current investment environment for hotel properties. The closings of the sales of the remaining parcels of land at Braker Center, for approximately $1.4 million (net of closing costs), occurred in April and November 1996. In May 1996, the Partnership repaid approximately $2.8 million of loans from affiliates from the proceeds from the sales of Braker Center properties and, in July 1996, repaid the remaining $3.4 million due to affiliates from the proceeds from the sale of the Hotel. See Note 6 to the consolidated financial statements. In December 1996, the Partnership sold its interest in the joint venture which owns Peninsula Office Park, for approximately $9.4 million, to entities controlled by its joint venture partner. The Partnership believes that the sale occurred at an opportune time, given the property's current occupancy and improvement in the San Mateo office market. See Note 5 to the consolidated financial statements. As of December 31, 1996, the Partnership was due approximately $1,632,000 of proceeds from the sale of the joint venture interest in Peninsula Office Park. This amount was received in January 1997. Prior to the foregoing sales, the Partnership's liquidity depended upon cash flow from operations of its properties and capital expenditures. During 1996, the Hotel generated positive cash flow from operations prior to its sale. The parcels of land at Braker Center did not generate any cash flow. Although the Peninsula office Park property generated cash flow from operations, it was prohibited from distributing cash from operations to its partners by its loan agreement. The Partnership's remaining investment consists of its 46.25% interest in the Bayport office building joint venture. The timing of the disposition of this investment is uncertain. The Partnership does not expect that the Bayport office building joint venture will produce significant operating cash flow for the Partnership in the near future because it is likely such cash flow will be distributed 100% to another partner in accordance with the provisions of the joint venture agreement. Accordingly, subsequent to December 31, 1996, the Partnership will not realize any cash from its remaining investment until it is sold or refinanced. The Partnership expects to incur minimal operating expenses until then, and believes it has sufficient cash reserves to fund such expenses. The Partnership does not anticipate making regular distributions to its partners until the Partnership's remaining property is sold or refinanced. The Partnership believes that the total cash distributed to the Limited Partners (including estimated cash to be realized from disposition of the Bayport office building) will be less than the capital contributed by the Limited Partners. The decreases in the Partnership's real estate, deferred expenses, accounts payable and minority interests are primarily attributable to the Hotel sale. In addition, the sale resulted in the release of previously restricted cash balances to the Partnership. The decrease in real estate held for sale is attributable to the sale of land at Braker Center, and the decrease in the excess of distributions and losses over cost of investment in partnership is attributable to the sale of the joint venture interest in Peninsula Office Park. In August 1996, the Partnership made a distribution to Limited Partners of approximately $29.3 million ($373 per Unit) primarily from the net proceeds from the sale of the Hotel. In January 1997, the Partnership made a distribution to Limited Partners of approximately $10.7 million ($136 per Unit) from the net proceeds from the sale of the joint venture interest in Peninsula Office Park, the sale of land at Braker Center and the remaining proceeds from the sale of the Hotel. Except as discussed herein and in the consolidated 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, 1996 compared to 1995 and 1995 compared to 1994 are primarily attributable to the following: The sale of the Hotel in the third quarter of 1996 caused the decrease in hotel operating revenues and expenses in 1996 compared to 1995. Hotel room revenue increased in 1995 compared to 1994 because increases in room rates offset the slight decrease in occupancy from 69% in 1994 to 67% in 1995. Food, beverage and other revenue increased because of increases in banquet and in-room dining sales. The increases in food and beverage sales led to a corresponding increase in related expenses. Room expenses decreased in 1995 compared to 1994 because of reduced management fees due to the renegotiated management contract with Hyatt. Rental income and property operating expenses decreased in 1995 compared to 1994 because of the disposition of the Partnership's interests in the properties at Braker Center in 1995. There was no rental income and only minor property operating expenses in 1996. The gain on sale of real estate in 1996 resulted from the sale of the Hotel. The loss on sale of real estate in 1995 resulted from sales of properties at Braker Center. See Note 4 to the consolidated financial statements. The gain on sale of partnership interest in 1996 resulted from the sale of the joint venture interest in Peninsula Office Park. See Note 5 to the consolidated financial statements. Interest expense, depreciation and amortization decreased in 1996 compared to 1995 as a result of sales of real estate and repayment of loans. See Notes 4 and 6 to the consolidated financial statements. Interest expense increased in 1995 compared to 1994 primarily because the interest rate on the Bayport Plaza hotel mortgage increased to 9% in 1995 from 7.75% in 1994. Equity in net losses of partnerships in 1996 compared to 1995 decreased primarily because of higher rents on new leases at Peninsula Office Park. General and administrative expenses were higher in 1995 compared to 1994 as a result of legal fees incurred in connection with the modification of the Hyatt management agreement and the bankruptcy reorganization at the Braker Center properties. A summary of the office market in which the Partnership's remaining property interest is located and the performance of the property is as follows: Although the market vacancy rate for Class A buildings in the Westshore market in Tampa, Florida, the location of the Bayport office building, improved to approximately 8% from 13% at the prior year-end, rental rates have not increased significantly. Office buildings in this market also compete for quality tenants with an improving downtown Tampa market; however, the Bayport office building's accessibility to the Tampa airport and its ability to offer free parking are competitive advantages. During 1996, average occupancy at the property was 95%, and at December 31, 1996, occupancy was 94% vs. 96% at the prior year-end. The leases of Prudential Insurance Company (for approximately 13% of the property's space), Butler & Burnette (for approximately 13% of the space), Federal Insurance Company (for approximately 11% of the space) and Nokia Mobile Phones (for approximately 10% of the space) expire in 2001, 2005, 2000 and 2000, respectively. Other leases totalling approximately 17% and 11% of the space are scheduled to expire in 1998 and 1999, respectively. 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 GROWTH PROPERTIES L.P. INDEX Page (a) Financial Statements Independent Auditors' Report 12 Consolidated Balance Sheets at December 31, 1996 and 1995 13 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 14 Consolidated Statements of Partners' Capital (Deficiency) for the years ended December 31, 1996, 1995 and 1994 15 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 16-17 Notes to Consolidated Financial Statements 18-27 (b) Financial Statement Schedule Real Estate and Accumulated Depreciation III 34 All other schedules 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 Growth Properties, L.P.: We have audited the accompanying consolidated balance sheets of Dean Witter Realty Growth Properties, L.P. and consolidated partnerships (the "Partnership") as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital (deficiency) and cash flows for each of the three years in the period ended December 31, 1996. 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 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Dean Witter Realty Growth Properties, L.P. and consolidated partnerships as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, financial statement schedule III, 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. Deloitte & Touche LLP /s/Deloitte & Touche LLP New York, New York March 26, 1997 DEAN WITTER REALTY GROWTH PROPERTIES, L.P. CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
