T. Rowe Price Real Estate Group, Inc., 100 East Pratt Street,
Baltimore, MD 21202
James S. Riepe
President
December 20, 1996
Fellow Partner:
In previous correspondence, we mentioned that an unaffiliated
third party intended to offer a higher price than earlier offers
for your units of T. Rowe Price Realty Income Fund I. This has
now taken place with the latest tender offer from Lido
Associates. Under SEC rules, we are required to respond to
limited partners each time a tender offer is made. Again, we
apologize for repeating some of the information contained in
recent letters but would like you to be aware of certain facts:
Under applicable law, we were required to provide the
names and addresses of the Fund s limited partners and the number
of units held by each;
Lido s offer is higher than the earlier offers but
still well below our estimate of the fair market value of your
units;
As of September 30, 1996, the estimated per unit
valuation of your fund is $398, after adjusting for our November
distribution of more than $21;
Lido is offering $298 per unit, considerably less than
our estimated valuation. For those who elect to sell, Lido s
offer will be reduced by the amount of any distributions in the
first and possibly second quarter of 1997, depending on when
units are sold;
We cannot assure that you will ultimately receive the
exact amount of the estimated unit value, but we believe our
property valuation process has been sound, particularly when
prior estimates are compared with the actual prices of properties
sold. The five T. Rowe Price Real Estate Funds sold seven
complete properties during the past three years, none below the
estimated range used in the prior year s unit valuation, and four
above the range.
It is not surprising that all these discounted offers
have been made after we announced our intention to liquidate the
Fund s investments by the end of 1998, as market conditions
permit. Lido states clearly that it hopes to purchase units at a
discount and profit as we liquidate properties at market value
over the next couple of years.
While our disposition plan remains intact, we will
continue to monitor market conditions to take any actions that we
believe are in the best interests of limited partners, including
an accelerated liquidation of the Fund s portfolio if it is
appropriate. It is worth noting that two of the Fund s properties
are currently being marketed for sale.
One of Lido s main arguments for accepting its offer is
liquidity. While those with pressing needs for liquidity may find
some appeal in cashing out now, the price you will pay by
selling for a discounted amount could be significant since we are
in the disposition phase, and cash distributions will generally
be paid as properties are sold. Regular distributions of income
earned on each property held will also be made.
Whether or not you accept this offer is your decision,
of course. From our perspective, we want you to be as
well-informed as possible about the current and prospective value
of your investment. Over the past few years, you have weathered
the downtown in the commercial real estate market, but now
conditions have improved. Based on our outlook for this market,
we believe that limited partners will realize a higher value for
their units by holding them until the fund is fully liquidated.
For further details concerning our response to Lido Associates
offer, we refer you to the enclosed statement filed with the
Securities and Exchange Commission.
Sincerely,
James S. Riepe
ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
FELLOW PARTNERS:
Now that we have initiated the liquidation phase of your real estate
portfolio, the amount of your distributions and the estimated value of a Fund
unit will be influenced more by sales than by operations. As a result, we
thought it appropriate to begin this report with your fourth quarter and
fiscal 1996 distributions from the Fund and the estimated unit value.
As we move forward in the process of liquidating the Fund's properties,
our primary focus will shift from the production of income to the strategic
positioning of the properties to maximize potential sales proceeds. Thus,
while we will continue to try to keep lease rates as high as possible, we may
place additional emphasis on longer-term leases with creditworthy, stable
tenants who are valued by prospective purchasers because of their lower risk.
It may take somewhat longer to obtain such tenants, but we believe this
strategy will help us obtain higher sales prices.
Cash Distributions
For the fourth quarter ended September 30, 1996, the per-unit distribution
from fiscal 1996 operations was $7.00, bringing the total for the year to
$21.25. In addition, the remainder of the proceeds withheld from the sale of
DuPont in 1990 are being paid to you. The $14.55 per unit from DuPont is in
addition to the $17.79 you received in May from the Spring Creek sale. As
indicated in the Statements of Operations on page 6, the cash distributed from
both operations and sales proceeds for 1996 was higher than for the prior two
years.
In 1990, the Fund began paying a fixed quarterly distribution from
operations for the first three quarters of each year in order to provide
limited partners with a more predictable income stream and the Fund with
sufficient reserves to cover projected capital needs. This planned rate was
evaluated periodically to determine if a change were warranted, and any
adjustment was made in the fourth quarter. As you know, the quarterly rate
during the first nine months of fiscal 1996 was $4.75 per unit. Because the
projected cash balances required to operate the portfolio going forward are
lower and because of improved 1996 operating results, we increased the fourth
quarter rate to $7.00.
