ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Income Partnership I, L.P. (the "Partnership"), is a limited partnership formed in August 1983 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing primarily in income-producing office, industrial and retail properties.
The Managing General Partner of the Partnership is Dean Witter Realty Income Properties I Inc. (the "Managing General Partner"), a Delaware corporation which is wholly owned by Dean Witter Realty Inc. ("Realty"). The Associate General Partner is Dean Witter Realty Income Associates I, L.P. (the "Associate General Partner"), a Delaware limited partnership, the general partner of which is Dean Witter Realty Income Associates I Inc., a wholly-owned subsidiary of the Managing General Partner. The Managing General Partner manages and controls all aspects of the business of the Partnership. The terms of transactions between the Partnership and its affiliates are set forth below in footnote 8 to the Consolidated Financial Statements in Item 8 and in Item 13 below.
The Partnership issued 92,780 units of limited partnership interest (the "Units") with gross proceeds from the offering of $92,780,000. The offering has been terminated and no additional Units will be sold.
The proceeds from the offering were used to make equity investments in four office properties, two office/research and development properties and one retail property which were acquired without mortgage debt. One office property was sold in each of fiscal years 1996 and 1997 and one office/research and development property was sold in fiscal year 1997. Subsequent to fiscal year-end 1997, one office building and the remaining office/research and development property were sold. The properties are described in Item 2
ITEM 2. PROPERTIES
The Partnership's principal offices are located at Two World Trade Center, New York, New York 10048. The Partnership has no other offices.
As of October 31, 1997, the Partnership owned directly or through a partnership interest the following four property interests, none of which is encumbered by mortgage debt. Generally, the leases pertaining to the properties provide for pass-throughs to the tenants of their pro-rata share of certain operating expenses. In the opinion of the Managing General Partner, all of the properties are adequately covered by insurance.
Each property was built with on-site parking facilities.
In fiscal 1997, the Partnership sold the three office/research and development buildings comprising the Arlington Business Center in Arlington Heights, Il. and the Century Square joint venture, in which the Partnership has a 25% interest, sold its office building in Pasadena, CA.
An affiliate of the Partnership is the property manager for the North Lake Plaza, Westwood 10 and Carmel Park properties.
Further information relating to the Partnership's properties is included in Item 7 and footnotes 4, 5 and 6 to the Consolidated Financial Statements in Item 8 below.
ITEM 3.
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.
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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
An established public trading market for the Units does not exist, and it is not anticipated that such a market will develop in the future. Accordingly, information as to the market value of a Unit at any given date is not available. However, the Partnership does allow its limited partners (the "Limited Partners") to transfer their units if a suitable buyer can be located.
As of January 5, 1998 there were 13,608 holders of limited partnership interests.
The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make quarterly distributions of cash to its partners. Pursuant to the partnership agreement, distributable cash, as defined, is paid 90% to the Limited Partners and 10% to the general partners (the "General Partners").
The Partnership paid cash distributions during the year ended October 31, 1997 aggregating $144.61 per Unit (including $110.05 per Unit from proceeds from the sale of the Century Square property, which was paid 100% to the Limited Partners). The total distributions aggregated $13,773,673 with $13,417,293 distributed to the Limited Partners and $356,380 to the General Partners. For the year ended October 31, 1996, the Partnership paid cash distributions aggregating $42.28 per Unit (including $12.28 per Unit from proceeds from the sale of the 1718 Connecticut Avenue property, which was paid 100% to the Limited Partners). The total distribution aggregated $4,232,069 with $3,922,805 distributed to the Limited Partners and $309,264 to the General Partners.
On November 25, 1997, the Partnership paid a cash distribution of $7.72 per Unit. The distribution totaled $795,846 with $716,262 distributed to the Limited Partners and $79,584 distributed to the General Partners.
On November 26, 1997, the Partnership distributed approximately $4,538,000 ($48.91 per Unit), the net sale proceeds from the sale of the Arlington property. The distribution was paid 100% to the Limited Partners.
On December 29, 1997, the Partnership distributed approximately $26,065,000 ($280.93 per Unit), the net sale proceeds from the sale of the Carmel Park and Westwood 10 properties. The distribution was paid 100% to the Limited Partners.
