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. 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 in Item 13 below.
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 which have been acquired without permanent mortgage debt. The properties are described below in Item 2, the Operations section of Item 7 and footnotes 4 and 5 to the consolidated financial statements included in Item 8.
The Partnership considers its business to include one industry segment, investment in real property. Financial information regarding the Partnership is set forth in the Partnership's financial statements set forth below.
The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. In recent years, an oversupply condition has persisted nationally and many markets have experienced high vacancy rates. Currently, many real estate markets are beginning to stabilize, primarily due to the continued absence of significant construction activity; however, the recovery is expected to be slow. Further information regarding competition in the markets where the Partnership's properties are located is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Partnership has no employees.
All of the Partnership's business is conducted in the United States.
ITEM 2.
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.
The Partnership owns through partnership interests the following four 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.
Affiliates of the Partnership are the property manager for Taxter Corporate Park and Pasadena Financial Center and the co-property manager of five buildings at the Chesterbrook Corporate Center.
Further information relating to the Partnership's properties is included in Item 7 below and footnotes 4 and 5 to the consolidated financial statements included in Item 8 below.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Partnership nor any of its properties is subject to any material pending legal proceedings.
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 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.
As of December 31, 1994, there were 18,506 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 each of the years ended December 31, 1994 and 1993, the Partnership paid cash distributions aggregating $6,765,268, with $6,088,740 distributed to the Limited Partners and $676,528 to the General Partners. The distributions aggregated $20.00 per Unit to the Limited Partners.
On January 27, 1995, the Partnership paid the fourth quarter distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $1,691,317, with $1,522,185 distributed to the Limited Partners and $169,132 to the General Partners.
The Partnership anticipates making regular distributions to its partners in the future.
Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution plus cumulative distributions of distributable cash and sale or 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. The Partnership did not distribute any sale or financing fees in 1994 or 1993.
Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds. 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 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 has made four investments in partnerships, which own interests in properties, on an all-cash basis. The Partnership's acquisition program has been completed. No additional investments are planned.
Many real estate markets are stabilizing, primarily due to the continued absence of significant construction activity. However, the recovery of the office market has been and may continue to be slow, because tenant demand is weak, as a result of continued downsizing by many major corporations.
Real estate markets are generally divided into sub-markets by geographic location and property type. Not all sub-markets have been affected equally by the above factors.
The Partnership's liquidity depends in part upon cash flow from operations of its properties, expenditures for tenant improvements and leasing commissions in connection with the leasing of vacant space. In 1994, all of the Partnership's property investments generated positive cash flow from operations, and it is anticipated that they will continue to do so.
However, in 1994, cost of tenant improvements and leasing commissions, additional investments in joint ventures and partner distributions exceeded cash flow from operations and distributions from joint ventures by approximately $998,000 . The shortfall was funded from existing cash reserves. The Partnership had reduced its distribution rate in 1992 in order to accumulate such reserves.
The Vanguard Group vacated its space in two of the buildings at the Chesterbrook property in November 1993 and October 1994, and will vacate its remaining space upon the expiration of its leases in November 1995. In September 1994, the partnership which owns the property signed leases with two new tenants to fill a significant portion of the space vacated to date. During 1994, the Partnership contributed approximately $2,134,000 for its share of capital expenditures needed to re-lease this space.
Countrywide Credit Industries, Inc., the largest tenant at Pasadena Financial Center, is consolidating its operations in Pasadena, and the partnership which owns the property has agreed to a restructuring of its lease with Countrywide. Effective January 1, 1995, Countrywide was allowed to give back approximately 35% of the space it leased, and its base rent was slightly reduced on its remaining space (approximately 36% of the property) over the next six years, in exchange for an extension of the lease term on the remaining space for ten years, to September 2011. The Partnership completed this restructuring without incurring any new tenant improvement obligations on the space, and at below-market leasing commission rates. In 2005, rents will increase ten percent for the remainder of the lease term. Considering the current market and economic conditions in Pasadena, CA, as discussed below under Operations, and the credit-worthiness of Countrywide, the Managing General Partner considers the terms of the new agreement favorable. The sixteen-year term for this major tenant will provide stability to the long term cash flow from this property.
In 1994, the Partnership incurred approximately $893,000 of tenant improvements and leasing commissions (net of capital contributions from the minority interest) at Pasadena Financial Center, primarily relating to new space occupied by Countrywide in 1994 and the year-end restructuring of the Countrywide lease mentioned above.
Pasadena Financial Center has experienced damage to the exterior walls. The Partnership's share of these costs is anticipated to exceed $420,000. The Partnership which owns the property does not expect to receive any insurance proceeds for this damage; however, it initiated a lawsuit against the original building contractor and architect to seek recovery of these costs.
The Partnership also invested approximately $446,000, its share of capital expenditures, in the Taxter joint venture in 1994.