1996 1995 ASSETS Real estate: Buildings and improvements $ $ 47,253,598 Land and land improvements - 4,658,353 - 51,911,951 Accumulated depreciation - 20,984,839 - 30,927,112 Real estate held for sale - 2,021,342 Cash and cash equivalents 10,273,472 2,072,917 Accounts receivable 1,661,039 1,671,728 Deferred expenses, net 204,832 1,277,687 Restricted cash - 3,570,238 Other assets 113,818 295,889 $ 12,253,161 $ 41,836,913 LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) Mortgage notes payable $ - $ 42,000,000 Due to affiliates - 6,385,499 Accounts payable and accrued expenses 552,519 3,085,982 Excess of distributions and losses over cost of investments in partnerships 1,186,283 7,510,575 Minority interests - 1,583,135 1,738,802 60,565,191 Partners' capital (deficiency): General partners (3,267,091) (3,298,849) Limited partners ($1,000 per Unit, 78,594 Units issued) 13,781,450 (15,429,429) Total partners' capital (deficiency) 10,514,359 (18,728,278) $ 12,253,161 $ 41,836,913 See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY GROWTH PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 Revenues: Hotel: Room $ 9,347,359 $13,455,469 $13,329,447 Food, beverage and other 8,587,010 13,895,927 12,864,869 Total 17,934,369 27,351,396 26,194,316 Rental - 1,236,740 1,698,704 Interest and other 325,414 143,188 202,965 Gain (loss) on sale of real estate 41,992,437 (1,249,457) - Gain on sale of partnership interest 15,769,942 - - 76,022,162 27,481,867 28,095,985 Expenses: Hotel: Room 1,830,999 3,696,484 4,090,932 Food and beverage 5,979,018 9,201,086 8,335,717 Administrative and other 4,794,603 7,586,269 7,598,825 Total 12,604,620 20,483,839 20,025,474 Interest 2,567,985 5,327,001 4,994,853 Property operating 40,394 381,262 537,138 Amortization 151,353 246,841 281,710 Depreciation 1,063,723 2,119,206 2,129,520 Equity in net losses of partnerships 672,973 845,578 985,769 General and administrative 378,240 464,415 274,198 17,479,288 29,868,142 29,228,662 Income (loss) before minority interest 58,542,874 (2,386,275) (1,132,677) Minority interest in (income) loss of consolidated partnerships 13,460 (954) 27,627 Income (loss) before extraordinary item 58,556,334 (2,387,229) (1,105,050) Extraordinary item: Gain on extinguishment of debt due to foreclosure (Note 4) - 1,938,645 - Net income (loss) $58,556,334 $ (448,584) $(1,105,050) Net income (loss) allocated to: Limited partners $58,524,576 $ (409,965) $(1,060,848) General partners 31,758 (38,619) (44,202) $58,556,334 $ (448,584) $(1,105,050) Net income (loss) per Unit of limited partnership interest $ 744.64 $ (5.22) $ (13.50) See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY GROWTH PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY) Years ended December 31, 1996, 1995 and 1994
General Limited Partners Partners Total Partners' capital (deficiency) at January 1, 1994 $(3,216,028) $(13,958,616) $(17,174,644) Net loss (44,202) (1,060,848) (1,105,050) Partners' capital (deficiency) at December 31, 1994 (3,260,230) (15,019,464) (18,279,694) Net loss (38,619) (409,965) (448,584) Partners' capital (deficiency) at December 31, 1995 (3,298,849) (15,429,429) (18,728,278) Net income 31,758 58,524,576 58,556,334 Cash distributions - (29,313,697) (29,313,697) Partners' capital (deficiency) at December 31, 1996 $(3,267,091) $ 13,781,450 $ 10,514,359 See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY GROWTH PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: Net income (loss) $ 58,556,334 $ (448,584) $(1,105,050) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,215,076 2,366,047 2,411,230 Minority interests in (income) loss of consolidated partnerships (13,460) 954 (27,627) Equity in net losses of partnerships 672,973 845,578 985,769 Gain (loss) on sale of real estate and partnership interests (57,762,379) 1,249,457 - Gain on extinguishment of debt - (1,938,645) - Decrease (increase) in operating assets: Accounts receivable 10,689 (576,390) (695,414) Restricted cash 3,570,238 472,542 (1,621,411) Deferred expenses - (559,339) (253,181) Other assets 182,071 603,915 (91,132) (Decrease) increase in operating liabilities: Accounts payable and accrued expenses (2,533,463) 205,461 377,391 Due to affiliates - (327,166) 344,732 Minority interests - - (350,795) Net cash provided by (used in) operating activities 3,898,079 1,893,830 (25,488) Cash flows from investing activities: Proceeds from sale of real estate and partnership interests 82,108,022 6,594,399 - Investment in real estate (106,350) (671,880) (589,225) (Investment in) distributions from unconsolidated partnerships - (39,784) 94,810 Effect of change in cash from exchange of partnership interests (Note 4) - - (25,932) Net cash provided by (used in) investing activities 82,001,672 5,882,735 (520,347) Cash flows from financing activities: Repayment of mortgage notes payable (42,000,000) (6,367,035) (57,151) Minority interests in joint ventures' distributions - - (46,000) Additional investment by minority interests - - 90,800 Cash distributions (29,313,697) - - Repayment of due to affiliates (6,385,499) - - Net cash used in financing activities (77,699,196) (6,367,035) (12,351) Increase (decrease) in cash and cash equivalents 8,200,555 1,409,530 (558,186) Cash and cash equivalents at beginning of year 2,072,917 663,387 1,221,573 Cash and cash equivalents at end of year $ 10,273,472 $ 2,072,917 $ 663,387 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,567,985 $ 4,086,567 $ 4,854,870 See accompanying notes to consolidated financial statements. (continued) /TABLE DEAN WITTER REALTY GROWTH PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1996, 1995 and 1994 (continued)
1996 1995 1994 Supplemental disclosure of non-cash investing activities: Transfer of partnership interests: Real estate, net $ - $ - $ 2,963,174 Deferred expenses, net - - 139,683 Accounts receivable - - 9,002 Mortgage note payable - - (2,850,000) Accounts payable - - (151,588) Minority interests - - (136,203) Effect of change in cash from exchange of partnership interests $ - $ - $ (25,932) Foreclosure of Partnership interests (Note 4): Balance due on mortgage loan $ - $ (6,569,949) $ - Writeoff of: Real estate - 4,160,145 - Accounts receivable and deferred expenses - 926,441 - Minority interest - 338,641 - Other assets - 105,268 - Accounts payable and other liabilities - (899,191) - Gain on extinguishment of debt due to foreclosure $ - $ (1,938,645) $ - See accompanying notes to consolidated financial statements. /TABLE DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 1. The Partnership Dean Witter Realty Growth Properties, L.P. (the "Partnership") is a limited partnership formed in 1985 under the laws of the State of Delaware to invest primarily in income-producing properties. The Managing General Partner of the Partnership is Dean Witter Realty Growth Properties Inc., which is wholly-owned by Dean Witter Realty Inc. ("Realty"). In 1986, the Partnership issued 78,594 units of limited partnership interest (the "Units") for $78,594,000. No additional Units will be sold. 2. Summary of Significant Accounting Policies The financial statements include the accounts of the Partnership, Bayport Ltd.'s investment in the Bayport hotel, and Braker Associates on a consolidated basis. The Partnership's interest in Peninsula/DW Associates and Bayport Ltd's investment in the Bayport office building are 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. The carrying value of real estate included the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties were capitalized, and repairs were expensed. Depreciation was recorded on the straight-line method. Effective January 1, 1995, the Partnership adopted the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"); adoption was not required prior to 1995. Pursuant to SFAS 121, 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 partnerships in which the Partnership has an equity investment. 