The Partnership anticipates making regular distributions to its partners in the future. Future cash distribution levels will fluctuate based on cash flow generated by the Partnership's remaining properties and proceeds received from property sales.
Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution plus cumulative distributions of distributable cash and sale or financing proceeds in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee, if earned, of up to 3% of the selling price of any equity investment.
Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds (except that the General Partners must be allocated at least 1% of taxable income from sales or financings). In the event there is no distributable cash or sale or financing proceeds, taxable income will be allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial data for the Partnership:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership raised $92,780,000 in a public offering which was terminated in 1984. The Partnership has no plans to raise additional capital.
The Partnership purchased six properties and made one investment in the partnership which owned the Century Square property on an all-cash basis. The Partnership's acquisition program has been completed. No additional investments are planned
The 1718 Connecticut property was sold in fiscal 1996. The Century Square and Arlington Business Center properties were sold in fiscal 1997, and the Carmel Park and Westwood 10 properties were sold subsequent to fiscal year-end. See Notes 4, 5 and 6 to the Consolidated Financial Statements.
Employment growth, especially in the business services and technology industries, has increased demand for space in many office markets. Such increasing demand and the limited amount of speculative construction has resulted in falling vacancies, rising rents and increasing property values in many markets. Some office markets are faring better than others and, in certain areas, improved market conditions can support construction. In 1997, vacancy in the SouthBay area of the Los Angeles office market, the location of Harborgate, improved slightly to 20% due to tenant influx caused by limited leasing options in surrounding markets. In the retail sector, consolidation among retailers continued to lessen the demand for retail space. The abundance of available retail space and sub-lease space offered by retailers (usually at lower rents) has exerted downward pressure on rents in many markets. Despite the oversupply of retail space, new projects are being built, although the pace of new construction has slowed considerably. Many outdated properties are being redeveloped in order to compete with newer retail properties. Although North Lake Plaza is located in a strong retail market (Altamonte Springs which is near Orlando, Florida), the property's vacancy rate is currently 21%.
The Partnership's liquidity depends on cash flow from operations of its properties and expenditures for building improvements and tenant improvements and leasing commissions in connection with the leasing of space. During the year ended October 31, 1997, all of the Partnership's properties generated positive cash flow from operations, and it is anticipated that the Partnership's remaining two properties will continue to generate positive cash flow from operations in 1998.
In addition, the Partnership's liquidity has been and will continue to be affected by sales of the Partnership's properties; as the properties are sold, the Partnership has fewer income-producing investments, Partnership cash from operations decreases and Partnership distributions will decline. During the year October 31, 1997, Partnership cash flow from operations decreased compared to 1996 by approximately $416,000 due to the absence of cash flows from the 1718 Connecticut Avenue property subsequent to its sale in June 1996. Partnership cash flow from operations also decreased in 1997 compared to 1996 as a result of the sale of the Century Square building; the Partnership's operating cash flow from the Century Square joint venture was approximately $977,000 and $466,000 in fiscal years 1996 and 1997, respectively. Because of the decrease in operating cash flow caused by the sale of the Century Square building, the Partnership decreased its quarterly cash distribution from $8.95 per Unit to $7.72 per Unit beginning with the third quarter distribution paid in August 1997.
During 1998, Partnership cash flow from operations will decrease further because of the sales of the Arlington Business Center, Carmel Park and Westwood 10 properties in October and December 1997. The Partnership's aggregate operating cash flows from the Arlington Business Center, Carmel Park and Westood 10 properties was approximately $3.1 million in 1997. Future cash distribution levels will fluctuate based on cash flow generated by the Partnership's remaining properties and proceeds received from property sales.
The Managing General Partner believes that, barring a change in circumstances, it will market the Harborgate and North Lake Plaza properties for sale in fiscal year 1998. However, there can be no assurance that either property will be sold.
During the year ended October 31, 1997, the Partnership incurred capital expenditures of $387,000, primarily in connection with the leasing of space at the Carmel Park and Westwood 10 properties. During the year ended October 31, 1997, the Partnership's capital expenditures and distributions to partners (excluding distribution of sales proceeds from the joint venture) exceeded its cash flow from operations and distributions received from operations of its joint venture. These deficiencies and the November 1996 payment of deferred distributions to the General Partners were funded from Partnership cash reserves which the Managing General Partner determined were in excess of the Partnership's needs.
