ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Income Partnership IV, L.P. (the "Partnership"), is a limited partnership formed in October 1986 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 Fourth Income Properties 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 IV, L.P. (the "Associate General Partner"), a Delaware limited partnership, the general partner of which is the Managing General Partner. The Managing General Partner manages and controls all aspects of the business of the Partnership. The terms of transactions between the Partnership and its affiliates are set forth below in Note 6 to the consolidated financial statements in Item 8 and in Item 13.
The Partnership issued 304,437 units of limited partnership interest (the "Units") for $152,218,500. The offering has been terminated and no additional Units will be sold.
The proceeds from the offering were used to make equity investments in four office properties. One investment was sold in 1996, one sold in 1997 and, in 1998, the Partnership entered into an agreement to sell a third investment. The properties are described below 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 December 31, 1997, the Partnership owned through partnership interests the following two property interests, none of which is encumbered by indebtedness. 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.
1. The remaining GP interests are owned by Dean Witter Realty Income Partnership III, L.P. (26.7%) and an affiliate of the Managing General Partner (32.1%). The total cost of the property was $121.3 million. Subsequent to year-end, the partnership which owns the property entered into an Agreement to sell the property. See Note 5 to the consolidated financial statements.
2. The remaining GP interests are owned by Dean Witter Realty Income Partnership II, L.P. (14.8%) and Dean Witter Realty Income Partnership III, L.P.(44.6%). The total cost of the property was $51.8 million.
Each property was built with on-site parking facilities.
On April 10, 1997, Lake Colorado Associates, L.P., in which the Partnership had a 56% general partnership interest, sold the Pasadena Financial Center property. See note 4 to the consolidated financial statements.
Affiliates of the Partnership are the property manager for Taxter Corporate Park and the co-property manager for five buildings at the Chesterbrook Corporate Center. Further information relating to the Partnership's properties is included below in Item 7 and footnotes 4, 5 and 6 to the consolidated financial statements included in Item 8.
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. The case was dismissed by stipulation of the parties dated March 6, 1997 and refiled and consolidated with the Consolidated Action (as defined below).
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 joined the Consolidated Action.
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 year to a vote of Unit holders.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
An established public trading market for the Units does not exist, and it is not anticipated that such a market will develop in the future. Accordingly, information as to the market value of a Unit at any given date is not available. However, the Partnership does allow its limited partners (the "Limited Partners") to transfer their Units if a suitable buyer can be located.
As of March, 17, 1998, therewere 16,788 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").
During the year ended December 31, 1997, the Partnership paid quarterly cash distributions aggregating $6,377,908, with $5,740,052 ($18.85 per Unit) distributed to the Limited Partners and $637,856 to the General Partners. In addition, the Partnership distributed $32,881,031 ($108.01 per Unit) and $14,737,795 ($48.41 per Unit) respectively, from its share of the net proceeds from the sales of the Technology Park Reston office park and Pasadena Financial Center. The sales proceeds distributions were paid 100% to Limited Partners. On August 28, 1997, the Partnership paid cash distribution from cash reserves aggregating $2,114,145 with $1,902,731 ($6.25 per Unit), distributed to the Limited Partners and $211,414 to the General Partners.
During the year ended December 31, 1996, the Partnership paid quarterly cash distributions aggregating $8,032,230, with $7,229,007 ($23.75 per Unit) distributed to Limited Partners and $803,223 to the General Partners.
On January 28, 1998, the Partnership paid the fourth quarter 1997 distribution of $1,238,044, with $1,114,240 ($3.66 per Unit) distributed to the Limited Partners and $123,804 to the General Partners.
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 refinancing 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 the sale or financing). 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:
1. Revenues and net income include $4.2 million gain on sale of Pasadena Financial Center.
2. Revenues and net income include $3.2 million gain on sale of Tech Park Reston office park.
3. Includes the Partnership's share ($16,027,387) of loss on impairment of the Chesterbrook property.
4. Includes loss on impairment of Pasadena Financial Center ($4,348,954, net of minority interest).
5. Includes the Partnership's share ($8,644,627) of loss on impairment of the Taxter property.
6. Distributions paid to Limited Partners include returns of capital per Unit of limited partnership interest of $181.52, $23.75, $20.00, $15.10 and $20.00 for the years ended December 31, 1997, 1996, 1995 and 1994 and 1993, respectively, calculated as the excess of cash distributed per Unit over accumulated earnings per Unit not previously distributed.
