SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ /Preliminary Consent Solicitation Statement
/ /Confidential, For Use of Commission Only
(as permitted by Rule 14a-6(e)(2))
/x/Definitive Consent Solicitation Statement
/ /Definitive Additional Materials
/ /Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
T. ROWE PRICE REALTY INCOME FUND I,
A NO-LOAD LIMITED PARTNERSHIP
(Name of Registrant as Specified in Its Charter)
(Names of Person(s) Filing Consent Solicitation Statement, if
Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ /No fee required
/x/Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
Units of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction
applies:
90,622 Units
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
The filing fee of $5,481.60 has been calculated in
accordance with Rule 0-11 under the Exchange Act
and is equal to 1/50 of 1% of $27,408,320 (the
aggregate amount of the cash to be received by the
Registrant).
(4) Proposed maximum aggregate value of transaction:
$27,408,320
(5) Total fee paid:
$5,481.60
/x/ Fee paid previously with preliminary materials: The fee
of $5,481.60 was paid in full upon the filing of the
Registration's preliminary consent solicitation
materials with the Commission on June 17, 1997
(Commission File No. 0-14308).
/ / Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by registration statement number, of the form or
schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
T. Rowe Price Realty Income Fund I,
A No-Load Limited Partnership
100 East Pratt Street, Baltimore, MD 21202
James S. Riepe
Chairman of the Board and President
of T. Rowe Price Realty Income Fund I
Management, Inc., General Partner
July 28, 1997
Fellow Partner:
We are writing to request your consent to sell T. Rowe Price
Realty Income Fund I s interests in its remaining five properties
to Glenborough Realty Trust Incorporated and to complete the
liquidation of the Fund. A majority of the Fund s outstanding
units must consent to the proposal for the transaction to
proceed.
The enclosed materials discuss the transaction in detail, but we
would like to summarize our reasons for recommending that you
consent to proceeding with the sale.
The Fund has held the properties for the period anticipated
when the Fund was organized, and current market conditions
appear favorable for a sale.
The Fund expects to benefit substantially by selling
properties together instead of individually. Benefits
include lower aggregate sales costs, more modest adjustments
to the sale price, and faster liquidation of the Fund.
The price offered by Glenborough should allow the Fund to
liquidate its investments for an amount that exceeds our
most recent estimated aggregate property value.
The General Partner has obtained a "Fairness Opinion" from
Legg Mason s corporate finance division, indicating that the
sale is fair to the Fund and to its Limited Partners from a
financial point of view.
The enclosed materials contain a complete discussion of the
advantages and disadvantages of the transaction under the heading
"THE TRANSACTION-Recommendation of the General Partner." After
carefully weighing the facts and circumstances associated with
the Glenborough transaction as well as alternative courses of
action, we concluded that the bulk property sale to Glenborough
and subsequent liquidation of the Fund is an outstanding
opportunity to maximize value for investors.
Therefore, we recommend that you approve the proposed transaction
by signing and returning the enclosed consent card in the
accompanying postage-paid envelope. Your participation is
extremely important, and your early response could save your Fund
the substantial costs associated with a follow-up mailing. If you
have any questions, please feel free to call one of our real
estate representatives at 1-800-962-8300.
Sincerely,
James S. Riepe
T. ROWE PRICE REALTY INCOME FUND I,
A NO-LOAD LIMITED PARTNERSHIP
100 East Pratt Street
Baltimore, Maryland 21202
NOTICE OF CONSENT SOLICITATION
To The Limited Partners of T. Rowe Price Realty
Income Fund I, A No-Load Limited Partnership
NOTICE IS HEREBY GIVEN to limited partners ("Limited
Partners") holding units of limited partnership interest
("Units") in T. Rowe Price Realty Income Fund I, A No-Load
Limited Partnership, a Maryland limited partnership ("Fund") that
T. Rowe Price Realty Income Fund I Management, Inc. (the "General
Partner") is soliciting written consents to approve a single
proposal consisting of (i) the sale of substantially all of the
assets of the Fund (the "Sale"), which currently consists of five
properties, as contemplated by the Purchase and Sale Agreement
and Joint Escrow Instructions, dated as of April 11, 1997, with
Glenborough Realty Trust Incorporated and Glenborough Properties,
L.P. as the buyers, and (ii) the complete liquidation and
dissolution of the Fund (the "Liquidation" and, together with the
Sale, the "Transaction") in the manner described in the
accompanying Consent Solicitation Statement.