In 1995, the Partnership expects to fund significant capital expenditures in order to attract new tenants to vacant space at the Chesterbrook property and Pasadena Financial Center.
The Partnership expects that for 1995, capital expenditures and cash distributions will be funded from operating cash flows, distributions from joint ventures and existing cash reserves.
In 1993, the partnership that owns Taxter Corporate Park concluded that there was a decline in the value of its property, and that the decline was other-than-temporary. Accordingly, the general partners of this partnership recorded a loss on impairment of its investment in the property of approximately $21.3 million at December 31, 1993. The Partnership's share of this loss, which was included in equity in earnings (losses) of joint ventures was $8.6 million.
On January 27, 1995, the Partnership paid the fourth quarter distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $1,691,317, with $1,522,185 distributed to the Limited Partners and $169,132 to the General Partners.
Operations
Fluctuations in the Partnership's operating results for the year ended December 31, 1994 compared to 1993 and for the year ended December 31, 1993 compared to 1992 are primarily attributable to the following:
The decrease in rental income in 1994 compared to 1993 is primarily due to the above-mentioned restructuring of the lease with Countrywide at Pasadena Financial Center, resulting from the write-off of approximately $613,000 of tenant receivables related to the accrual to recognize rental revenue on a straight-line basis.
The increase in equity in earnings (losses) of joint ventures in 1994 compared to 1993 and the decrease in 1993 compared to 1992 are primarily attributable to the loss incurred in 1993 when the Partnership recorded its share of the loss on impairment of the Taxter property. Excluding the 1993 loss, the equity in earnings (losses) of joint ventures decreased by approximately $425,000 in 1994 compared to 1993, primarily because of lower rental income from the Chesterbrook joint venture, partially offset by lower depreciation charges from the Taxter joint venture (due to the writedown of the property in 1993).
The increase in interest and other income is primarily due to 1994 lease termination income of approximately $143,000 at Pasadena Financial Center.
The increase in property operating expenses in 1994 compared to 1993 is due to increased costs incurred at Pasadena Financial Center.
The increase in depreciation and amortization expenses in 1994 compared to 1993 is primarily due to the write-off of approximately $600,000 of tenant improvements and leasing commissions at Pasadena Financial Center relating to the space which Countrywide gave back.
A summary of the markets in which the Partnership's office properties are located and the performance of each property is as follows:
Chesterbrook Corporate Center is located in Valley Forge, Pennsylvania, a market in which the vacancy rate is approximately 14%. During 1994, average occupancy at the property was 85%, and at December 31, 1994, the property was 90% leased to 20 tenants (including one tenant which moved into its space in 1995). Vanguard has been vacating its space to move into its own newly-constructed space in this market. This, and other new construction in the Valley Forge area, will cause the office market to deteriorate further. The leases of PECO Energy, the other major tenant at the property (occupying 25% of the space), expire in 1998. Other leases totaling 20% of the space are scheduled to expire in 1995 and 1996.
The office market in Westchester County, New York, the location of Taxter Corporate Park, has experienced a significant decline. The current vacancy level in the Westchester office market is approximately 25%. It is unlikely that this vacant space will be absorbed in the market for several years. However, during 1994, and at December 31, 1994, average occupancy at the property was 99%. At December 31, 1994, the property was leased to 24 tenants. One of the tenants, KLM Airlines, owns a long-term leasehold interest in approximately 20% of the space at the property. The leases of Fuji Photo Film, the other major tenant (covering 21% of the property's space), expire in 1996.
The Reston market in Virginia, the location of Tech Park Reston, has a vacancy rate of 16% due to the contraction of the high-tech and defense firms which are the major tenants in the market. The leases with Sprint Communications, which occupies 100% of the space, expire in 2003. Sprint has the option to terminate its leases on two of the three buildings beginning in 1997 and 1998.
In Pasadena, California, the location of Pasadena Financial Center, the office market overall vacancy rate is approximately 15%, and it is expected to deteriorate in the near term, primarily as a result of downsizing by Countrywide and another large employer in the market. However, during 1994, the property was 100% occupied by 10 tenants. No significant leases are scheduled to expire in the near future.
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.
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, 1994 and 1993, and the related consolidated statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included financial statement schedule III. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly in all material respects, the financial position of Dean Witter Realty Income Partnership IV, L.P. and consolidated partnerships as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP /s/Deloitte & Touche LLP
New York, New York March 24, 1995
The Partnership owns a 65% general partnership interest in Technology Park Associates; the remaining general partnership interest is held by an affiliate, Dean Witter Realty Income Partnership III, LP.
The Technology Park buildings are 100% leased to a single tenant, which is responsible for all operating costs, including real estate taxes. Accordingly, there are no property operating expenses for this property in the consolidated statements of income.
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").