The above financial data should be read in conjunction with the consolidated financial statements in Item 8.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership raised $152,218,500 in a public offering of 304,437 units which was terminated in 1988. The Partnership has no plans to raise additional capital.
The Partnership made four investments in partnerships which own or owned interests in properties, on an all-cash basis. One of such partnerships sold its property interest in 1996, another sold its property interest in 1997, and a third entered into an agreement to sell its property interest in 1998. The Partnership's acquisition program has been completed. No additional investments are planned.
In 1997, limited speculative construction and the strong job growth, especially in the business services and technology industries, resulted in strong performance in the office sector. Tenant competition for a shrinking amount of office space had a positive influence on rental rates and lease terms. Favorable market fundamentals led to value appreciation as investors bid for office properties. Investors, including institutional, foreign and REIT investors, have been buying office buildings in many markets.
On April 10, 1997, Lake Colorado Associates, L.P., in which Pasadena Lake Associates, L.P. is an 85% general partner, sold the land and the building of Pasadena Financial Center for $26.7 million. The Partnership (which owns a 56% interest in Pasadena Lake Associates, L.P.) shared the net sales proceeds of approximately $14.7 million, and all of the sales proceeds ($48.41 per Unit) were distributed to the Limited Partners in April 1997. Cash flow from this property (net of minority interest) was approximately $2.6 million in 1997.
Pursuant to a Purchase and Sale Agreement dated as of February 10, 1998, the partnership (in which the Partnership has a 41.2% general partnership interest) which owns the Chesterbrook Corporate Center agreed to sell the property to FV Office Partners, L.P., an unaffiliated party. See Note 5 to the consolidated financial statements in Item 8.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DEAN WITTER REALTY INCOME PARTNERSHIP IV, L.P.
INDEX
(a) Financial Statements Page
Independent Auditors' Report 13 Consolidated Balance Sheets at December 31, 1997 and 1996 14 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 15 Consolidated Statements of Partners' Capital for the years ended December 31, 1997, 1996 and 1995 16 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 17 Notes to Consolidated Financial Statements 18
All 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 Income Partnership IV, L.P.:
We have audited the accompanying consolidated balance sheets of Dean Witter Realty Income Partnership IV, L.P. and consolidated partnerships (the "Partnership") as of December 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 December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 consoldiated financial statements present fairly, in all material respects, the financial position of Dean Witter Realty Income Partnership IV, L.P. and consolidated partnerships as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP
New York, New York March 24, 1998
DEAN WITTER REALTY INCOME PARTNERSHIP IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Partnership
Dean Witter Realty Income Partnership IV, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware in 1986 to invest primarily in income- producing office, industrial and retail properties. The Partnership is managed by Dean Witter Realty Fourth Income Properties Inc. (the "Managing General Partner").
In 1987 and 1988, the Partnership issued 304,437 units of limited partnership interest (the "Units") for $152,218,500. No additional Units will be sold. The proceeds of the offering were used to make investments in income-producing office properties which were not encumbered by debt.
2. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Partnership and its majority-controlled subsidiaries, Technology Park Associates and Lake Colorado Associates, the former owner of Pasadena Financial Center.
The Partnership's 40.6% general partnership interest in Taxter Corporate Park and 41.2% general partnership interest in the partnership which owns interests in Chesterbrook Corporate Center 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.
Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less.
The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method. At least annually, and more often if circumstances dictate, the Partnership evaluates the recoverability of the net carrying value of its real estate (including that held by its investee partnerships) 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.
Because the determination of fair value is based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying value as of December 31, 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 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.
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 $24 million higher than the amounts reported for financial statement purposes.
The Financial Accounting Standards Board ("FASB") has recently issued several new accounting pronouncements. 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 disclosure about products and services, geographic areas, and major customers. These two standards are effective for the Partnership's 1998 financial statements, but the Partnership does not believe that they will have any effect on the Partnership's computation or presentation of net income or other disclosures.
The implementation in 1997 of FASB Statement No. 128, "Earnings per Share" and Statement No. 129, "Disclosure of Information about Capital Structure" effective for the Partnership's 1997 year-end financial statements did not have any impact on the Partnership financial statements.
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 refinancing 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 is 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 is allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss is allocated 90% to the Limited Partners and 10% to the General Partners.
