T. ROWE PRICE
REALTY INCOME
FUND I
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
QUARTERLY REPORT
FOR THE PERIOD ENDED
MARCH 31, 1997
For information on your
Realty Income Fund account, call:
1-800-962-8300 toll free
410-625-6500 Baltimore area
For information on your
mutual fund account, call:
1-800-225-5132 toll free
410-625-6500 Baltimore area
T. Rowe Price Real Estate Group
100 East Pratt Street
Baltimore, Maryland 21202
Invest With Confidence(registered trademark)
T. RowePrice
FELLOW PARTNERS:
As you know from our letter dated April 15, 1997, we
signed a purchase and sale agreement on April 11 with
Glenborough Realty Trust Incorporated for the sale of
substantially all Fund properties at a contract sales
price of $27.4 million before selling expenses.
Glenborough is a real estate investment trust whose
shares are publicly traded on the New York Stock
Exchange. In addition, after the end of the reporting
period, we closed on the sale of Royal Biltmore and
negotiated a purchase and sale agreement for Van Buren
with buyers unaffiliated with Glenborough. The sales of
all these properties, if consummated, will liquidate the
Fund's real estate portfolio.
These developments are in keeping with our
previously announced intention to shift our emphasis from
the production of income to the strategic positioning of
Fund properties to maximize potential sales proceeds. In
order for the Fund to complete the sale of its properties
to Glenborough, a majority in interest of the limited
partners must consent to the transaction through a
consent solicitation vote, which we expect to take place
in late June or sometime in July. As we cautioned in our
letter of April 15, this sale is subject to further due
diligence by Glenborough, which could result in changes
to the properties in the transaction, the sales proceeds
to be received, or the cancellation of the sale. It is
possible that the Fund may not be liquidated this year if
some or all of the pending sales fall through.
Real Estate Investments (Dollars in thousands)
__________________________________________________
Average Contri-
Leased Leased bution to
Status Status Net Income
_________ _______ _______
Six Six Six
Gross Months Months Months
Leasable Ended Ended Ended
Property Area March 31, March 31, March 31,
Name (Sq. Ft.) 1997 1996 1997 19961997_______
_______ ___ ___ ___ ___ ___
Airport
Perimeter 121,000 78% 72% 75% $ 17 $ 104
Montgomery 116,300 75 72 71 (14) 40
Springdale 144,000 100 100 97 161 123
The Business
Park 157,200 99 96 99 103 265
Newport
Center 62,400 97 95 98 85 116
________ ___ ___ ___ ____ ____
600,900 90 87 88 352 648
Held for Sale
Royal
Biltmore 71,400 100 98 97 87 256
Van Buren 173,900 100 92 95 89 185
________ ____ ________ ____ ____
846,200 93 89 90 528 1,089
Property Sold - - - - 393 -
Fund Expenses
Less Interest
Income - - - - (216) (331)
________ ____ ____ ____ ____ ____
Total 846,200 93% 89% 90% $705 $ 758
It is worth mentioning again some of our reasons for accepting
Glenborough's offer:
o The offer represents more than 100% of the property valuations
used in our last estimated unit value and substantially more
per unit, on an adjusted basis, than three recent tender
offers from unaffiliated third parties, which ranged from
approximately 40% to 75% of the estimated valuation.
o Selling the properties in bulk will reduce transaction and
operating expenses and allow for a more accelerated return of
principal to investors than the original disposition plan,
which contemplated a gradual return of capital over the next
13 to 21 months.
o There is no financing contingency, and Glenborough's financial
resources appear adequate to consummate the transaction.
Cash Distributions
Pending the completion of the sale to Glenborough, the Fund has
suspended cash distributions from operations. By now, you may
already have received your share of net proceeds from the sale of
Royal Biltmore, which were distributed in May 1997. Net proceeds
from the disposition of Van Buren, assuming it is completed, will be
distributed separately after the close of the transaction. Deducting
the Royal Biltmore distribution of $66.59 from the December 1996
adjusted estimated unit value of $398 results in $331. Assuming all
remaining properties are sold during the next few months, the Fund
plans to accrue for anticipated closing costs and then make a
liquidating cash distribution. Based on the negotiated sales prices
and other information currently available, we expect total future
distributions to exceed the figure mentioned above.