In fiscal 1997, we will determine cash distributions from operations
each quarter based on: (1) net cash flows for the quarter; (2) money needed to
operate the properties and pay Fund expenses; (3) anticipated capital needed
to repair and maintain the properties and occupancy-related tenant
improvements; and (4) property dispositions. This will result in variable
quarterly distributions going forward.
Unit Valuation
As you know, at the end of each fiscal year we employ a third-party appraiser
to review and assess the analysis and assumptions used to prepare an estimated
current unit value. These valuations are not necessarily representative of the
value of your units when the Fund ultimately liquidates its holdings. Nor is
there any assurance that you could sell your units today at a price equal to
the current estimated value.
At September 30, 1996, the unit value of the Fund was $420. After
adjusting for our November distribution, the value per unit was $398, an
increase of 4.7% over our comparable valuation last year.
Results of Operations
For the 12 months ended September 30, 1996, the Fund's net income declined
only 8% from the prior year, excluding the effects of property writedowns.
Impairments recorded for The Business Park, Airport Perimeter, and Newport
Center, plus a valuation allowance at Van Buren, net of a recovery in Spring
Creek's value recorded prior to its disposition, totaled $3,115,000. This net
charge was offset to a limited extent by lower depreciation associated with
properties held for sale. Excluding the effect of these adjustments, the Fund
had net income of $512,000 for 1996 versus net income of $555,000 for 1995.
After the declines in property values, the Fund reported a net loss of
$2,603,000 in 1996 compared with net income of $8,000 in 1995.
At the property operating level, the higher average leased status at The
Business Park as well as increased rental rates at Royal Biltmore and Newport
Center had a positive effect on revenues. This more than offset the effect on
rental income of a decline in the average leased status at Montgomery and of
the absence of revenues from Spring Creek since its sale in April 1996.
While the leased status at Airport Perimeter declined by nine percentage
points over the course of the year, its average leased status (shown in the
table below) and contribution to income from operations was up slightly. Based
on recent communications with the Hartsfield International Airport Acquisition
Office, it appears that the Atlanta Airport will be expanded and that the Fund
will be forced, through condemnation proceedings, to sell this property within
the next 12 to 24 months. Because of the uncertainty surrounding the
condemnation, we do not believe it is in your best interests to put the
property on the market. While leases on 31% of the space expire in fiscal
1997, leasing activity in the submarket is positive, and Airport Perimeter is
receiving its share of interest. Since we do not anticipate any additional
value impairments on this property next year, there is a good chance that
Airport Perimeter will make an improved contribution to portfolio results in
fiscal 1997.
The impact of Montgomery's poor revenue performance was exacerbated by
an increase in bad debt expense plus associated legal fees and depreciation
resulting from the write-off of tenant improvements, primarily for those
tenants who were credit problems and vacated prior to their lease expirations.
We discussed our "full-floor" leasing strategy and the increasing interest in
the property in last quarter's report. Our concept was to pursue leases with
large users with sound credit in support of the disposition strategy. During
the most recent three-month period, there was no activity for 22,000 square
feet, which is the full-floor area, but we have been in contact with two
potential tenants who are each interested in approximately 11,000 square feet.
This would still fill our goal of large users, and we are continuing to talk
with these prospects to determine their level of interest and their financial
strength.
At Springdale, the average leased status remained at 100% throughout
both 1995 and 1996, and this industrial property's contribution to income from
operations was again positive. After September 30, however, one tenant left,
and the property is currently 92% leased. Based on the healthy market
environment in Southern California, LaSalle expects to re-lease the space in
the near future.
Leasing activity at Newport Center was brisk throughout the year, as
leases covering 50% of the total space were negotiated. At the end of
September, 93% of the space was leased, and LaSalle is optimistic about
prospects for this year because occupancy in the submarket has tightened and
rental rates have firmed.
Results at the two remaining properties in the portfolio - Royal
Biltmore and Van Buren - were favorably affected because their depreciation
expenses declined by $126,000 and $159,000, respectively. A property that is
being held for sale is no longer depreciated under applicable accounting
standards.
Disposition Update
Three offers on Royal Biltmore were received during the first week of October,
and each is currently under review. We have a signed letter of intent on Van
Buren and are negotiating a purchase and sale agreement, which we hope to sign
by December 31. However, the closing of the sale will depend on the timing of
registering three drywells on the site with the state. Van Buren is located in
an area of Phoenix with broad environmental implications, but the situation
does not seem to concern the prospective buyer. We have retained an
environmental attorney and consultant to assist in resolving the issue and
will report on the results early in 1997.