As of October 31, 1997, the Partnership had commitments to fund approximamtely $340,000 of capital expenditures, primarily relating to the Westwood 10 property.
In 1998, the Partnership expects that cash flow from operations will exceed distributions to Limited Partners (other than distribuitons of net proceeds from property sales); the Partnership expects to fund a portion of capital expenditures from cash reserves.
On November 25, 1997, the Partnership paid the fourth quarter cash distribution of $7.72 per Unit. The total distribution aggregated $795,846 with $716,262 distributed to the Limited Partners and $79,584 distributed to the General Partners.
On November 26, 1997, the Partnership distributed approximately $4,538,000 ($48.91 per Unit), the net sale proceeds from the sale of the Arlington property. The distribution was paid 100% to the Limited Partners.
On December 29, 1997, the Partnership distributed approximately $26,065,000 ($280.93 per Unit), the net sale proceeds from the sale of the Carmel Park and Westwood 10 properties. The distribution was paid 100% to the Limited Partners.
Except as discussed above and in the consolidated financial statements, the Managing General Partner is not aware of any trends or events, commitments or uncertanities that may have a material impact on liquidity.
Operations
Fluctuations in the Partnership's operating results for the year ended October 31, 1997 compared to 1996 and the year ended October 31, 1996 compared to 1995 were primarily attributable to the following:
Rental revenues and property operating expenses decreased in 1997 primarily because of the absence of revenues and costs from the 1718 Connecticut Avenue property, which was sold in June 1996. See Note 4 to the consolidated financial statements.
The gains on sales of real estate resulted from the sale of the Arlington Business Center and 1718 Connecticut Avenue properties in 1997 and 1996, respectively. See Note 4 to the consolidated financial statements.
Equity in earnings of joint venture increased in 1997 compared to 1996 as a result of the Partnership's share (approximately $2.2 million) of the gain from the sale of the Century Square office building.
Interest and other revenue decreased in 1996 compared to 1995 primarily due to tenant reimbursements for certain expenses by tenants at Arlington Business Center in 1995.
Depreciation and amortization decreased in 1997 compared to 1996 and 1996 compared to 1995 by approximately $252,000 and $405,000 respectively, because of the impairment writedown for the Westwood 10, Northlake Plaza and Carmel Park properties recorded at the end of the first quarter of 1996. Depreciation and amortization also decreased in 1997 by approximately $154,000 due to the sale of the 1718 Connecticut Avenue property. No other individual significant factors account for the remaining decreases in 1997 and 1996.
In June 1996, the Partnership repaid its loan from affiliate; therefore, in 1997, the Partnership incurred no interest expense and its interest expense decreased in 1996 compared to 1995.
In the first quarter of fiscal 1996, the Partnership recorded losses on impairment of the Westwood 10, 1718 Connecticut, North Lake Plaza and Carmel Park properties totaling $8,510,000.
In 1997, no individual factor accounted for a significant change in interest and other revenues and general and administrative expenses. In 1996, no individual factor accounted for a signifcant change in rental revenue, equity in earnings of joint venture, property operating expenses and general and administrative expenses.
A summary of the markets where the Partnership's properties are located and the performance of each property is as follows:
In 1997, the vacancy rate in the office market in the SouthBay area of Los Angeles, California, the location of Harborgate, has decreased to approximately 20% (a 6% improvement from the end of 1996), and market rental rates have stablized. During 1997, average occupancy at the property was approximately 66%, and at October 31, 1997, occupancy at the property was approximately 59% compared to 91% at the prior year-end. Occupancy fell in 1997 because U.S. Sprint exercised a termination option on approximately 33% of the property's space effective December 31, 1996. The lease for U.S. Sprint's remaining space at the property (for approximately 19% of the property's space) expires in 2000; however, U.S. Sprint has an option to terminate its lease on this space in 1998. The property is leased to 11 other tenants, no other tenants occupy more than 10% of the property's space. No other significant amounts of space are scheduled to expire before 2000.
Arlington Business Center, a research and development building, is located in Arlington Heights, Illinois. In 1997, the vacancy rate in this market decreased to approximamtely 11% (a 3% improvement from the end of 1996) and market rental rates increased slightly. During 1997, average occupancy at the property was 100% (a 1% improvement from 1996). In October 1997, the Partnership sold this property. See note 4 to the consolidated financial statements.