The Liquidation will result in: (a) the distribution to the
Partners of all net Sale proceeds and other net assets of the
Fund after completion of the Sale; and (b) the possible transfer
to the General Partner of all liabilities of the Fund, including
contingent liabilities, and sufficient assets to provide for the
payment of all transferred liabilities (in order to terminate the
Fund by December 31, 1997 and eliminate the need for the taxable
Limited Partners to receive Schedules K-1 with respect to
calendar year 1998), all as more fully described in the
accompanying Consent Solicitation Statement.
The Transaction must be approved by Limited Partners holding
a majority of the outstanding Units. Only Limited Partners of
record at the close of business on July 2, 1997 are entitled to
notice of the solicitation of consents and to consent to the
Transaction. In order to be valid, all consents must be received
before 10:00 A.M., New York City time, on September 11, 1997
(unless such date or time is extended). The vote will be
obtained through the solicitation of written consents, and no
meeting of Limited Partners will be held. A consent may be
revoked by written notice of revocation or by a later dated
consent containing different instructions at any time on or
before the expiration of the time by which the consent card must
be received.
Your Approval is Important--Please read the Consent
Solicitation Statement carefully and then complete, sign and date
the enclosed consent card and return it in the accompanying self-
addressed, postage-paid envelope. Any consent card which is
signed and does not specifically disapprove the Transaction will
be treated as approving the Transaction. Your prompt response
will be appreciated.
Dated: July 28, 1997 T. ROWE PRICE REALTY INCOME
FUND I MANAGEMENT, INC.
By: /s/James S. Riepe
James S. Riepe
Chairman of the Board
and President
T. ROWE PRICE REALTY INCOME FUND I,
A NO-LOAD LIMITED PARTNERSHIP
100 East Pratt Street
Baltimore, Maryland 21202
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is being furnished to
limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in T. Rowe Price Realty Income
Fund I, A No-Load Limited Partnership, a Maryland limited
partnership ("Fund"), in connection with the solicitation of
written consents ("Consents") by T. Rowe Price Realty Income Fund
I Management, Inc. ("General Partner") to approve a single
proposal consisting of (i) the sale of substantially all of the
assets of the Fund (the "Sale"), which currently consists of five
properties, as contemplated by the Purchase and Sale Agreement
and Joint Escrow Instructions, dated as of April 11, 1997
("Purchase and Sale Agreement"), with Glenborough Realty Trust
Incorporated and Glenborough Properties, L.P. as the buyers
("Purchaser"), and (ii) the complete liquidation and dissolution
of the Fund (the "Liquidation" and, together with the Sale, the
"Transaction") in the manner described under the caption "THE
TRANSACTION--The Liquidation."
The Liquidation will result in: (a) the distribution to the
Partners of all net Sale proceeds and other net assets of the
Fund after completion of the Sale; and (b) the possible transfer
to the General Partner of all liabilities of the Fund, including
contingent liabilities, and sufficient assets to provide for the
payment of all transferred liabilities (in order to terminate the
Fund by December 31, 1997 and eliminate the need for the taxable
Limited Partners to receive Schedules K-1 with respect to
calendar year 1998). See "THE TRANSACTION--The Liquidation."
The Sale will result in the sale of all the remaining assets
of the Fund which, under the terms of the Amended and Restated
Agreement of Limited Partnership, dated as of December 3, 1984,
as amended (the "Partnership Agreement"), would cause the
automatic dissolution of the Fund. While such dissolution would
not ordinarily require the consent of the Limited Partners, the
General Partner is seeking the approval of both the Sale and the
Liquidation in a single proposal to the Limited Partners because
the proposed form of the Liquidation involves the transfer of
certain assets and liabilities of the Fund to the General
Partner, which may be deemed an "affiliated" transaction
prohibited by the Partnership Agreement. Approval of the
Transaction will have the effect of amending the Partnership
Agreement to the extent necessary to permit the General Partner
to effect the Liquidation. See "THE TRANSACTION--The
Liquidation."