Outlook
Over the past 12 months, occupancy and rental rates in most of the regions
where your properties are located stabilized or improved. In LaSalle's
opinion, this trend should continue into next year. During the current fiscal
year, we will continue to poise the portfolio to take advantage of the more
favorable operating environment. In addition, we expect to begin actively
marketing several other properties in the coming year.
Sincerely,
James S. Riepe
Chairman
November 8, 1996
Real Estate Investments (Dollars in thousands)
______________________________________________________________________________
Leased Average Leased Contribution to
Status Status Net Income
_______ ________________ __________________
Gross Years Ended Years Ended
Property Leasable September September 30, September 30,
Name Area(Sq. Ft.) 30, 1996 1995 1996 1995 1996
________ _________ _________ ________ ________ ________ _______
Airport
Perimeter 120,986 71% 74% 73% $ (250) $(1,031)
Montgomery 116,348 68 76 71 86 (376)
Springdale 144,000 100 100 100 345 332
The Business
Park 157,153 97 88 96 (68) (1,120)
Newport
Center 62,411 93 94 90 182 (745)
________ ____ ____ ____ _____ _______
600,898 86 86 87 295 (2,940)
Held for Sale
Royal
Biltmore 71,443 96 98 98 155 343
Van Buren 173,878 92 91 92 87 36
________ ____ ____ ____ _____ _______
846,219 88 88 89 537 (2,561)
Properties
Sold - - - - (152) 411
Fund Expenses
Less Interest
Income - - - - (377) (453)
________ ____ ____ ____ _____ _______
Total 846,219 88% 88% 89% $ 8 $(2,603)
REAL ESTATE HOLDINGS
September 30, 1996
(In thousands)
Current
Property Date Accumulated Carrying
Name Type and Location Acquired Cost Depreciation Amount
_________ ______________________ _________ ________ ____________ _________
Airport
Perimeter Industrial 12/85 $ 2,210 - $ 2,210
College Park, Georgia
Montgomery Office 12/85 16,955 (6,964) 9,991
Gaithersburg, Maryland
Springdale Industrial 6/86 7,352 (2,555) 4,797
Santa Fe Springs, California
The Business
Park Office/Service 8/86 6,660 - 6,660
Gwinnett Co., Georgia
Newport
Center Office/Service 5/87 3,170 - 3,170
Deerfield Beach, Florida
________ ________ ________
$36,347 $(9,519) 26,828
________ ________ ________
________ ________ ________
Held for Sale
Royal
Biltmore Office 1/86 4,966
Phoenix, Arizona
Van Buren Industrial 7/86 3,999
________
Phoenix, Arizona
$ 35,793
________
________
BALANCE SHEETS
(In thousands)
September 30, September 30,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . . . $ 6,759 $ 11,014
Buildings and Improvements. . . . . . . 29,588 54,237
________ ________
36,347 65,251
Less: Accumulated Depreciation
and Amortization. . . . . . . . . . . (9,519) (24,092)
________ ________
26,828 41,159
Held for Sale . . . . . . . . . . . . . 8,965 1,226
________ ________
35,793 42,385
Cash and Cash Equivalents. . . . . . . . 2,290 2,832
Accounts Receivable
(less allowances of $175 and $85) . . . 154 292
Other Assets . . . . . . . . . . . . . . 492 624
________ ________
$ 38,729 $ 46,133
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents . . . . . . . . . . . . . $ 418 $ 364
Accrued Real Estate Taxes. . . . . . . . 231 202
Accounts Payable and
Other Accrued Expenses. . . . . . . . . 266 281
________ ________
Total Liabilities. . . . . . . . . . . . 915 847
Partners' Capital. . . . . . . . . . . . 37,814 45,286
________ ________
$ 38,729 $ 46,133
________ ________
________ ________
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
(In thousands except per-unit amounts)
Years Ended September 30,
1996 1995 1994
________ ________ ________
Revenues
Rental Income. . . . . . . . . . . . . . . $ 6,067 $ 5,927 $ 5,874
Interest Income. . . . . . . . . . . . . . 104 116 119
_______ _______ _______
6,171 6,043 5,993
_______ _______ _______
Expenses
Property Operating Expenses. . . . . . . . 1,878 1,681 1,933
Real Estate Taxes. . . . . . . . . . . . . 660 632 592
Depreciation and Amortization. . . . . . . 2,562 2,681 2,779
Decline (Recovery) of
Property Values . . . . . . . . . . . . . 3,115 547 (2)
Partnership Management Expenses. . . . . . 559 494 526
_______ _______ _______
8,774 6,035 5,828
_______ _______ _______
Net Income (Loss). . . . . . . . . . . . . $ (2,603) $ 8 $ 165
_______ _______ _______
_______ _______ _______
Activity per Limited Partnership Unit
Net Income (Loss). . . . . . . . . . . . . $ (25.85) $ 0.08 $ 1.64
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . . . . . . . . $ 21.25 $ 21.00 $ 16.00
from Sales Proceeds. . . . . . . . . . . 32.34 9.00 34.00
_______ _______ _______
Total Distributions Declared . . . . . . . $ 53.59 $ 30.00 $ 50.00