In 1997, the vacancy rate for the research and development building market in Westwood, Massachusetts, the location of the Westwood 10 building, remained at approximately 15%; however rental rates in this market increased slightly. During 1997, and at October 31, 1997, occupancy at the property was 100% (a 9% improvement from 1996). In December 1997, the Partnership sold this property. See Note 5 to the consolidated financial statements.
During 1997, the vacancy rate in the Charlotte, North Carolina office market, the location of the Carmel Park property, increased significantly to 12% due to the completion of new construction in this market. Contemporaneously, market rental rates have stablized. During 1997, average occupancy at the property remained at 99%. In December 1997, the Partnership sold this property. See Note 5 to the consolidated financial statements.
Altamonte Springs, Florida, the location of the North Lake Plaza Shopping Center, is a strong retail market. During 1997, vacancy in this market decreased slightly from 8% to 7%, and market rental rates continue to be stable. During 1997, and at October 31, 1997, occupancy at the property was 79% (a decrease of 1% from October 31, 1996). Development of nearby office projects and the scheduled expansion of North Lake Boulevard (which borders the shopping center) are anticipated to increase traffic at the property. The lease for Home Depot (for approximately 50% of the property's space) which was scheduled to expire in 1998 has been renewed for a five-year period. Home Depot will continue to sub-lease its space to Burlington Coat Factory during the new lease term, but will remain obligated to pay rent under the new lease. The lease of Marshalls Inc., (for approximately 21% of the space) is scheduled to expire in 2002. The property is leased to 6 other tenants; no other tenant occupies more than 10% of the property's space.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
INDEX
Page
(a) Financial Statements
Independent Auditors' Report 16 Consolidated Balance Sheets at October 31, 1997 and 1996 Consolidated Statements of Operations for the years ended October 31, 1997, 1996 and 1995 18 Consolidated Statements of Partners' Capital for the years ended October 31, 1997, 1996 and 1995 19 Consolidated Statements of Cash Flows for the years ended October 31, 1997, 1996 and 1995 20-21 Notes to Consolidated Financial Statements 22-32
(b) Financial statement schedule
Real Estate and Accumulated Depreciation III 39-40
__________ All schedules other than those indicated above have been omitted because either the required information is not applicable or the information is shown in the consolidated financial statements or notes thereto.
Independent Auditors' Report
To the Partners of Dean Witter Realty Income Partnership I, L.P.:
We have audited the accompanying consolidated balance sheets of Dean Witter Realty Income Partnership I, L.P. and consolidated partnership (together,the "Partnership") as of October 31, 1997 and 1996, and the related consolidated statements of operations, partners' capital and cash flows for each of the three years in the period ended October 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dean Witter Realty Income Partnership I, L.P. and consolidated partnership as of October 31, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP
New York, New York January 16, 1998
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
1. The Partnership
Dean Witter Realty Income Partnership I, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware in 1983. The Partnership is managed by Dean Witter Realty Income Properties I Inc. (the "Managing General Partner"). The Partnership's fiscal year ends on October 31.
In 1984, the Partnership issued 92,780 units of limited partnership interest (the "Units") for $92,780,000. No additional Units will be sold. The proceeds of the offering were used to make equity investments in income-producing office, industrial and retail properties which were not encumbered by debt when acquired.
2. Summary of Significant Accounting Policies
The financial statements include the accounts of the Partnership and, prior to 1997, 1718 Connecticut, Ltd. on a consolidated basis. In 1996, 1718 Connecticut Ltd. sold its sole property, and is currently inactive.
The Partnership's 25% interest in the Century Square property (which was sold in fiscal 1997) was accounted for on the equity method.
The Partnership's records are maintained on the accrual basis of accounting for financial reporting and tax purposes. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method. The Partnership stops depreciating its properties after it reclassifies them to real estate held for sale.