Results of Operations
For the six months ended March 31, 1997, the Fund's net income was
$758,000, an increase of $53,000 over the same period last year. The
slight increase was attributable to a decline in depreciation
totaling $425,000 at four properties, largely offset by the absence
of net income from Spring Creek, which was sold last year. The lack
of depreciation expense for Royal Biltmore and Van Buren, which were
classified as held for sale, accounted for $221,000 of the decline
during the reporting period. An additional decline of $204,000 was
related to the lower depreciable bases at both Airport Perimeter and
Business Park, resulting from writedowns at the properties at the
end of the last fiscal year. The improved contribution at Montgomery
of $54,000 compared with the same period in 1996 was primarily due
to decreases in operating expenses, including bad debts. Fund
expenses rose during the past three months, mainly a result of
necessary costs incurred in responding to the recent tender offers
for partnership units.
At the property level, the average leased status of Fund
properties increased slightly, from 89% for the six months ended
March 31, 1996, to 90% for the comparable 1997 period. During the
most recent quarter, we signed new, renewal, and expansion leases
covering 10% of the portfolio's square footage. The major
improvements occurred at Van Buren, Airport Perimeter, Montgomery,
and Royal Biltmore; both Royal Biltmore and Van Buren were 100%
leased at the end of March. In addition, a new lease representing
another 14.5% of the property was signed at Montgomery in May.
The Fund's net cash outflows declined slightly compared with
the same six-month period in 1996, due largely to the greater cash
distributions in the earlier period.
Outlook
Our reasons for wanting to liquidate the Fund's portfolio while the
real estate market is strengthening are unchanged. As mentioned
previously, our primary goal is to take advantage of rising property
values as the Fund nears the end of its planned lifespan. Real
estate markets have been improving during the past few years, and we
have used this opportunity to capture higher prices for our
investors. Rising real estate values could eventually lead to an
increased supply of new properties, resulting in softer prices some
time later. This is a normal pattern as the real estate cycle runs
its course.
No one can forecast precisely when prices will reach their
peak, and it is possible that by selling Fund properties now we
might miss further advances later on. However, demand from tenants
and investors is currently very strong, causing the supply of
properties to grow in many markets. We believe it is prudent to sell
into strength while prices are still rising.
It is critical that you promptly read the consent solicitation
materials and return the card as soon as you receive them, so that
we can minimize Fund expenses and implement the orderly liquidation
of your investment.
Thank you in advance for your cooperation in this matter.
Sincerely,
James S. Riepe
Chairman
May 7, 1997
CONDENSED BALANCE SHEETS
Unaudited
(In thousands)
March 31, September 30,
1997 1996
___________ ____________
Assets
Real Estate Property
Investments
Land. . . . . . . . . . . $ 6,759 $ 6,759
Buildings and
Improvements . . . . . 30,013 29,588
________ ________
36,772 36,347
Less: Accumulated
Depreciation and
Amortization . . . . . (10,249) (9,519)
________ ________
26,523 26,828
Properties Held for
Sale . . . . . . . . . 8,971 8,965
________ ________
35,494 35,793
Cash and Cash
Equivalents. . . . . . 1,140 2,290
Accounts Receivable
(less allowances
of $55 and $175) . . . 201 154
Other Assets. . . . . . . . 390 492
________ ________
$ 37,225 $ 38,729
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents. . . . . $ 385 $ 418
Accrued Real Estate
Taxes. . . . . . . . . 203 231
Accounts Payable and
Other Accrued
Expenses . . . . . . . 243 266
________ ________
Total Liabilities . . . . . 831 915
Partners' Capital . . . . . 36,394 37,814
________ ________
$ 37,225 $ 38,729
________ ________
________ ________
See accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Six MonthsEnded
Ended
March 31, March 31,
1997 1996 1997 1996
____ ____ ____ ____
Revenues
Rental Income . . $ 1,500 $1,542 $ 2,967 $3,022
Interest
Income . . . 21 23 41 45
_______ _______ ______________
1,521 1,565 3,008 3,067
_______ _______________________
Expenses
Property Operating
Expenses . . 374 406 829 857
Real Estate
Taxes. . . . 158 153 267 327
Depreciation and
Amortiz-
ation. . . . 321 604 782 1,220
Recovery of Property
Values . . . - (303) - (303)
Partnership Management
Expenses . . 217 138 372 261
________ _______ ______________
1,070 998 2,250 2,362
________ _______ ______________
Net Income. . . . $ 451 $ 567 $ 758 $ 705
________ _______ ______________
________ _______ ______________
Activity per Limited
Partnership Unit
Net Income. . . . $ 4.48 $ 5.63 $ 7.53 $ 7.00
________ _______ ______________
________ _______ ______________
Cash Distributions
Declared
from Sale
Proceeds . . - $17.79 - $17.79
from
Oper-
ations . . . - 4.75 $ 1.00 9.50
________ _______ ______________
Total Distributions
Declared . . - $22.54 $ 1.00 $27.29
________ _______ ______________
________ _______ ______________
Units Out-
standing . . 90,622 90,622 90,622 90,622
________ _______ ______________
________ _______ ______________
See accompanying notes to condensed financial statements.