_______ _______ _______
_______ _______ _______
Units Outstanding. . . . . . . . . . . . . 90,622 90,622 90,622
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance,
September 30, 1993. . . . $(3,313) $54,857 $51,544
Net Income . . . . . . . . 16 149 165
Cash Distributions . . . . (286) (4,440) (4,726)
_______ _______ _______
Balance,
September 30, 1994. . . . (3,583) 50,566 46,983
Net Income . . . . . . . . 1 7 8
Cash Distributions . . . . (165) (1,540) (1,705)
_______ _______ _______
Balance,
September 30, 1995. . . . (3,747) 49,033 45,286
Net Loss . . . . . . . . . (260) (2,343) (2,603)
Cash Distributions . . . . (335) (4,534) (4,869)
_______ _______ _______
Balance,
September 30, 1996. . . . $(4,342) $42,156 $37,814
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended September 30,
1996 1995 1994
________ ________ ________
Cash Flows from Operating Activities
Net Income (Loss). . . . . . . . . . . . . $ (2,603) $ 8 $ 165
Adjustments to Reconcile Net Income
(Loss) to Net Cash
Provided by Operating Activities
Depreciation and Amortization. . . . . . 2,562 2,681 2,779
Decline (Recovery)
of Property Values. . . . . . . . . . . 3,115 547 (2)
Other Changes in Assets
and Liabilities . . . . . . . . . . . . 171 (210) (373)
_______ _______ _______
Net Cash Provided by
Operating Activities . . . . . . . . . . 3,245 3,026 2,569
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property Disposition . . . . 1,679 - 3,379
Investments in Real Estate . . . . . . . . (597) (1,092) (1,048)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities. . . . . . . . . . . 1,082 (1,092) 2,331
_______ _______ _______
Cash Flows Used in Financing Activities
Cash Distributions . . . . . . . . . . . . (4,869) (1,705) (4,726)
_______ _______ _______
Cash and Cash Equivalents
Net Increase (Decrease) during Year. . . . (542) 229 174
At Beginning of Year . . . . . . . . . . . 2,832 2,603 2,429
_______ _______ _______
At End of Year . . . . . . . . . . . . . . $ 2,290 $ 2,832 $ 2,603
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership (the
"Partnership"), was formed on August 31, 1984, under the Maryland Revised
Uniform Limited Partnership Act for the purpose of acquiring, operating, and
disposing of existing income-producing commercial and industrial real estate
properties. T. Rowe Price Realty Income Fund I Management, Inc., is the sole
General Partner. A total of 90,622 limited partnership units were issued at
$1,000 per unit and remain outstanding as of September 30, 1996.
In accordance with provisions of the partnership agreement, income from
operations is allocated and related cash distributions are generally paid to
the General and Limited Partners at the rates of 10% and 90%, respectively.
Allocations to the General Partner are, in part, in lieu of separate
management fees. Sale or refinancing proceeds are in general allocated, first
4% to the General Partner, next to the Limited Partners in an amount equal to
their Adjusted Capital Contributions (as defined), next to the Limited
Partners to provide specific returns on their Adjusted Capital Contributions,
with any remaining proceeds allocated 85% to the Limited Partners and 15% to
the General Partner. Gains on property sales are generally allocated in the
same ratio as the distribution of sale proceeds. Cash distributions, if any,
are made quarterly based upon cash available for distribution, as defined in
the partnership agreement. Cash available for distribution will fluctuate as
changes in cash flows and adequacy of cash balances warrant.
The partnership agreement includes provisions limiting the maximum
contribution the General Partner can be required to fund upon the dissolution
and termination of the Partnership if, at that time, the General Partner's
capital account has a negative balance. The maximum contribution is
approximately $913,000. If after making such a contribution, the General
Partner's capital account still has a negative balance, a reallocation of
income equal to the remaining negative balance will be made to the General
Partner from the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of estimates
and assumptions by the General Partner.
Depreciation is calculated on the straight-line method over the
estimated useful lives of buildings and improvements, which range from five to
40 years. Lease commissions and tenant improvements are capitalized and
amortized over the life of the lease using the straight-line method.
Cash equivalents consist of all short-term, highly liquid investments
including money market mutual funds. The cost of such investments approximates
fair value.