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. 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 when the property owned by the Partnership's remaining investment in partnership is disposed of may differ materially from its net carrying value as of December 31, 1996. 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; therefore actual results may vary from the estimates and the variances may be material. This could result in a writedown of the investment in the future if real estate markets or local economic conditions change. If the provisions of SFAS 121 had been effective for the year ended December 31, 1994, the Partnership would have recognized a loss on impairment of land and a warehouse building at Braker Center of approximately $1 million in 1994. As more fully described in Note 4, the Partnership recognized a loss on such land and warehouse building in the second quarter of 1995, when it determined to sell them and reduced their carrying values to fair value net of selling costs. Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less. Deferred expenses consisted of deferred asset supervisory fees, which were amortized over the terms of the related agreements, deferred commitment fees, which were amortized over the related commitment periods, and deferred leasing commissions, which were amortized over the applicable lease terms. 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. Pursuant to the Bayport hotel loan and management agreements, restricted cash balances were reserved primarily for debt service, working capital, and the replacement of certain furniture, fixtures and equipment at the hotel. 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. 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) losses on impairment of real estate are not deductible until realized. 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 $880,000 higher than the amounts reported for financial statement purposes. 3. Partnership Agreement The Partnership agreement provides that the Limited Partners will receive 96% of distributable cash (as defined) remaining after the Managing General Partner has received a management fee of 6.25% of distributable cash. Sale or refinancing proceeds will generally be distributed (i) to the Limited Partners until they have received a return of their capital contributions; (ii) to the General Partners until the General Partners have received 1.01% of the amount distributed to the Limited Partners: (iii) 99% of any remaining amounts to the Limited Partnerss and 1% to the General Partners until the Limited Partners have received cumulative distributions sufficient to provide a 6% cumulative annual return on their adjusted capital contributions; and (iv) 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee, if earned, not in excess of 3% of the aggregate gross sales prices of all properties. Taxable income (loss) generally will be allocated to the partners in proportion to the distribution of distributable cash or sale or financing proceeds (or 96% to the Limited Partners and 4% to the General Partners if there is no distributable cash). The Partnership did not make a distribution of distributable cash to the Partners in 1996, 1995 or 1994. In 1996, the Partnership distributed approximately $29.3 million ($373 per Unit) of proceeds from the sale of the Bayport Hyatt hotel. In January 1997, the Partnership distributed approximately $10.7 million ($136 per unit) of proceeds from the sale of the Partnership's investment in Peninsula Office Park, the land sold at Braker Center and additional proceeds from the sale of the Bayport Hyatt hotel. Both distributions were returns of capital paid 100% to the Limited Partners. 4. Investments in Real Estate Braker Center, Austin, Texas The Partnership owns a 99% general partnership interest in L.S. Braker Associates ("Braker Associates"); a partnership consisting of current and former officers of Realty holds the remaining 1% interest. At December 31, 1993, Braker Associates owned 50% interests in partnerships which owned two warehouses, four office/R&D buildings, and undeveloped land. In October 1994, Braker Associates exchanged its partnership interest in one of the remaining warehouses for the interests of its joint venture partner in the other warehouse and the undeveloped land. The exchange was accounted for at the book value of the interest given up, and no gain or loss was recognized. Thus, at December 31, 1994, Braker Associates owned one warehouse, six parcels of undeveloped land, and a 50% interest in the partnership (the "Office/R&D Building Partnership") which owned the four office/R&D buildings. In 1995, the Partnership entered into an Agreement with Hill Partners, Inc., an unaffiliated party, to sell the warehouse and land for approximately $8.2 million. The sale resulted in a loss of approximately $1.2 million. The closings of the sale of the warehouse and four parcels of land, for a net purchase price of approximately $6,594,000 took place in September and November 1995. At the September closing, the Partnership repaid the $3.7 million mortgage debt encumbering the property. (Earlier in 1995, the Partnership paid a fee of approximately $165,000 (included in interest expense) for an extension of the maturity of the loan.) The remaining proceeds were used to repay borrowings from an affiliate of Realty and for reserves. The closings of the sales of the remaining parcels of land, for an aggregate purchase price of approximately $1.4 million occurred in April and November 1996. The buildings owned by the Office/R&D Building Partnership were encumbered by a mortgage loan which was cross-collateralized and cross-defaulted with loans on approximately 94 projects owned by the Partnership's joint venture partner. Because certain of the projects failed to make scheduled principal payments, in December 1994, the lender declared a default. In January 1995, the Partnership's joint venture partner placed 46 of its properties, including the Office/R&D Partnership, under bankruptcy protection. The Partnership did not consent to the bankruptcy filing. The joint venture partner subsequently submitted a plan of reorganization which was approved by the bankruptcy court in November. The reorganization plan required the Partnership to contribute additional equity to the joint venture in order to retain its interest in the Office/R&D Building Partnership. The Managing General Partner believed that several terms of the plan of reorganization were not favorable to the Partnership and that additional investment was not justified and, accordingly did not contribute additional equity. As a result, the Partnership lost its interest in the buildings and the Office/R&D Building Partnership in 1995. The mortgage loan (which was non-recourse to the Partnership) on the four office/R&D buildings exceeded their carrying value. Accordingly, the loss of the buildings resulted in a non-cash gain of $1,938,645, which was reported as an extraordinary item. Bayport Plaza Hyatt Hotel, Tampa, Florida Bayport Plaza is a mixed-use development consisting of an office building and a Hyatt hotel (the "Hotel"). The Partnership owns a 99% general partnership interest in Bayport, Ltd.; a partnership consisting of current and former officers of Realty holds the remaining 1% interest. Bayport, Ltd. owns (after a preferential return as described below) a 91.6% partnership interest in the partnership which owned the hotel (the "Hotel Partnership"); affiliates of the developer of Bayport Plaza (the "Developer") own the remaining 8.4%. Bayport Ltd. also owns a 46.25% interest in a partnership which owns the office building (the "Office Partnership") (see Note 5). In May 1995, the Partnership and Hyatt Hotel Corporation ("Hyatt") modified the management agreement for the Hotel. Under the terms of the modified agreement, Hyatt was entitled to an annual fee equal to a percentage of the hotel's net revenues in excess of annual debt service, not to exceed an overall percentage cap, and Hyatt agreed to certain expense reductions that increased the Hotel's cash flow. During the second quarter of 1995, the Partnership prepaid $3 million of the hotel mortgage loan from restricted cash reserves. In July 1996, the Hotel Partnership sold the Hotel, for $72.2 million, to Hyatt, pursuant to Hyatt's right of first offer contained in the management agreement. The purchase price was paid in cash at closing. A portion of the sales proceeds was used to repay the $42 million mortgage note (which bore interest at 9%) encumbering the Hotel and certain balances due to affiliates (see Note 6). The remaining proceeds were allocated 100% to Bayport Ltd. An affiliate of Realty had provided a partial loan principal and operating deficit guarantee to the first mortgage lender on the Hotel. See Note 6. 