All distributions paid to Limited Partners during 1997, 1996 and 1995 represented returns of capital, calculated as the excess of cash distributed per Unit over accumulated earnings per Unit not previously distributed.
4. Real Estate
Pasadena Financial Center
The Partnership owns a 56% general partnership interest in Pasadena Lake Associates ("PLA"); the remaining general partnership interest in PLA is held by LS Lake Associates, an affiliate of the Managing General Partner. PLA owns an 85% general partnership interest in Lake Colorado Associates ("LCA"); the remaining general partnership interest in LCA is held by an affiliate of the original seller of the property ("PFC").
On April 10, 1997, LCA sold the property to an unaffiliated party for $26,700,000. The sale price was received in cash at closing. The Partnership received approximately $14.7 million of such cash, representing its 56% share of the cash received by PLA, net of closing costs. In accordance with LCA's partnership agreement, all of the income, gain and cash from the property were allocated to PLA. The Partnership distributed the net sales proceeds ($48.41 per Unit), 100% to Limited Partners.
In 1995, the Partnership concluded that, based on a revised expectation as to the holding period of Pasadena Financial Center, the Partnership would be unable to recover its investment. Accordingly, the Partnership wrote the property down to fair value (based on an independent appraisal) and recorded a loss on impairment of approximately $7.8 million ($4.4 million after minority interest).
Technology Park Reston
The Partnership owns a 65% general partnership interest in Technology Park Associates ("TPA"), which owned three office buildings in the Technology Park Reston office park. The remaining general partnership interest is held by an affiliate of the Partnership, Dean Witter Realty Income Partnership III, LP. The partners received cash flow and profits and losses according to their percentage ownerships interests.
On December 31, 1996, TPA and an affiliate of the Managing General Partner (the "Affiliate"), which owned the fourth building at the property, sold the office park to Sprint Communications Company, L.P., which was the sole tenant at the property, for a negotiated sales price of $76,300,000. $51,483,000 of the sales price was allocated to TPA and $24,817,000 was allocated to the Affiliate, based on the relative square footage of the buildings each owned at the property.
The sale price was received in cash at closing. The Partnership received $32,881,031 of such cash, representing its 65% share of the cash received by TPA, net of closing costs. The Partnership distributed the net sales proceeds ($108.01 per Unit), 100% to Limited Partners.
5. Investments in Joint Ventures
Chesterbrook Corporate Center, Valley Forge, Pennsylvania
In 1987, the Partnership and Dean Witter Realty Income Partnership III, L.P. (through a partnership), and an affiliate of the Managing General Partner acquired 41.2%, 26.7% and 32.1% interests, respectively, in DWR Chesterbrook Associates, the general partnership which owns the property. The partners receive cash flow and profits and losses according to their interests.
Pursuant to a Purchase and Sale Agreement dated as of February 10, 1998, DWR Chesterbrook Associates agreed to sell the property to an unaffiliated party. As part of the Agreement, Dean Witter Realty Income Partnership III, L.P. and Dean Witter Realty Income Partnership II, L.P. agreed to sell certain properties. The aggregate sale price of the properties to be sold is approximately $173 million, of which $129,362,500 is allocated in the Agreement to Chesterbrook Corporate Center. The purchase price is payable in cash at closing, which is expected to occur in the second quarter. Cash flow of the Chesterbrook Corporate Center was approximately $9.3 million in 1997. The carrying value of the Partnership's investment is approximately $26.4 million at December 31, 1997.
Summarized financial information of DWR Chesterbrook Associates is as follows:
In 1995, the general partners in DWR Chesterbrook Associates concluded that the property's value was impaired. Accordingly, in accordance with its policy for evaluating the recoverability of its real estate, which is the same as the Partnership's, DWR Chesterbrook Associates recorded a loss on impairment of the property of approximately $38.9 million. The Partnership's share of this loss (approximately $16 million) was included in equity in earnings (losses) of joint ventures in 1995.
Taxter Corporate Park, Westchester County, New York
The general partnership which owns the property is owned 40.6% by the Partnership. Dean Witter Realty Income Partnership II, L.P., and Dean Witter Realty Income Partnership III, L.P., own the remaining interests. The partners receive cash flow and profits and losses according to their interests.