The Partnership uses the allowance method of accounting for doubtful
accounts. Provisions for uncollectible tenant receivables in the amounts of
$186,000, $20,000, and $96,000 were recorded in 1996, 1995 and 1994,
respectively. Bad debt expense is included in Property Operating Expenses.
The Partnership reviews its real estate property investments for
impairment whenever events or changes in circumstances indicate that the
property carrying amounts may not be recoverable. Such a review may result in
the Partnership recording a provision for impairment of the carrying value of
its real estate property investments whenever the estimated future cash flows
from a property's operations and sale are less than the property's net
carrying value. The General Partner believes that the estimates and
assumptions used in evaluating the carrying value of the Partnership's
properties are appropriate; however, changes in market conditions and
circumstances could occur in the near term which would cause these estimates
to change.
Rental income is recognized on a straight-line basis over the term of
each lease. Rental income accrued, but not yet billed, is included in Other
Assets and aggregates $276,000 and $435,000 at September 30, 1996 and 1995,
respectively.
Under provisions of the Internal Revenue Code and applicable state
taxation codes, partnerships are generally not subject to income taxes;
therefore, no provision has been made for such taxes in the accompanying
financial statements.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As discussed in Note 1, the General Partner receives 10% of distributable cash
from operations and a portion of the proceeds from property dispositions as
compensation for the services rendered in managing the affairs of the
Partnership. The General Partner earned $214,000, $211,000, and $161,000 from
operations in fiscal 1996, 1995, and 1994, respectively. In addition, the
General Partner earned $122,000, $34,000, and $128,000 in fiscal 1996, 1995,
and 1994 from property dispositions.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $162,000, $123,000, and $134,000 for communications
and administrative services performed on behalf of the Partnership during
fiscal 1996, 1995, and 1994, respectively.
An affiliate of the General Partner earned a normal and customary fee of
$4,000, $9,000, and $11,000 from the money market mutual funds in which the
Partnership made its interim cash investments during fiscal 1996, 1995, and
1994, respectively.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting, and other related services to the Partnership. LaSalle's
reimbursement for such expenses during each of the last three years totaled
$150,000.
An affiliate of LaSalle earned $227,000, $205,000, and $200,000 in
fiscal 1996, 1995, and 1994, respectively, for property management fees and
leasing commissions on tenant renewals and extensions for several of the
Partnership's properties.
NOTE 4 - PROPERTY DISPOSITIONS
On January 31, 1994, the Partnership sold Corporate Square and received net
proceeds of $3,379,000. The net book value of this property at the time of
disposition was also $3,379,000, after accumulated depreciation and previously
recorded property valuation allowances. Therefore, no gain or loss was
recognized on the property sale.
On April 30, 1996, the Partnership sold Spring Creek and received net
proceeds of $1,679,000. The net book value of this property at the time of
disposition was also $1,679,000, after accumulated depreciation expense and
previously recorded property valuation allowances. Therefore, no gain or loss
was recognized on the property sale.
NOTE 5 - PROPERTY VALUATIONS
On October 1, 1995, the Partnership adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which changed the Partnership's
method of accounting for its real estate property investments when
circumstances indicate that the carrying amount of a property may not be
recoverable. Measurement of an impairment loss on an operating property is now
based on the estimated fair value of the property, which becomes the
property's new cost basis, rather than the sum of expected future cash flows.
Properties held for sale continue to be reflected at the lower of historical
cost or estimated fair value less anticipated selling costs. In addition,
properties held for sale are no longer depreciated.
Based upon a review of current market conditions, estimated holding
period, and future performance expectations of each Partnership property, the
General Partner has determined that the net carrying value of certain
Partnership properties held for operations may not be fully recoverable.
Charges recognized for such impairments aggregated $3,189,000 in fiscal 1996,
$354,000 in fiscal 1995, and $365,000 in fiscal 1994.