5. Investments in and Advances to Partnerships Bayport Plaza Office Building, Tampa, Florida The Office Partnership is owned 46.25% by Bayport, Ltd., 3.75% by affiliates of the Developer and 50% by a third-party investor (the "Investor"). Bayport, Ltd. is the managing general partner of the Office Partnership, but the Investor has the right to approve certain major decisions and financial policies of the partnership and, under certain circumstances, has the right to cause the partnership to sell the property after 1998. The Investor was entitled to a monthly minimum distribution from net cash flow equal to a 6% annual return on its invested capital until June 1995, and an 8.5% annual return on its invested capital thereafter. Net cash flow in excess of the minimum distribution will be distributed, first: 20% to Bayport Ltd. and the Developer, based on their respective interests, and 80% to the Investor, until the Investor has received an annual return (including the minimum distribution) of 12% on average capital; and thereafter, 50% to Bayport, Ltd. and the Developer, based on their respective interests, and 50% to the Investor. Capital proceeds will generally be distributed: first, 100% to the Investor until it has received its capital and a 14% annual return thereon; second, to Bayport, Ltd. and the Developer until they have received distributions calculated to be equal to a 2% return on the Investor's Capital; and thereafter, to Bayport, Ltd., the Developer and the Investor in proportion to their interests. Taxable income and losses will generally be allocated in accordance with distributions of net cash flow and capital proceeds. The Investor committed to make capital contributions up to $9 million. As of December 31, 1996, the Investor contributed a total of $8,267,338, the remaining balance is to be contributed to fund future operating deficits and tenant-related capital expenditures. During 1996, 1995 and 1994, the Investor contributed approximately $283,000, $509,000 and $621,000 respectively pursuant to its commitment. As of December 31, 1996 and 1995, the Partnership has contributed $9,145,691 to the Office Partnership. The assets, liabilities and partners' capital of the Office Partnership are summarized as follows: December 31, 1996 1995
ASSETS Real estate and improvements $ 29,852,064 $29,044,200 Accumulated depreciation (10,496,484) (9,257,615) 19,355,580 19,786,585 Other (including cash and cash equivalents of $97,559 and $200) 2,287,571 2,436,585 Total assets $ 21,643,151 $22,223,170 LIABILITIES AND PARTNERS' CAPITAL Mortgage note payable $20,000,000 $20,000,000 Other liabilities 503,643 741,793 Partners' capital 1,139,508 1,481,377 $21,643,151 $22,223,170 The results of operations are summarized as follows: 1996 1995 1994 Rental Revenues $5,275,305 $4,343,102 $4,174,012 Expenses: Operating 1,920,979 1,802,630 1,496,912 Interest 1,688,643 1,677,016 1,694,223 Depreciation and amortization 1,610,226 1,509,063 1,389,200 5,219,848 4,988,709 4,580,335 Net income (loss) $ 55,457 $ (645,607) $ (406,323)
The accounting policies of the Office Partnership are consistent with those of the Partnership. The property is subject to a $20,000,000 mortgage loan which is due September 1, 1999 and requires monthly payments of interest-only at 8.5% per annum. The loan is secured by substantially all of the real estate and improvements, rents, leases and profits from the property. The Office Partnership has determined that all leases relating to its properties are operating leases. The lease terms range from three to five years, and generally require tenants to pay their pro rata share of increases in operating expenses. Peninsula Office Park, San Mateo, California Peninsula/DW Associates, a general partnership owned 98% by the Partnership and 2% by former and current Realty officers and executives, owned a 49.9% general partnership interest in two limited partnerships (the "Joint Venture") which owns Peninsula Office Park, a corporate office park located in San Mateo, California. The remaining 50.1% interest in the Joint Venture was owned by the developer of Peninsula Office Park. On December 19, 1996, Peninsula/DW Associates sold its interests in the Joint Venture, for approximately $9.4 million, to entities controlled by the developer. The Partnership received $7.7 million in cash at the closing and the remainder in January 1997. The assets, liabilities and partners' capital (deficit) of the Joint Venture as of December 31, 1995 are summarized as follows:
ASSETS Land and building, net $31,561,713 Other (including cash and cash equivalents of $3,829,280) 7,794,464 Total assets $39,356,177
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Mortgage notes payable $42,162,985 Other liabilities 2,043,192 Partners' (deficit) (4,850,000) Total liabilities and partners' (deficit) $39,356,177
The results of operations of the Joint Venture are summarized as follows:
For the Period from January 1, 1996 to Years ended December 31, December 19, 1996 1995 1994 Revenues: Rental $7,760,518 $ 7,683,063 $ 7,139,299 Other 117,935 90,522 173,956 7,878,453 7,773,585 7,313,255 Expenses: Operating 2,537,023 2,591,492 2,606,631 Interest 3,974,925 4,045,746 3,965,753 Depreciation and amortization* 2,173,015 2,291,124 2,158,136 8,684,963 8,928,362 8,730,520 Net loss $ (806,510) $(1,154,777) $(1,417,265)
* Includes $540,000, $558,000, and $558,000 in 1996, 1995 and 1994, respectively, representing depreciation of the excess of the costs of the Partnership's investment in the Joint Venture over the underlying equity in net assets at the date of acquisition. The accounting policies of the Joint Venture are consistent with those of the Partnership. The Joint Venture determined that all leases relating to its properties are operating leases. The lease terms range from three to eleven years, and generally require tenants to pay their pro rata share of increases in operating expenses, including real estate taxes and maintenance costs over base year expenses. In May 1994, the Joint Venture completed a modification of the mortgage loans (which matured in December 1993) on the Peninsula Office Park properties. The interest accrual and pay rates under the loans were reduced from 9.875% to 9.5%, and from 9% to 8.25%, respectively, and the maturity date was extended. During the loan term, the Joint Venture was prohibited from making cash distributions to its partners. The Partnership paid a $400,000 fee to the lender as part of the restructuring. Activity in the Excess of Distributions and Losses over Cost of Investments in Partnerships is as follows:
Year ended December 31, 1996 1995 1994 Investment at beginning of year $ 7,510,575 $6,704,781 $5,624,202 Equity in losses 672,973 845,578 985,769 Distributions - - 94,810 Contributions - (39,784) - Sale of investment in partnership (6,997,265) - - Investment at end of year $ 1,186,283 $7,510,575 $6,704,781