Summarized financial information of the Taxter joint venture is as follows:
Activity in Investments in Joint Ventures is as follows:
6. Related Party Transactions
An affiliate of the Managing General Partner provided property management services for Taxter Corporate Park and Pasadena Financial Center (until Pasadena Financial Center was sold in 1997) and for five buildings at Chesterbrook Corporate Center. The Partnership paid the affiliate management fees of approximately $125,000, $161,000 and $172,000 for the years ended December 31, 1997, 1996 and 1995, respectively. These amounts are included in property operating expenses.
Another affiliate of the Managing General Partner performs administrative functions, processes investor transactions and prepares tax information for the Partnership. The Partnership incurred approximately $276,000, $400,000 and $402,000 for such services in each of the years ended December 31, 1997, 1996 and 1995. These amounts are included in general and administrative expenses.
As of December 31, 1997, the affiliates were owed approximately $18,000 in total for these services.
7. 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 variety 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 the actions. It is impossible to predict the effect, if any, the outcome of these actions might have on the Partnership's financial statements.
8. Distributions After Year-End
On January 28, 1998 the Partnership paid the fourth quarter, 1997 distribution of $3.66 per Unit to the Limited Partners. The total cash distribution amounted to $1,238,044, with $1,114,240 distributed to the Limited Partners and $123,804 to the General Partners.
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 and 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 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.
Ronald T. Carman, age 46, is a Director and the Secretary of Dean Witter Realty Inc. He is an Assitant Secretary of Morgan Stanley, Dean Witter & Co., and a Senior Vice President and Associate General Counsel of Dean Witter, Discover & Co. and Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing persons.
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 contained in Item 5 above. The General Partners received cash distributions of $849,270, $803,223 and $676,528 during the years ended December 31, 1997, 1996 and 1995.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 6 to the Consolidated Financial Statements in Item 8 above.
The directors and executive officers of the Managing General Partner received no renumeration 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 executive officers and directors of the Managing General Partner own the following Units as of December 31, 1997:
Amount and Nature of Title of ClassName of Beneficial Owner Beneficial Ownership
Limited All directors and executive * Partnership officers of the Managing Interests General Partner, as a group
______________________ *Own, by virtue of ownership of limited partnership interests in the Associate General Partner, less than 1% of the Units of the Partnership. 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 shall be distributed or allocated 50% to the Managing General Partner and 50% to the Associate General Partner. The General Partners' share of cash distributions and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the Managing General Partner are owned by Realty, a Delaware corporation which is a wholly-owned subsidiary of Morgan Stanley, Dean Witter & Co. The general partner of the Associate General Partner is the Managing General Partner. The limited partner of the Associate General Partner is LSA 87 L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of the Managing General Partner are partners of LSA 87 L.P. Additional information with respect to the directors and executive officers and compensation of the Managing General Partner and affiliates is contained in Items 10 and 11 above.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 6 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. 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
(3)a Certificate of Limited Partnership included in the Registration Statement Number 33-16054 is incorporated by reference.
(3)b Amended and Restated Agreement of Limited Partnership dated as of October 22, 1987 set forth in Exhibit A to the Prospectus included in the Registration Statement Number 33-16054 is incorporated herein by reference.
(4)a Certificate of Limited Partnership included in the Registration Statement Number 33-16054 is incorporated by reference.
(4)b Amended and Restated Agreement of Limited Partnership dated as of October 22, 1987 set forth in Exhibit A to the Prospectus included in the Registration Statement Number 33-16054 is incorporated herein by reference.
(10)a Purchase and Sale Agreement between Technology Park Associates, Dean Witter/Technology Park II Associates, L.P., and Spring Communications Company, L.P., a Delaware Limited Partnership filed as exhibit 2 to the Registrant's Report on Form 8-K on December 31, 1996 is incorporated herein by reference.
b Purchase and Sale Agreement between Lake Colorado Associates, L.P., and Spieker Properties, L.P., and unaffiliated party filed as exhibit to the Registrant's Report on Form 8-K on April 10, 1997 is incorporated herein by reference.
(21) Subsidiaries: Technology Park Associates, a Virginia general partnership. Lake Colorado Associates, a California general partnership.
(27) Financial Data Schedule
(d) (1) See paragraph (a) (2) above.
(2) Financial statements of DWR Chesterbrook Associates, the joint venture which owns Chesterbrook Corporate Center.
(3) Financial statements of Taxter Park Associates, the joint venture which owns Taxter Corporate Park. 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 IV, L.P.