This Consent Solicitation Statement, the attached Notice of
Consent Solicitation and the accompanying consent card are first
being mailed to Limited Partners on or about July 28, 1997.
The date of this Consent Solicitation Statement is July 28, 1997.
TABLE OF CONTENTS PAGE
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ACTION BY CONSENT . . . . . . . . . . . . . . . . . . . . . . 4
General . . . . . . . . . . . . . . . . . . . . . . . 4
Matters to be Considered . . . . . . . . . . . . . . . . . 4
Record Date . . . . . . . . . . . . . . . . . . . . . . . 4
Action by Consent . . . . . . . . . . . . . . . . . . . . 4
Recommendation of General Partner . . . . . . . . . . . . 5
THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . 5
Description of the Fund . . . . . . . . . . . . . . . . . 5
Background of the Disposition Plan . . . . . . . . . . . . 5
Background of the Sale . . . . . . . . . . . . . . . . . . 6
Description of the Properties to be Sold . . . . . . . . . 6
Annual Valuation . . . . . . . . . . . . . . . . . . . . . 9
Fairness Opinion . . . . . . . . . . . . . . . . . . . . 10
Recommendation of the General Partner . . . . . . . . . 13
Failure to Approve the Transaction . . . . . . . . . . . 16
Terms of the Purchase and Sale Agreement . . . . . . . . 16
The Liquidation . . . . . . . . . . . . . . . . . . . . 19
BENEFITS OF THE TRANSACTION TO AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNER AND ITS AFFILIATES . . . . . 19
CERTAIN FEDERAL AND STATE
INCOME TAX CONSEQUENCES OF THE SALE . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxation Prior to Liquidation . . . . . . . . . . . . . 20
Taxation of Liquidation . . . . . . . . . . . . . . . . 21
Capital Gains . . . . . . . . . . . . . . . . . . . . . 22
Passive Loss Limitations . . . . . . . . . . . . . . . . 22
Certain State Income Tax Considerations . . . . . . . . 22
Tax Conclusion . . . . . . . . . . . . . . . . . . . . . 22
NO APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . 23
MARKET FOR THE FUND'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS . . . . . . . . . . . . . 23
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 26
Results of Operations . . . . . . . . . . . . . . . . . 26
Liquidity and Capital Resources . . . . . . . . . . . . 27
Reconciliation of Financial and Tax Results . . . . . . 28
PAGE
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . . 30
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 30
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 30
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 32
APPENDIX I -- Opinion of Legg Mason Wood Walker,
Incorporated . . . . . . . . . . . . . . . . . . . . . . A-1
SUMMARY
The following is a summary of certain information contained
elsewhere in this Consent Solicitation Statement. References are
made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Consent Solicitation
Statement. Unless otherwise defined herein, terms used in this
summary have the respective meanings ascribed to them elsewhere
in this Consent Solicitation Statement. Limited Partners are
urged to read this Consent Solicitation Statement in its
entirety.
The Partnership
T. Rowe Price Realty Income Fund I,
A No-Load Limited Partnership The Fund directly owns five
commercial properties
(collectively "Properties" and
individually a "Property"),
consisting of two industrial
and two business parks, and
one office building. The
principal offices of the Fund
are located at 100 East Pratt
Street, Baltimore, Maryland
21202 and its telephone number
is 1-800-962-8300.
The Purchaser
Glenborough Realty Trust
Incorporated and Glenborough
Properties, L.P. Glenborough Realty Trust
Incorporated is a Maryland
corporation whose shares trade
on the New York Stock
Exchange.
Glenborough Realty Trust
Incorporated is the general
partner of Glenborough
Properties, L.P., a Delaware
limited partnership. The
principal offices of the
Purchaser are located at 400
South El Camino Real, San
Mateo, California 94402.
The Transaction
General The Transaction is a single
proposal to be approved by the
Limited Partners and consists
of (i) the Sale of the
Properties to the Purchaser
for an aggregate purchase
price of $27,408,320, subject
to certain adjustments at or
prior to closing, and (ii) the
Liquidation of the Fund.