The Partnership was not entitled to any equity in losses of the Office Partnership in 1996, 1995 or 1994. Accordingly, equity in losses includes only the Partnership's 49.9% share of the losses of the Joint Venture, adjusted to include 100% of the depreciation of the excess of the cost of the Partnership's investment in the Joint Venture over the underlying equity in net assets at the date of acquisition. 6. Related Party Transactions Prior to 1991, the Partnership borrowed funds from an affiliate of Realty to fund working capital needs and capital expenditures at certain properties. In May 1996, the Partnership repaid $2,770,000 from the proceeds of the sale of certain of the Braker Center properties. In July 1996, the remaining balance, approximately $400,000, was repaid from the proceeds from the sale of the Hotel. Interest expense, calculated at the prime rate, was $101,927, $263,976 and $196,923 in 1996, 1995 and 1994, respectively. Additionally, in conjunction with the Hotel mortgage note payable, an affiliate of Realty guaranteed a maximum of $5,350,000 of the first mortgage debt. Advances (all of which were made prior to 1994) by the guarantor to the first mortgage lender under this guaranty (which constituted loans from the guarantor to the Partnership) totaling approximately $3.2 million (including approximately $900,000 of accrued interest) were repaid from the proceeds from the sale of the Hotel. Interest expense, calculated at the prime rate, was $136,723, $244,619 and $182,771 in 1996, 1995 and 1994, respectively. The Managing General Partner is entitled to receive a management fee based on a percentage of distributable cash (as defined in the Partnership Agreement). Because there was no distributable cash, the Managing General Partner did not receive a fee for the years ended December 31, 1996, 1995 or 1994. Prior to 1996, $422,987 of pre-1991 management fees remained unpaid and the General Partners deferred receipt of pre-1991 cash distributions totalling $262,316. In the third quarter of 1996, the Managing General Partner determined that such amounts should not be paid and the General Partners waived any claims thereto. Realty performs administrative functions, processes investor transactions and prepares tax information for the Partnership. For 1996, 1995 and 1994, the Partnership incurred fees of approximately $179,000, $204,000 and $178,000, respectively. These amounts are included in general and administrative expense. An affiliate of the Partnership's joint venture partner at Braker Center had funded shortfall loans to the property. In 1994, the balance due to the affiliate of $19,200 was repaid. Entities controlled by officers of Realty earned approximately $36,000 in 1994, for providing asset management services. In May 1994, such entities agreed to terminate these fees. 7. Litigation Various public partnerships sponsored by Realty (including the Partnership and its Managing General Partner) are defendants in purported class action lawsuits pending in state and federal courts. The complaints allege a number of claims, including breach of fiduciary duty, fraud and misrepresentation, and seek an accounting of profits, compensatory and other damages in an unspecified amount, possible liquidation of the Partnership under a receiver's supervision and other equitable relief. The defendants are vigorously defending these actions. It is impossible to predict the effect, if any, the outcome of these actions might have on the Partnership's financial statements. 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 executive 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 Shareholders of the Managing General Partner or until their successors are elected and qualify. Each of the 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 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 a share of 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 have not received cash distributions for the period 1988 through 1996. Prior to 1996, $422,987 of pre-1991 management fees remained unpaid and the General Partners deferred receipt of pre-1991 cash distributions totalling $262,316. In the third quarter of 1996, the Managing General Partner determined that such amounts should not be paid and the General Partners waived any claims thereto. The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements are contained in Note 6 to the Consolidated Financial Statements in Item 8 above. The directors and executive officers of the Partnership's Managing General Partner received no renumeration 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 executive officers and directors of the Managing General Partner own the following Units as of March 17, 1997: (3) Amount of (1) (2) Nature of Name Title of Class Owner Beneficial Ownership of Beneficial Limited Partnership All directors and executive * Interests officers of the Managing 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. 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 Dean Witter Realty Inc. ("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 Growth Properties Inc., which is a wholly-owned subsidiary of Realty. The limited partner of the Associate General Partner is LSP, L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of the Managing General Partner are partners of LSP, 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. In addition, affiliates of the General Partners have ownership interest in certain properties. Information concerning these transactions is contained in the Notes to 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. The Managing General Partner is entitled to receive a management fee based on a percentage of distributable cash (as defined in the Partnership Agreement). Because there was no distributable cash, the Managing General Partner did not receive a fee for the years ended December 31, 1996, 1995 or 1994. Prior to 1996, $422,987 and pre-1991 management fees remained unpaid and the General Partners deferred receipt of pre-1991 cash distributions totalling $262,316. In the third quarter of 1996, the Managing General Partner determined that such amounts should not be paid and the General Partners waived any claims thereto. 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 Schedule (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 July 12, 1985 set forth in Exhibit A to the Prospectus included in Registration Statement Number 2- 96767 is incorporated herein by reference. (3)(b) Certificate of Limited Partnership dated as of July 12, 1985 incorporated by reference in Registration Statement Number 2-96767 is incorporated herein by reference. (4)(a) Amended and Restated Agreement of Limited Partnership dated as of July 12, 1985 set forth in Exhibit A to the Prospectus included in Registration Statement Number 2- 96767 is incorporated herein by reference. (4)(b) Certificate of Limited Partnership dated as of July 12, 1985 incorporated by reference in Registration Statement Number 2-96767 is incorporated herein by reference. (10)(a) Partnership Agreement of TWC Ten, Ltd. was filed as Exhibit 10(b) to Registration Statement No. 2-96767 and is incorporated herein by reference. (b) Partnership Agreement of TWC Eleven, Ltd. was filed as Exhibit 10(c) to Registration Statement No. 2-96767 and is incorporated herein by reference. (c) Amended and Restated Partnership Agreement of Bayport, Ltd. filed as Exhibit b to Registrant's current report on Form 8-K, dated July 15, 1985 (Commission File No. 0- 18151), is incorporated herein by reference. (d) General Partnership Agreement of TWC Eleven, Ltd. dated as of August 29, 1985 filed as Exhibit 10(d) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (e) First Amendment to the General Partnership Agreement of TWC Eleven, Ltd. dated as of June 19, 1987 filed as Exhibit 10(e) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (f) Second Amended and Restated Agreement of Limited Partnership of TWC Ten, Ltd. dated as of July 19, 1993 filed as Exhibit 10(f) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (g) Partnership Agreement of Braker Lane III Associates was filed as Exhibit 10(a) to Registration Statement No. 2- 96767 and is incorporated herein by reference. (h) Amended and Restated Partnership Agreement of L.S. Braker Associates filed as Exhibit b to Registrants current report on Form 8-K dated July 15, 1985 (Commission File No 0-18151) is incorporated herein by reference. (i) Partnership Agreement of Peninsula/DW Associates dated December 27, 1985 filed as Exhibit c to Registrants' current report on Form 8-K dated December 27, 1985 (Commission File No 0-18151) is incorporated herein by reference. (j) Amended and Restated Agreement of Limited Partnership of Campus Drive Investment Company, dated as of December 27, 1985 filed as Exhibit 10(j) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (k) Amended and Restated Agreement of Limited Partnership