By: Dean Witter Realty Fourth Income Properties Inc. Managing General Partner
By: /s/E. Davisson Hardman, Jr. Date: March 27, 1998 E. Davisson Hardman, Jr. President
By: /s/Lawrence Volpe Date: March 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 FOURTH INCOME PROPERTIES INC. Managing General Partner
/s/William B. Smith Date: March 27, William B. Smith Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date: March 27, E. Davisson Hardman, Jr. Director
/s/Lawrence Volpe Date: March 27, Lawrence Volpe Director
/s/Ronald T. Carman Date: March 27, Ronald T. Carman Director Independent Auditors' Report
To The Partners of DWR Chesterbrook Associates
We have audited the accompanying balance sheets of DWR Chesterbrook Associates (the "Partnership") as of December 31, 1997 and 1996, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of DWR Chesterbrook Associates as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP
New York, New York March 24, 1998
DWR CHESTERBROOK ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Organization
DWR Chesterbrook Associates (the "Partnership") was formed in 1987 under the laws of the Commonwealth of Pennsylvania, to purchase eight of nine office buildings, a parking lot and 75 acres of underlying land in the Chesterbrook Corporate Center in Valley Forge, Pennsylvania. The buildings consist of 621,271 net rentable square feet. The property is not encumbered by debt.
The general partners of the Partnership are Chesterbrook Investment Partners, L.P. (67.9%) (which is owned 60.7% by Dean Witter Realty Income Partnership IV, L.P. and 39.3% by Dean Witter Realty Income Partnership III, L.P.) and Duportail Investment Partners, L.P. (32.1%).
The Partnership Agreement provides that all cash flow, profits, losses and credits of the Partnership shall be allocated in proportion to the Partners' original capital contributions.
Pursuant to a Purchase and Sale Agreement (the "Agreement") dated as of February 10, 1998, the Partnership agreed to sell the property to an unaffiliated party. As part of the Agreement, Dean Witter Realty Income Partnership III, L.P. and Dean Witter Realty Income Partnership II, L.P., an affiliated partnership, agreed to sell certain properties. The aggregate sale price of the properties to be sold is approximately $173 million, of which $129,362,500 is allocated in the Agreement to Chesterbrook Corporate Center. The purchase price is payable in cash at closing, which is expected to occur in the second quarter of 1998.
2. Summary of Significant Accounting Policies
The Partnership's records are maintained on the accrual basis of accounting for financial reporting and tax purposes. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less.
The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method.
At least annually, and more often if circumstances dictate, the Partnership evaluates the recoverability of the net carrying value of its real estate and any related assets. As part of this evaluation, the Partnership assesses, among other things, whether there has been a significant decrease in the market value of 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 at disposition may differ materially from the net carrying value as of December 31, 1997. 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 general partners. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write- downs, which could be material, in subsequent years if real estate markets or local economic conditions change.
Deferred leasing commissions are amortized over the applicable lease terms.
Rental income is accrued on a straight-line basis over the terms of the leases. Accruals in excess of amounts payable by tenants pursuant to their leases (resulting from rent concessions or rents which periodically increase over the term of a lease) are recorded as receivables and included in other assets.
No provision for income taxes has been made in the financial statements since the liability for such taxes is that of the partners rather than the Partnership.
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; (c) payments made by the seller of the property in prior years under a rental income guaranty were accounted for as rental income; and (d) writedowns for impairment of real estate are not deductible. The tax basis of the Partnership's assets and liabilities is approximately $36.6 million higher than the amount reported for financial statement purposes.
The Financial Accounting Standards Board ("FASB") has recently issued several new accounting pronouncements. 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 disclosure about products and services, geographic areas, and major customers. These two standards are effective for the Partnership's 1998 financial statements, but the Partnership does not believe that they will have any effect on the Partnership's computation or presentation of net income or other disclosures.
The implementation in 1997 of FASB Statement No. 128, "Earnings per Share" and Statement No. 129, "Disclosure of Information about Capital Structure" effective for the Partnership's 1997 year-end financial statements did not have any impact on the Partnership's financial statements.