LCA's partnership agreement provides for PLA to receive all profits, losses and cash flow from both operations and capital transactions (except for a special allocation of taxable income to PFC in an amount not to exceed $159,000 per year), until PLA has received a return of its equity investment and a preferred return thereon as defined in the partnership agreement. Any additional profits and cash flow will be distributed 85% to PLA and 15% to PFC.
PFC has guaranteed to PLA the repayment of $4.5 million of PLA's investment.
In 1994, the Partnership wrote-off approximately $457,000 of tenant improvements and $143,000 of leasing commissions at Pasadena Financial Center relating to space given back by the property's largest tenant under a restructuring of its lease.
5. Investments in Joint Ventures
Chesterbrook Corporate Center, Valley Forge, Pennsylvania
The general partnership which owns the property is owned 41.2% by the Partnership. Income Partnership III and affiliates of the Managing General Partner own the remaining interests. The partners receive cash flow and profits and losses according to their pro rata shares.
Summarized balance sheet information of the joint venture is as follows:
Taxter Corporate Park, Westchester County, New York
The general partnership which owns the property is owned 40.6% by the Partnership. Affiliates of the Partnership, Dean Witter Realty Income Partnership II, L.P., and Income Partnership III, purchased the remaining interests. The partners receive cash flow and profits and losses according to their pro rata shares.
Summarized balance sheet information of the joint venture is as follows:
In fiscal 1993, the general partners of the partnership which owns the property concluded that there was a decline in its value and that the decline was other-than-temporary. Accordingly, the partnership which owns the property recorded a loss on impairment of the property of $21,292,185 at October 31, 1993. The Partnership's share of this loss ($8,644,627) was included in equity in earnings (losses) of joint ventures in 1993.
Activity in the Investments in Joint Ventures is as follows:
6. Leases
Minimum future rental income under noncancellable operating leases as of December 31, 1994 is as follows:
The Partnership has determined that all leases relating to its properties are operating leases. The terms range from five to seventeen years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses.
7. Related Party Transactions
An affiliate of the Managing General Partner provided property management services for two properties in 1994, 1993 and 1992 and for five buildings at Chesterbrook Corporate Center in 1994 and 1993. The Partnership paid the affiliate management fees of approximately $178,000, $129,000 and $107,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Another affiliate of the Managing General Partner performs administrative functions, processes investor transactions and prepares tax information for the Partnership. For the years ended December 31, 1994, 1993 and 1992, the Partnership incurred approximately $439,000, $439,000 and $416,000 respectively, for such services.
As of December 31, 1994, the affiliates were owed approximately $82,000 in total for these services.
8. Subsequent Event
On January 27, 1995, the Partnership paid a cash distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $1,691,317, with $1,522,185 distributed to the Limited Partners and $169,132 to the General Partners.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership is a limited partnership 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, Assistant Secretary 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 51, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since 1982.
E. Davisson Hardman, Jr,, age 45, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty since 1982.
Lawrence Volpe, age 47, 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 43, is a Director and the Secretary of Dean Witter Realty Inc. He is a Senior Vice President of Dean Witter, Discover & Co. and of Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing persons.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive 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 $676,528, $676,528 and $761,092 during the years ended December 31, 1994, 1993 and 1992, respectively.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees, commissions and reimbursements is contained in Note 7 to Consolidated Financial Statements in Item 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) No person is known to the Partnership to be the beneficial owner of more than five percent of the Units.
(b) The executive officers and directors of the Managing General Partner own the following Units as of March 31, 1995:
*Owns, 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, Dean Witter Realty Inc. ("Realty"), a Delaware Corporation which is a wholly- owned subsidiary of Dean Witter, Discover & Co., and certain current and former executive 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. The general partner of the Associate General Partner is the Managing General Partner. The limited partner of the Associate General Partner is LSA 86 L.P., a Delaware limited partnership. Realty and certain current and former executive officers and directors of the Managing General Partner are partners of LSA 86 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 7 to the Consolidated Financial Statements in Item 8 above.
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 (2) Not applicable
(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 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.
(9) Not applicable.
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(16) Not applicable.
(18) Not applicable.
(21) Subsidiaries: Technology Park Associates, a Virginia general partnership. Lake Colorado Associates, a California general partnership.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial Data Schedule
(28) Not applicable.
(99) Not applicable.
(b) No Forms 8-K were filed by the Partnership during the last quarter of the period covered by this report.
(d) Financial Statements Schedule
(1) Financial statements of DWR Chesterbrook Associates, the joint venture which owns Chesterbrook Corporate Center.
The Partnership has determined that all leases relating to the Property are operating leases. The terms range from two to ten years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses.
4. Related Party Transactions
Beginning in 1993, an affiliate of the partners co-managed five buildings at the property. The Partnership paid the affiliate management fees of approximately $58,000 and $61,000 in 1994 and 1993, 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.