of Peninsula Office Park, dated as of December 27, 1985 filed as Exhibit 10(k) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (l) Agreement of Sale, dated August 3, 1995, with respect to the sale of the warehouse and the undeveloped land at Braker Center filed as Exhibit 2 to the Registrant's current report on Form 8-K dated September 1, 1995 (Commission File No. 0-18151) and is incorporated herein by reference. (m) Second Amended and Restated Management Agreement, dated January 26, 1995, between TWC Eleven, Ltd. and Hyatt Corporation filed as Exhibit 1 to Registrant's current report on Form 8-K dated July 18, 1996 (Commission File No. 0-18151) and is incorporated herein by reference. (n) Purchase and Sale Agreement dated as of September 30, 1996 by and among Peninsula/DW Associates, William Wilson III, Peninsula Office Park and Campus Drive Investment Company filed as Exhibit 2 to Registrants current report on Form 8-K dated December 19, 1996 (Commission File No. 0-18151) and is incorporated herein by reference. (21) Subsidiaries: TWC Eleven Limited Partnership, a Florida Limited Partnership. L.S. Braker Associates, a Texas Limited Partnership. (27) Financial Data Schedule. (c) See 3a. above. (d) 1. Financial Statements of TWC Ten Limited Partnership which owns the office building located in Tampa, Florida. SCHEDULE III DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Real Estate and Accumulated Depreciation December 31, 1996
Note: (A) Reconciliation of real estate owned at December 31: 1996 1995 1994 Balance at beginning of period $ 51,911,951 $68,852,278 $72,046,998 Additions (deletions) during period: Improvements 106,350 671,880 589,225 Write-offs - (1,212,412) - Real estate lost through transfer of Partnership interest - - (3,783,945) Sale of real estate (52,018,301) - - Transfer to real estate held for sale - (11,127,564) - Change from consolidation to equity accounting - (5,272,231) - Balance at end of period $ - $ 51,911,951 $68,852,278 (B) Reconciliation of accumulated depreciation: 1996 1995 1994 Balance at beginning of period $ 20,984,839 $22,452,497 $20,687,639 Depreciation expense 1,063,723 2,119,206 2,129,520 Retirements - (1,212,412) - Write-off due to transfer of Partnership interest - - (364,662) Write-off due to sale of real estate (22,048,562) (1,262,366) - Change from consolidation to equity accounting - (1,112,086) - Balance at end of period $ - $20,984,839 $22,452,497 /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 GROWTH PROPERTIES, L.P. By: Dean Witter Realty Growth Properties Inc. Managing General Partner By: /s/E. Davisson Hardman, Jr. Date: March 26, 1997 E. Davisson Hardman, Jr. President By: /s/Lawrence Volpe Date: March 26, 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 GROWTH PROPERTIES INC. Managing General Partner /s/William B. Smith Date: March 26, 1997 William B. Smith Chairman of the Board of Directors /s/E. Davisson Hardman, Jr. Date: March 26, 1997 E. Davisson Hardman, Jr. Director /s/Lawrence Volpe Date: March 26, 1997 Lawrence Volpe Director /s/Ronald T. Carman Date: March 26, 1997 Ronald T. Carman Director 35 DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Year Ended December 31, 1996 Exhibit Index Exhibit No. Description (3)(a) Amended and Restated Agreement of Limited Partnership dated as of July 12, 1985 set forth in Exhibit A to the Prospectus included in Registration Statement Number 2-96767 is incorporated herein by reference. (3)(b) Certificate of Limited Partnership dated as of July 12, 1985 incorporated by reference in Registration Statement Number 2-96767 is incorporated herein by reference. (4)(a) Amended and Restated Agreement of Limited Partnership dated as of July 12, 1985 set forth in Exhibit A to the Prospectus included in Registration Statement Number 2-96767 is incorporated herein by reference. (4)(b) Certificate of Limited Partnership dated as of July 12, 1985 incorporated by reference in Registration Statement Number 2-96767 is incorporated herein by reference. (10)(a) Partnership Agreement of TWC Ten, Ltd. was filed as Exhibit 10(b) to Registration Statement No. 2- 96767 and is incorporated herein by reference. (b) Partnership Agreement of TWC Eleven, Ltd. was filed as Exhibit 10(c) to Registration Statement No. 2-96767 and is incorporated herein by reference. (c) Amended and Restated Partnership Agreement of Bayport, Ltd. filed as Exhibit b to Registrant's current report on Form 8-K, dated July 15, 1985 (Commission File No. 0-18151), is incorporated herein by reference. (d) General Partnership Agreement of TWC Eleven, Ltd. dated as of August 29, 1985 filed as Exhibit 10(d) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. E1 DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Year Ended December 31, 1997 Exhibit Index (continued) Exhibit No. Description (e) First Amendment to the General Partnership Agreement of TWC Eleven, Ltd. dated as of June 19, 1987 filed as Exhibit 10(e) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (f) Second Amended and Restated Agreement of Limited Partnership of TWC Ten, Ltd. dated as of July 19, 1993 filed as Exhibit 10(f) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (g) Partnership Agreement of Braker Lane III Associates was filed as Exhibit 10(a) to Registration Statement No. 2-96767 and is incorporated herein by reference. (h) Amended and Restated Partnership Agreement of L.S. Braker Associates filed as Exhibit b to Registrants current report on Form 8-K dated July 15, 1985 (Commission File No 0-18151) is incorporated herein by reference. (i) Partnership Agreement of Peninsula/DW Associates dated December 27, 1985 filed as Exhibit c to Registrants' current report on Form 8-K dated December 27, 1985 (Commission File No 0-18151) is incorporated herein by reference. (j) Amended and Restated Agreement of Limited Partnership of Campus Drive Investment Company, dated as of December 27, 1985 filed as Exhibit 10(j) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. E-2 DEAN WITTER REALTY GROWTH PROPERTIES, L.P. Year Ended December 31, 1997 Exhibit Index (continued) Exhibit No. Description (k) Amended and Restated Agreement of Limited Partnership of Peninsula Office Park, dated as of December 27, 1985 filed as Exhibit 10(k) to Registrant's Annual Report Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (l) Agreement of Sale, dated August 3, 1995, with respect to the sale of the warehouse and the undeveloped land at Braker Center filed as Exhibit 2 to the Registrant's current report on Form 8-K dated September 1, 1995 (Commission File No. 0- 18151) and is incorporated herein by reference. (m) Second Amended and Restated Management Agreement, dated January 26, 1995, between TWC Eleven, Ltd. and Hyatt Corporation filed as Exhibit 1 to Registrant's current report on Form 8-K dated July 18, 1996 (Commission File No. 0-18151) and is incorporated herein by reference. (n) Purchase and Sale Agreement dated as of September 30, 1996 by and among Peninsula/DW Associates, William Wilson III, Peninsula Office Park and Campus Drive Investment Company filed as Exhibit 2 to Registrants current report on Form 8-K dated December 19, 1996 (Commission File No. 0-18151) and is incorporated herein by reference. (27) Financial Data Schedule E3 EX-1 2 TWC TEN, LTD. (A FLORIDA LIMITED PARTNERSHIP) Financial Statements as of December 31, 1996 and for each of the three years in the period ended December 31, 1996 and Independent Auditor's Report TWC TEN, LTD. (A FLORIDA LIMITED PARTNERSHIP) TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 Balance Sheets 2 Statement of Operations 3 Statements of Partners' Capital (Deficit) 4 Statements of Cash Flows 5 Notes to Financial Statements 6-10 INDEPENDENT AUDITORS REPORT To the Partners of TWC Ten, Ltd.: We have audited the accompanying balance sheets of TWC Ten, Ltd. (a Florida Limited Partnership) as of December 31, 1996 and 1995 and the related statements of operations, partners' capital (deficit), and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the management of the Partnership. 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 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 the Partners, 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 referred to above present fairly, in all material respects, the financial position of TWC Ten, Ltd. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. February 14, 1997 TWC TEN, LTD. (A Florida Limited Partnership) Balance Sheets December 31, 1996 and 1995