3. Real Estate
In 1995, the Partnership re-leased a substantial amount of space as a result of the departure of the property's largest tenant, which had occupied approximately 36% of the property's space. Although office vacancy levels in the suburban Philadelphia market had been stagnant for several years, the high quality of the Chesterbrook property had made it possible to re-lease substantially all of the vacated space. However, at the time of the re-leasing market rents were lower than previous rents received at the property, which were expected to result in reduced future cash flow therefrom. Also, because of its amenities, size and configuration, the Chesterbrook property had been able to command a rental premium over other properties in the market; however, this premium was substantially eroded because of the continuing high vacancy in the market. As a result, the general partners of the Partnership concluded that the property's value was impaired and, in accordance with its policy for evaluating the recoverability of its real estate, the Partnership wrote the property down to its fair value (based on an independent appraisal) and recorded a loss on impairment of approximately $38.9 million in 1995.
4. Related Party Transactions
An affiliate of the partners co-manages five buildings at the property. The Partnership paid the affiliate management fees of approximately $62,000, $37,000 and $63,000 in 1997, 1996 and 1995, respectively, for such services.
Another affiliate of the general partners earned a fee in 1987 for the acquisition of the properties in the amount of $4,258,703. Of this amount, $1,413,167 remains unpaid.
Independent Auditors' Report
To The Partners of Taxter Park Associates
We have audited the accompanying balance sheet of Taxter Park Associates (the "Partnership") as of December 31, 1997, and the related statements of operations, partners' capital, and cash flows for the year ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Taxter Park Associates as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP
New York, New York March 24, 1998
TAXTER PARK ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Organization
Taxter Park Associates the "Partnership") was formed in 1986 under the laws of the State of New York, to acquire interests in the Taxter Corporate Park in Westchester County, New York. The buildings consist of 344,741 net rentable square feet. The property is not encumbered by debt.
The general partners of the Partnership are Dean Witter Realty Income Partnership II, L.P. (14.8%), Dean Witter Realty Income Partnership III, L.P. (44.6%) and Dean Witter Realty Income Partnership IV, L.P. (40.6%).
The Partnership Agreement provides that all cash flow, profits, losses and credits of the Partnership shall be allocated in proportion to the Partners' original capital contributions.
2. Summary of Significant Accounting Policies
The Partnership's records are maintained on the accrual basis of accounting for financial reporting and tax purposes. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The carrying value of real estate includes the purchase price paid by the Partnership and acquisition fees and expenses. Costs of improvements to the properties are capitalized, and repairs are expensed. Depreciation is recorded on the straight-line method.
At least annually, and more often if circumstances dictate, the Partnership evaluates the recoverability of the net carrying value of its real estate and any related assets. As part of this evaluation, the Partnership assesses, among other things, whether there has been a significant decrease in the market value of any of its properties. If events or circumstances indicate that the net carrying value of a property may not be recoverable, the expected future net cash flows from the property are estimated for a period 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 at disposition may differ materially from the net carrying value as of December 31, 1997. 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. 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.
Cash and cash equivalents consist of cash and highly liquid investments with maturities, when purchased, of three months or less.
No provision for income taxes has been made in the financial statements since the liability for such taxes is that of the partners rather than the Partnership.
The accounting policies used for tax reporting purposes differ from those used for financial reporting as follows: (a) depreciation is calculated using accelerated methods; (b) rental income is recognized based on the payment terms in the applicable leases; (c) payments made by the seller of the property in prior years under a rental income guaranty were accounted for as rental income; and (d) writedowns for impairment of real estate are not deductible. The tax basis of the Partnership's assets and liabilities is approximately $19 million higher than the amount reported for financial statement purposes.
The Financial Accounting Standards Board ("FASB") has recently issued several new accounting pronouncements. 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 disclosure about products and services, geographic areas, and major customers. These two standards are effective for the Partnership's 1998 financial statements. 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 of limited partnership interest, or its disclosures of capital structure.
The implementation in 1997 of FASB Statement No. 128, "Earnings Per Share" and Statement No. 129, "Disclosure of Information about Capital Structure", effective for the Partnership's 1997 year-end, did not have any impact on the Partnership's financial statements.
3. Lease Commitments
Minimum future rental income under noncancellable operating leases as of December 31, 1997 is as follows:
The Partnership has determined that all leases relating to the Property are operating leases. The terms range from three to ten years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses.
4. Related Party Transactions
An affiliate of the partners co-manages the buildings at the property. The Partnership paid the affiliate management fees of approximately $73,000, $61,000 and $76,000 in 1997, 1996 and 1995, respectively, for such services.