At least annually, and more often if circumstances dictate, the Partnership evaluates the recoverability of the net carrying value of its real estate and any related assets. As part of this evaluation, the Partnership assesses, among other things, whether there has been a significant decrease in the market value of any of its properties. If events or circumstances indicate that the net carrying value of a property may not be recoverable, the expected future net cash flows from the property are estimated for a period of approximately five years (or a shorter period if the Partnership expects that the property may be disposed of sooner), along with estimated sales proceeds at the end of the period. If the total of these future undiscounted cash flows were less than the carrying amount of the property, the property would be written down to its fair value as determined (in some cases with the assistance of outside real estate consultants) based on discounted cash flows, and a loss on impairment recognized by a charge to earnings. The Partnership's accounting policy complies with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of".
Because the determination of fair value is based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying value as of October 31, 1997. The cash flows used to evaluate the recoverability of the properties and to determine fair value are based on good faith estimates and assumptions developed by the Managing General Partner. Unanticipated events and circumstances may occur and some assumptions
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
may not materialize; therefore, actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs which could be material in subsequent years if real estate markets or local economic conditions change.
Deferred leasing commissions are amortized over the applicable lease terms.
Rental income is accrued on a straight-line basis over the terms of the leases. Accruals in excess of amounts payable by tenants pursuant to their leases (resulting from rent concessions or rents which periodically increase over the term of a lease) are recorded as receivables and included in other assets.
Net income (loss) per Unit amounts are calculated by dividing net income (loss) allocated to Limited Partners, in accordance with the Partnership Agreement, by the weighted average number of Units outstanding.
No provision for income taxes has been made in the financial statements, since the liability for such taxes is that of the partners rather than the Partnership.
For income tax purposes, Partnership results are reported for the calendar year. The accounting policies used for tax reporting purposes differ from those used for financial reporting as follows:(a) depreciation is calculated using accelerated methods, (b) rental income is recognized based on the payment terms in the applicable leases, and (c) writedowns for impairment of real estate are not deductible. In addition, offering costs are treated differently for tax and financial reporting purposes. The tax basis of the Partnership's assets and liabilities is approximately $10.0 million higher than the amounts reported for financial statement purposes.
The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 128, "Earnings per
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
Share" established standards for computing and presenting earnings per share, and Statement No. 129, "Disclosure of Information about Capital Structure" establishes standards for disclosing information about an entity's capital structure. These two standards will be effective for the Partnership's 1998 year-end financial statements. Statement No. 130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components. Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related discloure about products and services, geographic areas, and major customers. These two standards are effective for the Partnership's 1999 financial statements.
Management of the Partnership does not believe that these new standards will have any effect on the Partnership's computation or presentation of net income or net income per Unit, or its disclosures of capital structure, or other disclosures.
3. Partnership Agreement
The Partnership Agreement provides that distributable cash, as defined, will be paid 90% to the Limited Partners and 10% to the General Partners.
Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution, plus cumulative distributions of distributable cash and sale or financing proceeds, in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
General Partner receives a brokerage fee, if earned, of up to 3% of the selling price of any equity investment.
Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds (except that the General Partners must be allocated at least 1% of taxable income from sales or financings). In the event there is no distributable cash or sale or financing proceeds, taxable income will be allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners.
All distributions paid to Limited Partners during the years ended October 31, 1997, 1996 and 1995 are considered to be a return of capital (cash distributed per Unit in excess of accumulated earnings per Unit not previously distributed).
4. Real Estate Investments
The locations, years of acquisition and net carrying values of the properties are as follows:
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
On June 24, 1996, the Partnership sold the 1718 Connecticut property to an unaffiliated party for a sales price of approximately $5.1 million (net of closing costs). The Partnership recognized a gain on this sale of approximatley $683,000, which was allocated 100% to the Limited Parters in accordance with the Partnership Agreement.
On October 10, 1997, the Partnership sold the Arlington Business Center property to an unaffiliated party for a negotiated sale price of approximately $5.2 million. The Partnership recognized a gain on this sale of approximately $1,471,000, which was allocated 100% to the Limited Partners in accordance with the Partnership Agreement. On November 26, 1997, the Partnership distributed approximately $4,538,000 ($48.91 per Unit), the net proceeds from the sale of the Arlington property. The distribution was paid 100% to the Limited Partners.
The net carrying value of the Westwood 10 and Carmel Park properties have been reclassified to real estate held for sale at October 31, 1997. See note 5.