ASSETS 1996 1995 Cash and cash equivalents $ 97,559 $ 200 Rent receivable, net of allowance for doubtful doubtful accounts of $13,505 in both 1996 and 1995 respectively (Note 1) 1,172,726 1,249,157 Deferred lease commissions, net of accumulated amortization of $1,783,713 in 1996 and $1,494,581 in 1995 (Note 1) 765,140 988,894 Deferred loan costs, net of accumulated amortization of $564,305 in 1996 and $493,316 in 1995 (Note 1) 23,448 94,437 Organization costs, net of accumulated amortization of $38,750 in 1996 and $27,514 in 1995 (Note 1) 17,431 28,667 Prepaid expenses and other assest 211,267 75,230 Real estate and improvements, net (Notes 1 and 2) 19,355,580 19,786,585 $21,643,151 $22,223,170 LIABILITIES AND PARTNERS CAPITAL LIABILITIES Mortgage note payable (Notes 1 and 3) $20,000,000 $20,000,000 Accounts payable and accrued expenses 503,643 496,375 Accrued interest payable (Note 3) - 197,114 Due to bank - 48,304 Total liabilities 20,503,543 20,741,793 COMMITMENTS AND RELATED PARTY TRANSACTIONS (Notes 4 and 5) PARTNER'S CAPITAL (DEFICIT) (Note 1) Taylor Simpson Group $ 4,990,070 $ 5,331,939 Existing Partners (3,850,562) (3,850,562) Total partners' capital 1,139,508 1,481,377 $21,643,151 $22,223,170 See accompanying notes to financial statements /TABLE TWC TEN, LTD. (A Florida Limited Partnership) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 RENTAL REVENUES (Notes 1 and 4) $5,275,305 $4,343,102 $4,174,012 OPERATING EXPENSES: Depreciation and amortization (Notes 1 and 2) 1,610,226 1,509,063 1,389,200 Building services 433,916 387,605 365,030 Utilities 403,245 376,239 361,862 Repairs and maintenance 93,452 85,022 61,381 Real estate taxes 647,745 652,100 424,816 Management fees (Note 5) 164,558 127,966 125,730 Administration and other 178,063 173,698 158,093 Total operating expenses 3,531,205 3,311,693 2,886,112 OPERATING INCOME 1,744,100 1,031,409 1,287,900 INTEREST EXPENSE, NET 1,688,643 1,677,016 1,694,223 NET INCOME (LOSS) $ 55,457 $ (645,607) $ (406,323) See accompanying notes to financial statements. /TABLE TWC TEN, LTD. (A Florida Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Taylor Simpson Group Existing Partners Allocated Preferred Allocated Capital (Loss) Net Capital Capital (Loss) Net Net Balance, January 1, 1994 $6,669,289 $ (430,633) $6,238,656 $16,971,626 $ - $(20,822,188)$(3,850,562)$2,388,094 Capital contribution 621,428 - 621,428 - - - - 621,428 Capital distribution (431,436) - (431,436) - - - - (431,436) Net loss - (406,323) (406,323) - - - - (406,323) Balance, December 31, 1994 6,859,281 (836,956) 6,022,325 16,971,626 - (20,822,188) (3,850,562) 2,171,763 Capital contribution 509,260 - 509,260 - - - - 509,260 Capital distribution (554,039) - (554,039) - - - - (554,039) Net loss - (645,607) (645,607) - - - - (645,607) Balance, December 31, 1995 6,814,502 (1,482,563) 5,331,939 16,971,626 - (20,822,188) (3,850,562) 1,481,377 Capital contribution 282,746 - 282,746 - - - - 282,746 Capital distribution (680,072) - (680,072) - - - - (680,072) Net income - 55,457 55,457 - - - - 55,457 Balance, December 31, 1996$6,417,176 $(1,427,106) $4,990,070 $16,971,626 $ - $(20,822,188)$(3,850,562)$1,139,508 See accompanying notes to financial statements. /TABLE TWC TEN, LTD. (A Florida Limited Partnership) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES Net income (loss) $ 55,457 $ (645,607) $ (406,323) Adjustments to reconcile net loss to net cash provided from operating activities: Depreciation and amortization 1,610,226 1,509,063 1,389,200 Provision for doubtful accounts - - 11,679 Cash provided from (used in) changes in: Rent receivable 76,431 189,420 226,457 Deferred lease commissions (65,377) (614,196) (306,721) Prepaid expenses and other assets (136,037) 36,784 (17,077) Accounts payable and accrued expenses 7,268 158,157 (218,343) Accrued interest payable (197,114) 55,448 - Due to bank (48,304) 48,304 - Net cash provided from operating activities 1,302,550 737,373 678,872 CASH FLOWS USED IN INVESTING ACTIVITIES: Expenditures for improvements (807,865) (901,654) (960,537) Net cash used in investing activities (807,865) (901,654) (960,537) CASH FLOWS PROVIDED FROM (USED IN) FINANCING ACTIVITIES: Capital distributions - Taylor Simpson Group (680,072) (554,039) (431,436) Capital contributions - Taylor Simpson Group 282,746 509,260 621,428 Net cash (used in) provided from financing activities (397,326) (44,779) 189,992 Net increase (decrease) in cash and cash equivalents 97,359 (209,060) (91,673) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 200 209,260 300,933 CASH AND CASH EQUIVALENTS, END OF YEAR $ 97,559 $ 200 $ 209,260 SUPPLEMENTAL CASH FLOW INFORMATION: The partnership paid interest of approximately $1,700,000 in 1996, 1995 and 1994. See accompanying notes to financial statements. table 1 /TABLE TWC TEN, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - TWC Ten, Ltd., a Florida limited partnership (the "Partnership"), was formed December 30, 1983 to acquire approximately 13 acres of land and to develop and construct an eleven-story 259,513 square foot office building and structured parking deck containing 765 parking spaces (the "Project") in Tampa, Florida. Bayport, Ltd., a partnership in which Dean Witter Realty Growth Properties, L.P. is a substantial general partner, was the majority general partner. The remaining limited partnership interests were held by owners and employees of the Wilson Company ("Wilson Partners"). On July 19, 1993, the Partnership Agreement was amended and restated (the "Amended and Restated Partnership Agreement"). The partners under the Amended and Restated Partnership Agreement are the original partners (the "Existing Partners") and the Taylor Simpson Group ("TSG"). The partners in TSG are Westrock Realty Associates, L.P., Ltd., as a limited partner and Bayrock Realty Associates, L.P., Ltd., as a general partner. The Amended and Restated Partnership Agreement requires certain capital contributions by the partners. TSG is required, as necessary, to fund up to $9,000,000 of capital contributions. Through December 31, 1996, $5,339,068 has been contributed as an initial capital contribution and $2,928,270 has been contributed as an additional capital contribution. The remaining unfunded balance is to be contributed from time-to-time to fund operating deficits. As of the date of the amended and Restated Partnership Agreement, the Existing Partners contributed shortfall loans of $1,232,516, additional shortfall loans of $3,295,259, and accrued interest payable thereon of $2,331,831 to the Partnership. They also caused to be discharged $813,404 of amounts payable to TWC Eleven, Ltd. (an Existing Partner) and paid $140,000 of accrued interest payable and $12,325 of accrued expenses on behalf of TWC Ten, Ltd. Profits (losses) are allocated based on the provisions of the Amended and Restated Partnership Agreement. Profits are allocated 20% to the Existing Partners and 80% to TSG until TSG has received an annual return of 12% on the average amount of their unrecovered capital. Once TSG has received 12% return on the average amount of their unrecovered capital, profits are to be allocated 50% to the Existing Partners and 50% to the Existing Partners and 50% to TSG. Losses are allocated 100% to TSG to the extent of TSG's adjusted capital account. Thereafter, losses are allocated 50% to the Existing Partners and 50% to TSG. The Amended Restated Partnership also includes a provision whereby TSG is to receive guaranteed payments on the amount of TSG's unrecovered capital. TSG's unrecovered capital is 6% for the two years, beginning with the year ended December 31, 1993. The return on capital is 8.5% thereafter. Guaranteed payments made to TSG were $680,072, $554,039 and $431,436 for the years ended December 31, 1996, 1995 and 1994, respectively. Use of Estimates - The Partnership's records are maintained on the accrual basis of accounting for financial reporting and tax purposes. The preparation of the 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 