CONDENSED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
_______ _______ ______
Balance,
September 30,
1996. . . . . . . . . $ (4,342)$42,156 $37,814
Net Income. . . . . . . 76 682 758
Cash Distri-
butions . . . . . . . (135) (2,043) (2,178)
_______ _______ _______
Balance, March 31,
1997. . . . . . . . . $ (4,401)$40,795 $36,394
_______ _______ _______
_______ _______ _______
See accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Six Months Ended
March 31,
1997 1996
________ ________
Cash Flows from Operating
Activities
Net Income. . . . . . . . . . . . $ 758 $ 705
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating
Activities
Depreciation and
Amortization . . . . . . . . 782 1,220
Recovery of Property
Values . . . . . . . . . . . - (303)
Increase in Accounts
Receivable, Net of
Allowances . . . . . . . . . (47) (175)
Decrease in Other
Assets . . . . . . . . . . . 102 157
Decrease in Security
Deposits and Prepaid
Rents. . . . . . . . . . . . (33) (28)
Decrease in Accrued
Real Estate Taxes. . . . . . (28) (79)
Decrease in Accounts
Payable and Other
Accrued Expenses . . . . . . (23) (32)
________ ________
Net Cash Provided by
Operating Activities. . . . . . 1,511 1,465
________ ________
Cash Flows Used in
Investing Activities
Investments in
Real Estate . . . . . . . . . . (483) (436)
________ ________
Cash Flows Used in
Financing Activities
Cash Distributions. . . . . . . . (2,178) (2,234)
________ ________
Cash and Cash Equivalents
Net Decrease during Period. . . . (1,150) (1,205)
At Beginning of Year. . . . . . . 2,290 2,832
________ ________
At End of Period. . . . . . . . . $1,140 $ 1,627
________ ________
________ ________
See accompanying notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed financial statements reflect all
adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the interim periods presented.
All such adjustments are of a normal, recurring nature.
The unaudited interim financial information contained in the
accompanying condensed financial statements should be read in
conjunction with the financial statements contained in the fiscal
1996 Annual Report to Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs of
the Partnership, the General Partner receives 10% of cash
available for distribution from operations and a portion of the
proceeds from property dispositions. The General Partner's share
of cash available for distribution from operations totaled $10,000
for the first six months of fiscal 1997.
In accordance with the partnership agreement, certain
operating expenses are reimbursable to the General Partner. The
General Partner's reimbursement of such expenses totaled $103,000
for communications and administrative services performed on behalf
of the Partnership during the first six months of fiscal 1997.
An affiliate of the General Partner earned a normal and
customary fee of $1,000 from the money market mutual funds in
which the Partnership made its interim cash investments during the
first six months of fiscal 1997.
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 the first six
months of fiscal 1997 totaled $75,000.
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.
An affiliate of LaSalle earned $122,000 in the first six
months of fiscal 1997 for property management fees and leasing
commissions on tenant renewals and extensions for several of the
Partnership's properties.
NOTE 2 - REAL ESTATE PROPERTY INVESTMENTS
On April 11, 1997, the Partnership entered into a contract with a
buyer for the sale of the five properties held as operating real
estate property investments in the accompanying balance sheets at
a sales price of $27,408,000 before selling expenses. The
transaction is subject to further due diligence by the buyer and
the approval of the Limited Partners which could result in changes
to or the cancellation of the contract.
On April 29, the Partnership entered into a contract with a
buyer for the sale of Van Buren which is expected to settle by the
end of June, although there is no assurance that settlement will
occur. If these transactions are closed, the Partnership will have
sold all of its real estate property investments and will begin
liquidation.
On April 30, Royal Biltmore was sold and the Fund received
net proceeds of $6,286,000 representing a gain of $1,210,000 over
its net book value.