Background of the Transaction In 1996, the General Partner,
based upon its belief that the
real estate markets were
improving and the fact that
the Fund was approaching the
end of its duration, indicated
its intention to dispose of
all the Fund's Properties by
the end of 1998. In January
1997, the Purchaser contacted
the Fund and indicated its
desire to purchase the
Properties. After a series of
negotiations, the Fund and the
Purchaser entered into an
agreement for the Fund to sell
its Properties to the
Purchaser, subject to certain
contingencies. See "THE
TRANSACTION--Background of the
Disposition Plan" and "--
Background of the Sale."
Recommendation of the
General Partner The General Partner has
carefully considered the
Transaction and has concluded
that the Transaction is in the
best interests of the Fund and
the Limited Partners.
Accordingly, the General
Partner approved the
Transaction and is
recommending that the Limited
Partners consent to it.
Security Ownership and Voting
of the General Partner At the Record Date, the
General Partner owned five
Units (less than 1% of the
outstanding Units), and all
officers and directors of the
General Partner, as a group,
beneficially owned 52 Units
(less than 1% of the
outstanding Units). T. Rowe
Price Trust Company, as
custodian for participants in
the T. Rowe Price Funds
Individual Retirement
Accounts, as custodian for
participants in various
403(b)(7) plans, and as
custodian for various profit
sharing and money purchase
plans, is the registered owner
of 30,070 Units (33% of the
outstanding Units). T. Rowe
Price Trust Company has no
beneficial interest in such
accounts and no control over
investment decisions with
respect to such accounts, nor
any other accounts for which
it may serve as trustee or
custodian with respect to an
investment in the Fund. The
General Partner and all
officers and directors of the
General Partner intend to
consent to the Transaction.
See "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF."
Opinion of Financial Consultant Legg Mason Wood Walker,
Incorporated ("Legg Mason")
acted as a financial
consultant to the General
Partner in connection with the
Sale. The General Partner has
received a fairness opinion
from Legg Mason that the Sale
is fair, from a financial
point of view, to the Fund and
the Limited Partners. See
"THE TRANSACTION--Fairness
Opinion."
Consummation of the Sale The Sale will be consummated
as promptly as practicable
after obtaining the requisite
approval of the Limited
Partners to the Transaction
and the satisfaction or, where
permissible, waiver of all
conditions to the Sale.
No Appraisal Rights If the Transaction is approved
by Limited Partners owning a
majority of the outstanding
Units, dissenting Limited
Partners will not have
appraisal rights in connection
with the Transaction. See "NO
APPRAISAL RIGHTS."
Certain Federal and State
Income Tax Consequences Assuming that the Sale occurs
in fiscal year 1997, as
anticipated, the Sale will
result in the allocation of
taxable gains and losses among
the Limited Partners. The
Sale proceeds distributed to
the Limited Partners are
expected to exceed the Limited
Partners' income tax liability
attributed to the Sale. See
"CERTAIN FEDERAL AND STATE
INCOME TAX CONSEQUENCES OF THE
SALE."
Final Distributions and
Liquidation Following the consummation of
the Sale, the General Partner
will determine the amount of
assets that it believes will
be sufficient to provide for
the payment of the Fund's
recorded liabilities. The
balance of the Fund's assets
will then be promptly
distributed to the Partners in
accordance with the
Partnership Agreement. It is
expected that all such net
assets will be distributed no
later than the quarter
following the closing of the
Sale. The liabilities and the
assets required to satisfy
such liabilities will then be
transferred to the General
Partner, in order to terminate
the Fund by December 31, 1997
and eliminate the need for the
taxable Limited Partners to
receive Schedules K-1 with
respect to calendar year 1998.
See "THE TRANSACTION--The
Liquidation."
Action by Written Consent
Termination of Consent
Solicitation Consents must be received by
September 11, 1997, at 10:00
A.M., New York City time
(unless such date or time is
extended).
Record Date; Units Entitled
to Consent Limited Partners of record at
the close of business on July
2, 1997 are entitled to
approve the Transaction by
written Consent. At such date
there were outstanding 90,622
Units, each of which will
entitle the record owner
thereof to one vote.
Purpose of the Action Written Consents are being
solicited to approve the
Transaction, which consists of
(i) the Sale of substantially
all of the assets of the Fund,
and (ii) the Liquidation of
the Fund.