The General Partner has approved a plan of disposition for and is
actively marketing the Royal Biltmore and Van Buren properties, the carrying
amounts of which are classified as held for sale in the accompanying September
30, 1996 balance sheet. Results of operations for Royal Biltmore, Van Buren
and properties sold are summarized below for each of the fiscal years ended
September 30:
1996 1995 1994
________ ________ ________
Recovery (Decline) of
Property Values. . . . . . . . . . $ 74,000 $(193,000) $ 368,000
Other Components of
Operating Income . . . . . . . . . 716,000 284,000 236,000
________ ________ ________
Results of Operations. . . . . . . . $ 790,000 $ 91,000 $ 604,000
________ ________ ________
________ ________ ________
NOTE 6 - LEASES
Future minimum rentals to be received by the Partnership under noncancelable
operating leases in effect as of September 30, 1996, are:
Fiscal Year (in thousands)
___________
1997 $ 4,794
1998 3,394
1999 1,946
2000 1,293
2001 650
Thereafter 818
_______
Total $ 12,895
_______
_______
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not provided for an income tax
liability; however, certain timing differences exist between amounts reported
for financial reporting and federal income tax purposes. These differences are
summarized below for years ended September 30:
1996 1995 1994
________ ________ ________
(in thousands)
Book net income (loss) . . . . . . . $ (2,603) $ 8 $ 165
Allowances for
property valuations. . . . . . . . 3,115 547 (2)
Tax basis loss on
property sale. . . . . . . . . . . (1,296) - (3,133)
Other. . . . . . . . . . . . . . . . 152 58 32
________ ________ ________
Taxable income (loss). . . . . . . . $ (632) $ 613 $ (2,938)
________ ________ ________
________ ________ ________
NOTE 8 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $21.55 per unit to
Limited Partners of the Partnership as of the close of business on September
30, 1996. The distribution totals $2,078,000 and represents $7.00 per unit of
cash available for distribution from operations and $14.55 per unit from
previously retained proceeds from the sale of Dupont Business Park. The
Limited Partners will receive $1,953,000, and the General Partner will receive
$125,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership:
We have audited the accompanying balance sheets of T. Rowe Price Realty Income
Fund I, A No-Load Limited Partnership, as of September 30, 1996 and 1995, and
the related statements of operations, partners' capital and cash flows for
each of the years in the three-year period ended September 30, 1996. 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
from 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, the financial statements referred to above present fairly,
in all material respects, the financial position of T. Rowe Price Realty
Income Fund I, A No-Load Limited Partnership as of September 30, 1996 and
1995, and the results of its operations and its cash flows for each of the
years in the three-year period ended September 30, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
October 23, 1996
AGREEMENT FOR DELIVERY AND USE OF LIST OF LIMITED PARTNERS
This Agreement for Delivery and Use of List of Limited
Partners ("Agreement") is entered into as of October,
1996 by and between T. Rowe Price Realty Income Fund I
Management, Inc., a Maryland corporation (the "General Partner")
Ray Wirta, an individual (the "Limited Partner") and Koll Real
Estate Services, a Delaware corporation ("Koll") with respect to
a list of limited partners of T. Rowe Price Realty Income Fund I,
a No-Load Limited Partnership, a Maryland Limited Partnership
(the "Partnership").
WHEREAS the General Partner is the general partner of
the Partnership, and the Limited Partner is a limited partner of
the Partnership; and
WHEREAS the Limited Partner has requested a list
("List") of the names, addresses, and number of units of limited
partnership interest ("Units") held by each of the limited
partners in the Partnership; and
WHEREAS the Limited Partner has represented that he is
requesting the list for the purpose of making a tender offer,
regardless of whether any others make such offers, for Units in
concert with Koll and affiliates of Koll which are controlled by
Koll ("Koll Affiliates"); and
WHEREAS General Partner believes that it is necessary
to establish reasonable standards, including certain restrictions
to be placed on the use of the List by Limited Partner, Koll and
the Koll Affiliates, in order to protect the Partnership and the
limited partners from harm and preclude interference with the
orderly dissolution and liquidation of the Partnership by the
General Partner as publicly disclosed by the General Partner;
THEREFORE, in consideration of the representations,
promises, and covenants of Limited Partner and Koll as contained
herein, General Partner hereby agrees to deliver the list to
Limited Partner on magnetic floppy disk, and Limited Partner and
Koll jointly and severally represent, promise and covenant on
behalf of themselves and their affiliates and the Koll Affiliates
that they will use the List only in accordance with the
following:
1. Limited Partner, Koll and the Koll Affiliates
(collectively "Offerors") shall utilize the list only
for the purpose of making a single written offer by
Offerors, and any amendments thereto, to limited
partners to purchase Units ("Tender Offer"), whether
such Tender Offer shall constitute a tender offer or
not, and shall solicit each limited partner no more
than once in connection with such tender offer.
Offerors will keep the List confidential and will not
disclose it to anyone, including any affiliated or
unaffiliated persons or entities, other than a
professional mailing house, information agent, or
depository in connection with the Tender Offer. The
Tender Offers will be transmitted by Offerors within 30
days after delivery of the List to Limited Partner and
Koll.
2. Offerors shall simultaneously copy the General
Partner by fax on any Tender Offer and any amendment
thereto.