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 Equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, and cash on deposit and short-term investments with original maturities of less than 90 days. Real Estate and Improvements - Real estate and improvements are recorded at cost less accumulated depreciation and amortization. Cost includes land and improvements, direct construction costs, indirect project costs and carrying costs including real estate taxes and interest incurred during the construction period. Depreciation and amortization is computed on the straight-line basis over the estimated useful lives of the assets: building and building improvements, 15 to 40 years; leasehold improvements, primarily over the lives of the related leases, which is 3 to 15 years. At least annually, and more often if circumstances dictate, the Partnership evaluates the recoverability of the net carrying value of its real estate. As part of this evaluation, the fair values of each of the properties are estimated (in some cases with the assistance of outside real estate consultants) based on discounted cash flows. The fair values are compared to the properties' carrying amounts in the financial statements. A deficiency in fair value relative to carrying amount is an indication of the need for a writedown due to impairment. In such case, the expected future net cash flows from the property are estimated for a period of approximately five years, 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, 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 costs, inflation, and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition my differ materially from the net carrying value as of December 31, 1996. The cash flows used to determine fair value and net realizable value are based on good faith estimates and assumptions developed by the 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 write-downs which could be material in subsequent years if real estate markets or local economic conditions change. Rental Revenues and Rents Receivable - Rental revenues and rents receivable are recorded in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases," whereby rental revenue is recognized on a straight-line basis by totalling all rents due under the lease, including fixed increases, and dividing by total months of occupancy, including free rent periods. Deferred Lease Commissions - Deferred lease commissions are amortized on a straight-line basis over the lives of the related leases. Organizational Costs - Organizational costs relate to the costs of establishing the Partnership and are amortized on a straight-line basis over 5 years. Deferred Loan Costs - Deferred loan costs related to the construction financing are included in the cost of the building and are amortized on a straight-line basis over the life of the building. Deferred loan costs related to the mortgage payable are being amortized on a straight-line basis over the life of the mortgage. Income Taxes - No income taxes have been provided for in these financial statements as any such taxes, or benefits, are recognized by the individual partners. Fair Value of Financial Instruments - The estimated fair value of amounts reported in the financial statements have been determined by using available market information and appropriate valuation methodologies. The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature. The fair value of long-term debt approximates the carrying value. 2. REAL ESTATE AND IMPROVEMENTS Real estate and improvements at December 31, 1996 and 1995 consists of the following:
1996 1995 Building and improvements $26,838,927 $26,031,100 Land and improvements 3,013,137 3,013,100 29,852,064 29,044,200 Less accumulated depreciation and amortization (10,496,484) (9,257,615) $19,355,580 $19,786,585
Depreciation and amortization expense on real estate and improvements was $1,234,406, $1,170,130 and $1,117,892 for the years ended December 31, 1996, 1995 and 1994, respectively. 3. MORTGAGE NOTE PAYABLE The mortgage note payable, which was refinanced on July 19, 1993, bears interest payable monthly at 8.5%. The mortgage note payable is secured by substantially all real estate and improvements, rents, leases and profits and is due on September 1, 1999. Prior to the refinancing, the mortgage note carried interest at 11.75%. There are no principal payments required to be made on the refinanced mortgage note until the maturity date of September 1, 1999. 4. LEASE COMMITMENTS Tenant leases specify minimum rentals and, in some cases, annual fixed increases. Lease terms range from 3 to 5 years. Future minimum rental receipts due to succeeding fiscal years under noncancelable operating leases are as follows:
Year Amount 1997 $ 4,624,179 1998 4,139,969 1999 3,389,252 2000 2,164,057 Thereafter 3,760,033 Total $18,077,490
5. RELATED PARTY TRANSACTIONS Interest on shortfall loans was compounded monthly at a rate of prime plus 1% (9.25% at December 31, 1996) until the Partnership Agreement was amended and restated on July 19, 1993. At that time, accrued interest of $2,331,831 was contributed to the Partnership as part of the Existing Partners' additional capital contribution. In December 1988, TWC Eleven, Ltd. paid $829,771 of accrued interest and principal in additional shortfall loans on the Partnership's behalf. The $829,711 was reflected on the Partnership's balance sheet as due to TWC Eleven, Ltd. until July 18, 1993 when $813,404 was contributed to the Partnership as part of the Existing Partners' additional capital contribution. On July 19, 1993, as part of the Amended and Restated Partnership Agreement, the management agreement was amended whereby the Wilson Management Company will receive 3% of all rental revenue collected, a 4% lease-up fee for all new leases, and monthly reimbursement of $875 for office expenses. Management and lease-up fees were approximately $176,732 in 1996, $346,400 in 1995 and $227,400 in 1994. The Wilson Management Company was also reimbursed approximately $151,834, $92,300 and $92,500 in 1996, 1995 and 1994, respectively, primarily for salary costs incurred on behalf of the Partnership. On August 1, 1993, the Wilson Management Company renewed its 10,806 square-foot lease for five years beginning March 1, 1994. The new lease requires monthly payments of $16,209 until February 28, 1999. Rental revenues earned under this lease agreement were approximately $219,574 in 1996, $195,000 in 1995 and $196,000 in 1994. The Amended and Restated Partnership Agreement as of July 19, 1993 requires the Partnership to pay guarantee payments to TSG equaling 6% to TSG's unrecovered capital for two years, beginning with the year ended December 31, 1993 and 8.5% thereafter. Guaranteed payments to the TSG for 1996, 1995 and 1994 totaled $680,072, $554,039 and $431,436, respectively. Solutions, Inc., an affiliate of The Wilson Company, performed construction work, primarily tenant improvements, on a cost-plus basis totaling approximately $257,051 in 1996, $407,035 in 1995 and $775,687 in 1994. Certain amounts of these improvements were reimbursed to the Partnership by tenants. The Wilson Construction Company, an affiliate of The Wilson Company, performed construction work on the base of the office building totaling $1,092 and $257,845 during 1995 and 1994, respectively. There was no work performed by the Wilson Construction Company during the year ended December 31, 1996. EX-27 3
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 DEC-31-1996 DEC-31-1996 10,273,472 0 1,661,039 0 0 0 0 0 12,253,161 0 0 0 0 0 10,514,359 12,253,161 0 76,022,162 0 0 14,897,843 0 2,567,985 58,556,334 0 58,556,334 0 0 0 58,556,334 744.64 0 In addition to cash and receivables, total assets include net deferred expenses of $204,832 and other assets of $113,818. Represents partners' capital. Liabilities include investments in unconsolidated partnerships of $1,186,283 and accounts payable and other liabilities of $552,519. Total revenue includes hotel operating revenue of $17,934,369, gain on sale of real estate of $41,992,437, gain on sale of partnership interest of $15,769,942 and interest and other revenue of $325,414. Represents net loss per Unit of limited partnership interest.
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