Vote Required
The Transaction must be
approved by Limited Partners
holding a majority of all
outstanding Units.
ACTION BY CONSENT
General
This Consent Solicitation Statement is being furnished
on behalf of the Fund to the Limited Partners of the Fund in
connection with the solicitation of Consents by T. Rowe Price
Realty Income Fund I Management, Inc., as the General Partner.
This Consent Solicitation Statement, the attached
Notice of Consent Solicitation and accompanying consent card are
first being mailed to Limited Partners on or about July 28, 1997.
Matters to be Considered
Consents are being solicited to approve the
Transaction, which consists of (i) the Sale of substantially all
of the assets of the Fund, and (ii) the Liquidation of the Fund.
Such Liquidation will result in: (a) the distribution to the
Partners of all net proceeds from the Sale and other net assets
of the Fund after completion of the Sale; and (b) the possible
transfer to the General Partner of all liabilities of the Fund,
including contingent liabilities, and sufficient assets to
provide for the payment of all transferred liabilities in order
to terminate the Fund by December 31, 1997 and eliminate the need
for the taxable Limited Partners to receive Schedules K-1 with
respect to calendar year 1998. See "THE TRANSACTION--The
Liquidation."
Record Date
The close of business on July 2, 1997 ("Record Date")
has been fixed by the General Partner for determining the Limited
Partners entitled to receive notice of the solicitation of
Consents and to give their Consent to the Transaction. On the
Record Date, there were 90,622 outstanding Units held of record
by 17,355 Limited Partners, all of which are entitled to consent
to the Transaction.
Action by Consent
Pursuant to the terms of the Partnership Agreement, the
approval of Limited Partners owning a majority of the outstanding
Units is required to effect the sale of all or substantially all
of the assets of the Fund at one time, except for a liquidating
sale of a final Fund property remaining as a result of the sale
of Fund properties in the ordinary course of business. The
Partnership agreement also prohibits certain "affiliated"
transactions between the General Partner and the Fund. Since the
Transaction would result, among other things, in the sale of
substantially all of the assets of the Fund, as well as the
transfer of certain assets and liabilities of the Fund to the
General Partner pursuant to the Liquidation, the approval of the
Transaction by the Limited Partners owning a majority of the
outstanding Units is required to effect the Transaction. Such
approval will be obtained through the solicitation of written
Consents from Limited Partners, and no meeting of Limited
Partners will be held to vote on the Transaction. Under Maryland
law and under the Partnership Agreement, any matter upon which
the Limited Partners are entitled to act may be submitted for a
vote by written consent without a meeting. Any Consent given
pursuant to this solicitation may be revoked by the person giving
it at any time before 10:00 A.M., New York City time, on
September 11, 1997 (unless such date or time is extended), by
sending a written notice of revocation or a later dated Consent
containing different instructions to the Secretary of the General
Partner before such date. Any written notice of revocation or
subsequent Consent should be sent to T. Rowe Price Realty Income
Fund I Management, Inc., P.O. Box 89000, Baltimore, MD 21289-
0270.
In addition to solicitation by use of the mails,
officers, directors and employees of the General Partner or its
affiliates may solicit Consents in person or by telephone,
facsimile or other means of communication. Such officers,
directors and employees will not receive additional compensation
for such services but may be reimbursed for reasonable out-of-
pocket expenses in connection with such solicitation.
Arrangements have been made with custodians, nominees and
fiduciaries for the forwarding of consent solicitation materials
to beneficial owners of Units held of record by such custodians,
nominees and fiduciaries and the Fund will reimburse such
custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. All costs and expenses of the
solicitation of Consents, including the costs of preparing and
mailing this Consent Solicitation Statement, will be borne by the
Fund. The aggregate expenses anticipated to be incurred by the
Fund relating to this solicitation, including legal fees, are
expected to be approximately $105,000.
Recommendation of General Partner
The General Partner has approved the Transaction and
recommends that Limited Partners consent to it. See "THE
TRANSACTION--Recommendation of the General Partner."