3. After the expiration of the Tender Offer, Limited
Partner shall return the List to the General Partner
and destroy it in a manner which cannot be retrieved
any and all copies thereof and works derived therefrom,
whether in written, electronic, or other form, and
deliver an affidavit to the General Partner that
Offerors have complied with the provisions of this
section 3.
4. Offerors will not make and will not cause to be made
more than one unsolicited telephone call to each
limited partner in connection with the Tender Offer,
provided that an additional phone call may be made in
connection with any material amendment to the Tender
Offer. An unsolicited telephone call shall be deemed
made when Offerors or their agent call a limited
partner and either speak with an individual or leave a
message for the limited partner.
5. Offerors will not purchase Units which, when taken
together with all other Units beneficially owned by all
Offerors, affiliates of Offerors, or any person or
entity participating in the purchasing group
(collectively the "Group") cause the members of the
Group to be the beneficial owners of 46% or more of the
outstanding Units.
6. Any Tender Offer shall include the following
disclosure:
A. That the price being offered by Offerors for
Units was determined based on an estimate by
Offerors of the current net asset value of the
Units, to which a discount was then applied by
Limited Partner.
B. The existence of third-party resale services,
the range of prices paid for Units in secondary
market sales for the year preceding the
transmission of the Tender Offer, and a statement
as to the source of such information.
C. The most recent estimated unit value published
by the General Partner prior to the transmission
of the Tender Offer.
D. That the General Partner disclosed in its
quarterly report to limited partners for the
quarter ended June 30, 1996 a plan of disposition
for the properties owned by the Partnership.
E. The identity of all persons or entities for
whose benefit, directly or indirectly, the Tender
Offer is made.
7. In any vote of the limited partners subsequent to
the date hereof, Offerors will vote any and all Units
owned by it, directly or indirectly, pro rata to the
vote of all other limited partners.
8. From and at all times after the date of this
agreement none of the Offerors will, either
individually or in concert with others, attempt to
remove the General Partner from its position as general
partner of the Partnership, provided that a vote by one
or more of Offeror in accordance with the provisions of
section 7 hereof shall not constitute a breach of this
section 8.
9. From and at all times after the date of this
agreement none of the Offerors will act, either
individually or in concert with others, to effect a
change in control of the Partnership, provided that a
vote by one or more of Offeror in accordance with the
provisions of section 7 hereof shall not constitute
a breach of this section 9.
10. Offerors will not transfer any interest, direct or
indirect, in all or any of the Units acquired by either
of them in the Tender Offer unless the transferee or
transferees agree in writing for the benefit of the
Partnership and the General Partner, in a form
reasonably satisfactory to the Partnership and the
General Partner, to abide by and comply with all of the
terms, promises and covenants made by Offerors herein,
provided however that the Offerors may collectively
transfer no more than 5% of the Units and section 10
shall not apply to such transfer. For purposes of the
preceding sentence, the transfer of less than 5% of
such units may be made in one or more transactions so
long as all such transfers, when added together, do not
exceed 5%.
11. In the event the transfer of Units presented for
transfer within a tax year of the Partnership could
cause the Partnership to be treated as a "publicly
traded partnership" for federal tax purposes, the
General Partner will accept such transfers only after
receiving an opinion of reputable counsel satisfactory
to the General Partner that the recognition of such
transfers will not cause the Partnership to be treated
as a "publicly traded partnership" under the Internal
Revenue Code of 1986, as amended.
12. This Agreement shall be governed by and construed
in accordance with Maryland law without regard to
choice of law rules.
Agreed and accepted,
T. ROWE PRICE REALTY INCOME FUND I MANAGEMENT, INC..
BY: /s/Lucy B. Robins
TITLE: Vice President
DATE: November 1, 1996
RAY WIRTA
/s/Ray Wirta
KOLL REAL ESTATE SERVICES
BY: /s/Ray Wirta
TITLE:
DATE: November 6, 1996
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership
Amended and Restated Agreement of Limited Partnership
Section 8.2. Capital Contribution Upon Dissolution.
Each Partner shall look solely to the assets of the Partnership
for all distributions with respect to the Partnership and the
return of his Capital Contribution and shall have no recourse
(upon dissolution or otherwise) against any General Partner or
any Limited Partner; provided, however, in the event that,
immediately following the liquidation of the Partnership's assets
referred to in Section 8.3 and the allocation of all Profits and
Losses for tax purposes of the Partnership from such liquidation
and all other sources for all periods, the General Partner would
have a deficiency in its Capital Account as determined in
accordance with tax accounting principles after all of the assets
of the Partnership were distributed following the liquidation,
then the General Partner shall contribute cash to the capital of
the Partnership in an amount equal to whichever is the lesser of
(a) such deficiency in the General Partner's Capital Account or
(b) the excess of 1.01% of the Capital Contributions over the
capital previously contributed by the General Partner. Such
contribution shall be made no later than the end of the
Partnership's taxable year in which the liquidation occurs or, if
later, within 90 days after the date of such liquidation.