In the first quarter of fiscal 1996, in accordance with the impairment evaluation policy described in Note 2, the Partnership evaluated the recoverability of its investments in real estate and concluded that, based on revised expectations as to the holding periods of the properties, the Partnership would be unable to recover its investments in the Westwood 10, 1718 Connecticut, Northlake Plaza and Carmel Park properties. Accordingly, the Partnership wrote these properties down to their estimated fair values (based on independent appraisals) and recorded losses on impairment of totaling $8,510,000.
5. Real Estate Held for Sale
In October and November 1997, the Partnership entered into agreements with two unaffiliated parties to sell the land and buildings which comprise the Westwood 10 and Carmel Park properties, respectively.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
The closing of the sale of the Carmel Park property, for a sale price of approximately $17.7 milion, took place on December 8, 1997. The carrying value of the property at October 31, 1997 was approximately $10.4 million. At closing, the Partnership received proceeds of approximately $17.2 million, net of closing costs and other deductions.
The closing of the sale of the Westwood 10 property, for a sale price of approximately $9.4 million, took place on December 23, 1997. The carrying value of the property at October 31, 1997 was approximately $5.4 million. At closing the Partnership received proceeds of approximately $8.8 million, net of closing costs and other deductions.
On December 29, 1997, the Partnership distributed approximately $26,065,000 ($280.93 per Unit), the net sale proceeds from the sale of the Carmel Park and Westwood 10 properties. The distribution was paid 100% to the Limited Partners.
6. Investment in Joint Venture
Century Square, Pasadena, California
In 1985, the Partnership purchased, for $9.7 million, a 25% general partnership interest in the partnership (the "Joint Venture") which owned the property, an office building. An affiliate of the Partnership, Dean Witter Realty Income Partnership II, L.P., purchased the remaining 75% general partnership interest. Cash flow and profits and losses were allocated to the Partnership and the affiliate according to their interests in the Joint Venture.
On April 10, 1997, the Joint Venture sold the property to an unaffiliated party for $41,500,000 ($40,800,000, net of closing costs). The Partnership's share of the net sales proceeds was approximately $10.2 million. The Partnership's share of the gain on sale was approximately $2.2 million, which was allocated 100% to the Limited Partners in accordance with the Partnership Agreement.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
Summarized balance sheet information of the Joint Venture as of October 31, 1996 was as follows:
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
Activity in the Partnership's Investment in Joint Venture is as follows:
The accounting policies of the Joint Venture are the same as those of the Partnership.
7. Leases
Minimum future rental income under noncancellable operating leases as of October 31, 1997 (excluding leases of space at properties held for sale) is as follows:
Year ending October 31: 1998 $1,135,935 1999 1,143,146 2000 1,062,903 2001 691,912 2002 477,783 Thereafter 111,394
Total $ 4,623,073
The Partnership has determined that all leases relating to its properties are operating leases. The lease terms range from three to ten years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
8. Related Party Transactions
An affiliate of the Managing General Partner provided property management services for five properties in 1997, 1996 and 1995. The Partnership paid the affiliate management fees (included in property operating expenses) of $191,427, $225,800 and $186,538 for the years ended October 31, 1997, 1996 and 1995, respectively.
Another affiliate of the Managing General Partner performs administrative functions and processes certain investor and tax information on behalf of the Partnership. In 1997, 1996 and 1995 the affiliate was reimbursed $240,043, $259,076 and $247,518, respectively (included in general and administrative expenses) for these services.
As of October 31, 1997, the affiliates were owed approximately $36,000 for these services.
Prior to 1990, the Partnership borrowed funds from an affiliate of the Managing General Partner to fund the cost of tenant improvements, capital expenditures and other Partnership expenditures. The loan bore interest at the prime rate. In June 1996, the loan was repaid with a portion of the proceeds from the sale of the 1718 Connecticut Avenue property. Interest expense amounted to $218,159 and $342,221 in 1996 and 1995, respectively.
Through January 31, 1995, the General Partners deferred receipt of an aggregate amount of $2,467,674 of distributions to which they were entitled, including distributions of $38,658 for the year ended October 31, 1995; amounts deferred were charged against partners' capital and recorded as liabilities to the General Partner. Beginning with the February 28, 1995 distribution, the General Partners began to receive their distributions currently. In September 1996, the Partnership paid $1,233,837 of deferred distributions, and, in November 1996, paid the remaining deferred distributions to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Notes to Consolidated Financial Statements
9. Litigation
Various public partnerships sponsored by Dean Witter Realty Inc. (including the Partnership and its Managing General Partner) are defendants in a number of class action lawsuits pending in state and federal courts. The complaints allege a number of claims, including breach of fiduciary duty, fraud, misrepresentation and related claims, and seek compensatory and other damages and equitable relief. The defendants intend to vigorously defend these actions. It is impossible to predict the effect, if any, the outcome of these actions might have on the Partnership's financial statements.