THE TRANSACTION
Description of the Fund
The Fund was formed in August 1984 for the primary
purpose of acquiring a portfolio of existing income-producing
commercial real estate properties and subsequently operating and
holding such properties for investment. The Fund was structured
to have a finite life and to be self-liquidating in order to
enable the Fund to distribute its cash flow during its operating
stage, commence an orderly liquidation of its investments after a
planned holding period, distribute its proceeds of sale during
its liquidating stage (other than any funds set aside to provide
for the payment of all expenses and other liabilities of the
Fund) and thereafter dissolve. While it was anticipated that the
properties would be held for approximately seven to ten years,
depending on economic and market factors, they could be held for
shorter or longer periods in the complete discretion of the
General Partner. The Properties were purchased between 1985 and
1987 and have now been held for their anticipated holding period.
The Properties consist of two industrial and two
business parks, and one office building, all of which are owned
directly by the Fund. The Fund owned interests in five
additional properties, Dupont Business Park, Corporate Square,
Spring Creek, Royal Biltmore and Van Buren, each of which was
sold prior to the date of this Consent Solicitation Statement.
Background of the Disposition Plan
In 1996, the General Partner disclosed its intention to
dispose of all of the Fund's Properties by the end of 1998. This
decision was based upon the General Partner's belief that the
real estate market was improving, as well as the fact that the
Fund was nearing the end of its anticipated life. Over the past
few years, the ability to sell properties generally has been
enhanced by further improvements in the national real estate
market. Pension funds, real estate investment trusts ("REITs"),
and other institutional buyers have increased their purchasing
activity in recent years compared to the early 1990's when these
same institutional buyers were largely out of the market. Lower
interest rates have also improved the market for selling
properties as entrepreneurial buyers who require debt financing
to purchase properties are able to borrow funds at more
advantageous rates.
More specifically, with respect to the Fund's
Properties, improvements in the real estate capital markets and
in the operating performance of certain Properties has enhanced
the prospects for selling these Properties or the prices at which
they can expect to be sold. During the late 1980's and early
1990's, the Properties experienced adverse operating results and
decreases in value due to a nationwide slump in real estate
values as well as difficult local market conditions, especially
in southern California, Florida and suburban Washington, D.C.,
where the Properties are located. Improvements in the real
estate capital markets and in the local real estate markets have
caused rents to increase and concessions to tenants (such as free
rent periods and tenant improvements) to decrease. As a result
of improved occupancy and property cash flow and the improvement
in the real estate capital markets, the Properties located in
these areas are better positioned for sale now than they were
during the past several years. See "THE TRANSACTION--Description
of the Properties to be Sold" for more details concerning the
Properties.
Accordingly, the General Partner determined that the
Fund should investigate opportunities for selling the Properties.
The Fund had previously sold its Dupont Business Park property in
1990, its Corporate Square office property in January 1994 and
its Spring Creek industrial property in April 1996. In April
1997, the Fund sold its Royal Biltmore office building and, in
June 1997, sold its Van Buren industrial park. All marketing was
conducted through local real estate brokers in the areas where
the Properties were located or through brokers who had
relationships with large national buyers. LaSalle Advisors
Limited Partnership ("LaSalle"), the real estate adviser to the
Fund, managed the sales.
Background of the Sale
In January 1997, the Fund was contacted by the agent of
an unidentified buyer (which was later disclosed to be the
Purchaser), who expressed an interest in purchasing all of the
remaining real estate assets of the Fund and of the four other
public real estate funds sponsored by T. Rowe Price Associates,
Inc. ("Associates"). The four entities affiliated with the Fund
are sometimes hereinafter referred to as "Affiliated Funds" and,
together with the Fund, the "Funds." Later in January, after
telephone discussions between this third party and
representatives of the Fund, the Purchaser contacted the Fund and
identified itself as the potential buyer. Thereafter, in
February 1997, the Fund entered into a confidentiality agreement
with the Purchaser and its third party representative and
forwarded certain business and financial information to the
Purchaser for its review. The Purchaser then submitted an offer
for the Properties at a price of $26,010,000.
On March 7, 1997, the Fund made a counteroffer to sell
the Properties to the Purchaser for $28,256,000. On March 10,
1997, the Purchaser made a counteroffer to purchase the
Properties for $27,408,320, which the Fund accepted on March 12,
1997.