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership
Amended and Restated Agreement of Limited Partnership
Section 4.2. Distributions of Sale or Financing
Proceeds. All Sale or Financing Proceeds shall be paid or
distributed quarterly, to the extent available (within 60 days
following the close of the fiscal quarter during which the Sale
or Financing Proceeds are received by the Partnership or more
frequently in the discretion of the General Partners) in the
following priority:
(i) First, 4% to the General Partners;
(ii) Second, to the Limited Partners as a class, an
amount equal to the sum of their Adjusted Capital Contributions;
(iii)Third, to the Limited Partners as a class, an
amount equal to:
(a) the sum of the amounts by which Cash
Available for Distribution distributed to them pursuant to
Section 4.1 was less than an amount sufficient to provide a 6%
cumulative non-compounded annual return on the average of their
Adjusted Capital Contributions (and for the purposes of Cash
Available for Distribution for any fiscal quarter were in excess
of 6% per annum shall be credited to reduce any deficiency for
any other fiscal quarter), computed for each Limited Partner from
and after the end of the fiscal quarter in which the Partnership
receives the Limited Partners' Capital Contribution, less
(b) the sum of all distributions of Sale or
Financing Proceeds previously made to them pursuant to this
Section 4.2(iii).
(iv) Fourth, to the General Partners or their
Affiliates the amounts representing the unpaid real estate
brokerage commissions earned on the sale of Properties but
deferred in accordance with Section 5.2A(ix) (to the extent the
General Partners or their Affiliates have not previously received
such amounts with respect to any previously Sold Properties
pursuant to this Section 4.2(iv)). Any amounts distributed to
the General Partners under this Section 4.2(iv) shall be treated
as an expense of the Partnership;
(v) Fifth, to the Limited Partners as a class, the
amount necessary to increase the cumulative annual return
referred to in Section 4.2(iii) from 6% to 10%, determined in the
same manner as provided in Section 4.2(iii); and
(vi) Sixth, the balance, 85% to the Limited Partners as
a class and 15% to the General Partners as a class.
Notwithstanding the other provisions of this Section
4.2, in the event of a Terminating Transaction the assets of the
Partnership (including any Sale or Financing Proceeds from the
Terminating Transaction) remaining, after payment of all
liabilities of the Partnership and funding any Reserves deemed
reasonable by the General Partners, shall be distributed to the
Partners in accordance with their respective Capital Account
balances, determined after all allocations pursuant to Sections
4.3, 4.4, 4.5, and 4.6 and all prior distributions pursuant to
Sections 4.1 and 4.2 have been made.
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership
Amended and Restated Agreement of Limited Partnership
Section 5.7. Limitation on Liability of General
Partners; Indemnification. The General Partners shall not be
liable, responsible, or accountable in damages or otherwise to
the Partnership or any of the Limited Partners for any act or
omission pursuant to the authority granted by this Agreement if
the General Partners acted in good faith and in a manner they
reasonably believed to be within the scope of the authority
granted by this Agreement and in or not opposed to the best
interest of the Partnership, provided that the General Partners
shall not be relieved of liability in respect of any claim,
issue, or matter arising out of the negligence, fraud, bad faith,
or misconduct of the General Partners in the performance of their
duties to the Limited Partners. Subject to this limitation, the
Partnership shall indemnify the General Partners against any loss
or damage incurred by them and against expenses (including
attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of any threatened,
pending, or completed action or suit by any Limited Partner in
connection therewith. Indemnification will be allowed for: (1)
settlement (and expenses related thereto) of lawsuits which
allege violation of state or federal securities laws; and (2) the
expenses incurred in defending such lawsuits, if the General
Partners and/or the Partnership are successful in the defense,
provided a court, having been informed in writing of the fact
that the Securities and Exchange Commission has determined that
indemnification for securities law violations is against public
policy and is unenforceable, (a) approves the settlement and
finds that indemnification of the settlement costs (and related
expenses) should be made, or (b) approves indemnification of
litigation costs if a successful defense has been made. Funds
may be advanced by the Partnership to cover expenses for which
indemnification may be allowed, subject to the obligation of the
indemnified party to return these funds to the Partnership should
any of the conditions to indemnification hereunder not be
satisfied. Any indemnification of the General Partners under
this Section 5.7 shall be recoverable only out of the assets of
the Partnership and not from the Limited Partners.