10. Subsequent Distribution
On November 25, 1997, the Partnership paid a cash distribution of $7.72 per Unit. The distribution totaled $795,846 with $716,262 distributed to the Limited Partners and $79,584 distributed to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership is a limited partnership which has no directors or officers.
The directors and executive officers of the Managing General Partner are as follows: Position with the Name Managing General Partner
William B. Smith Chairman of the Board of Directors E. Davisson Hardman, Jr. President and Director Lawrence Volpe Controller and Director Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the next annual meeting of the shareholder of the Managing General Partner or until their successors are elected and qualify. Each of the executive officers has been elected to serve until his successor is elected and qualifies.
William B. Smith, age 54, has been a Managing Director of Morgan Stanley and co-head of Morgan Stanley Realty Incorporated since 1997, and a Managing Director of Dean Witter Realty Inc., which he joined in 1982. He is an Executive Vice President of Dean Witter Reynolds, Inc.
E. Davisson Hardman, Jr., age 48, has been a Managing Director of Morgan Stanley Asia, Ltd. since 1997, and is a Managing Director of Dean Witter Realty Inc., which he joined in 1982.
Lawrence Volpe, age 50, 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. DEAN WITTER REALTY INCOME PARNTERSHIP I, L.P.
Ronald T. Carman, age 46, is a Director and the Secretary of Dean Witter Realty, Inc. He is an Assistant Secretary of MWD and a Senior Vice President and Associate General Counsel of Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing persons.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash distributions, when and as cash distributions are made to the Limited Partners, and a share of taxable income or tax loss. Descriptions of such distributions and allocations are in Item 5 above. At October 31, 1995, the General Partners had deferred receipt of a total of $2,467,674 of cash distributions to which they were entitled, including $38,658 for the year ended October 31, 1995. The General Partners receive their share of cash distributions currently, beginning with the distribution made in February 1995, and received cash distributions of $356,380, $309,264 and $154,632 in fiscal years 1997, 1996 and 1995, respectively. In September 1996, the Partnership paid $1,233,837 of deferred distributions to the General Partners, and, in November 1996, paid the remaining deferred distributions.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 8 to the Consolidated Financial Statements in Item 8 above.
The directors and officers of the Partnership's Managing General Partner received no remuneration from the Partnership.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) No person is known to the Partnership to be the beneficial owner of more than five percent of the Units.
(b) The directors and executive officers of the Managing General Partner own the following Units as of January 1, 1998: DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
(1) (2) (3) Amount and Title of Name of Nature of Class Beneficial Owner Benneficial Ownership Limited All directors and executive * Partnership officers of Managing General Interests Partner, as a group
*Own, by virtue of their ownership of Limited Partnership interests in the Associate General Partner, less than 1% of the Units of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their being partners of a limited partnership which is the limited partner of the Associate General Partner, certain current and former officers and directors of the Managing General Partner also own indirect general partnership interests in the Partnership. The Partnership Agreement of the Partnership provides that cash distributions and allocations of income and loss to the General Partners be distributed or allocated 50% to the Managing General Partner and 50% to the Associate General Partner. The General Partners' share of cash distributions and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the Managing General Partner are owned by Realty, a Delaware corporation which is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The general partner of the Associate General Partner is Dean Witter Realty Income Associates I Inc., which is a wholly-owned subsidiary of the Managing General Partner. The limited partner of the Associate General Partner is LSA 84 L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of Realty are partners of LSA 84 L.P. Additional information with respect to the directors and executive officers and compensation of the Managing General Partner and affiliates is contained in Items 10 and 11 above. DEAN WITTER INCOME PARTNERSHIP I, L.P.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 8 to the Consolidated Financial Statements in Item 8 above. The Partnership believes that the payment of fees and the reimbursement of expenses to the General Partners and their affiliates are on terms as favorable as would be obtained from unrelated third parties.
Prior to 1990, the Partnership borrowed funds from an affiliate of the Managing General Partner to fund the cost of tenant improvements, capital expenditures and other Partnership expenditures. The loan bore interest at the prime rate. During the first quarter of 1996, the Partnership and the affiliate amended and restated the Partnership's borrowing relationship. The Partnership agreed to repay all outstanding amounts borrowed from the affiliate no later than October 31, 1997. Advances to the Partnership under the Partnership's line of credit were capped at $4,500,000. In June 1996, the loan was repaid with a portion of the proceeds from the sale of the 1718 Connecticut Avenue property.
Through January 31, 1995, the General Partners deferred receipt of an aggregate amount of $2,467,674 of distributions to which they are entitled, including distributions of $38,658 for the year ended October 31, 1995; amounts deferred were charged against partners' capital and recorded as liabilities to the General Partner. Beginning with the February 28, 1995 distribution, the General Partners began to receive their distributions currently. In September 1996, the Partnership paid $1,233,837 of deferred distributions, and, in November 1996, paid the remaining deferred distributions to the General Partners.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
2. Financial Statement Schedules (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
3. Exhibits (a) Amended and Restated Agreement of Limited Partnership dated as of August 15, 1983 set forth in Exhibit A to the Prospectus included in Registration Statement Number 286041 is incorporated herein by reference.
(b) Certificate of Limited Partnership included in Registration Statement Number 286041 is incorporated herein by reference. (4)(a) Amended and Restated Agreement of Limited Partnership dated as of August 15, 1983 set forth in Exhibit A to the Prospectus included in Registration Statement Number 286041 is incorporated herein by reference.
(b) Certificate of Limited Partnership included in Registration Statement Number 286041 is incorporated herein by reference.
(10)(a) Purchase and Sale Agreements for properties purchased were filed as Exhibits to Form 8-K on April 26, 1984, October 17, 1984, October 26, 1984, October 31, 1984, December 20, 1984, July 15, 1985 and October 29, 1985 and are incorporated herein by reference.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
(b) "Purchase Agreement" dated as of May 31, 1996 for sale of the 1718 Connecticut Avenue property was filed as an Exhibit to Form 8-K on June 24, 1996 and is incorporated herein by reference.
(c) "Purchase and Sale Agreement" dated as of February 28, 1997 for sale of the Century Square property was filed as an Exhibit to Form 8-K on April 10, 1997 and is incorporated herein by reference.
(d) "Purchase and Sale Agreement" dated as of September 8, 1997 for sale of the Arlington Business Center property was filed as an Exhibit to Form 8-K on October 10, 1997 and is incorporated herein by reference.
(e) "Purchase and Sale Agreement" dated as of November 10, 1997 for sale of the Carmel Park property and the related "First Amendment to Purchase and Sale Agreement" dated as of December 2, 1997 were filed as Exhibits to Form 8-K on December 8, 1997 and are incorporated herein by reference.
(f) "Purchase and Sale Agreement" dated as of October 30, 1997 for sale of the Westwood 10 property was filed as an Exhibit to Form 8-K on December 23, 1997 and is incorporated herein by reference.
(21) Subsidiary: 1718 Connecticut, Ltd., a District of Columbia limited partnership.
(27) Financial Data Schedule.
(b) A Form 8-K reporting the sale of the Arlington Business Center property was filed by the Partnership on October 10, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
By: Dean Witter Realty Income Properties I Inc. Managing General Partner
By: /s/E. Davisson Hardman, Jr. Date: January 27, 1998 E. Davisson Hardman, Jr. President
By: /s/Lawrence Volpe Date: January 27, 1998 Lawrence Volpe Controller (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
DEAN WITTER REALTY INCOME PROPERTIES I INC. Managing General Partner
/s/William B. Smith Date: January 27, 1 William B. Smith Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date: January 27, E. Davisson Hardman, Jr. Director
/s/Lawrence Volpe Date: January 27, 1 Lawrence Volpe Director
/s/Ronald T. Carman Date: January 27, 19 Ronald T. Carman Director
DEAN WITTER REALTY INCOME PARTNERSHIP I, L.P.
Year Ended October 31, 1997 Exhibit Index
Exhibit No.
27 Financial Data Schedule
E1