The Purchase and Sale Agreement for the Properties was
executed on April 11, 1997, and the Purchaser deposited
$274,083.20 (the "Escrow Deposit"), representing 1% of the
purchase price of the Properties, in an escrow account.
Description of the Properties to be Sold
Airport Perimeter Business Center
This Property consists of three multi-tenant
office/service warehouse buildings, containing just under 121,000
square feet, and is situated on 9.2 acres of land immediately
south of William B. Hartsfield Atlanta International Airport.
This Property is part of Airport Perimeter Business Park, a
master-planned, commercial/industrial business park containing
approximately 800,000 square feet of office/service/warehouse
facilities on approximately 137 acres of land, with good access
to major north-south and east-west Interstate highways. This
Property is located in an area which has been targeted for the
expansion of the Hartsfield airport and the Fund anticipates that
if it did not sell this Property as a part of the Sale to the
Purchaser, it would be forced to sell this Property to a
government agency to accommodate such an expansion in the next
one to two years. In fiscal 1996, the Fund recorded a provision
for value impairment in connection with Airport Perimeter of
$1,046,000. The General Partner determined that this adjustment
was a prudent course of action based upon the uncertainty of the
Fund's ability to recover the net carrying value of Airport
Perimeter through future operations and the anticipated forced
sale. This determination was based upon current market
conditions and future performance expectations of both the
Property and the Airport/South Atlanta market, as well as the
expected governmental action to acquire the Property.
The Property is part of the approximately 17.1 million
square foot Service and Distribution sector of the Atlanta
Airport/South Atlanta submarket which represents approximately
12% of Atlanta's total service and distribution space. This
sector of the submarket absorbed around 460,000 square feet
during the first nine calendar months of 1996 as it captured
around 22% of Atlanta's Service and Distribution absorption.
Vacancy in the submarket increased to approximately 10% in 1996
from 7% in 1995. In general, the Distribution sector is
substantially outperforming the Service Sector, which experienced
a significantly smaller net increase in absorption in 1996.
Airport Perimeter competes in both sectors. Absorption for both
of these submarkets is expected to continue to be positive,
primarily from expansion by existing tenants. For this reason,
more speculative projects for this submarket are expected. Net
effective rental rates for Class B space such as Airport
Perimeter remained around 1995's range of $3.25 to $3.75 per
square foot, including taxes, insurance and utilities.
Conditions in 1995 were generally unchanged from 1994.
During fiscal 1996, Airport Perimeter Business Center
gained four new tenants totaling approximately 14,500 square
feet, renewed four tenants totaling approximately 28,100 square
feet, and lost four tenants that did not renew for a total of
approximately 25,700 square feet. This resulted in a net
decrease in leased space of approximately 11,200 square feet.
Thus, the property decreased to a level of 71% leased at 1996
fiscal year end, versus 80% at the end of the prior fiscal year.
However, the Property is experiencing a good level of activity
from prospective tenants, and was 78% leased as of March 31,
1997.
Leases covering 38% of the space in Airport Perimeter
Business Center expire between May 1997 and December 1998, and it
is estimated that capital improvements, leasing commissions and
tenant improvements over the same period will be approximately
$200,000.
Montgomery Executive Center
This Property consists of a six-story office building
containing 116,300 square feet and is situated on 4.1 acres of
land in the City of Gaithersburg, Maryland, 19 miles northwest of
Washington, D.C. Montgomery Executive Center, whose tenants are
principally engaged in providing services to the local business
community, is located at the intersection of two major
thoroughfares with direct access to Interstate 270, which in turn
provides access to the Capital Beltway and the Washington
metropolitan area.
As of September 30, 1996, this Property was 68% leased
which was up one percentage point from September 30, 1995, and as
of May 31, 1997 it was 89% leased. The increase was due to two
new leases entered into in early 1997.
Montgomery Executive Center is located in the
Gaithersburg submarket and competes with 80 buildings totaling
approximately 4.0 million square feet; it is part of a suburban
office building market extending in both directions along
Interstate 270, including the communities of Germantown to the
north and Rockville to the south. The Gaithersburg submarket's
net absorption for the first three quarters of calendar 1996 was
approximately 116,000 square feet. This level of absorption is
less than the prior year's level of 140,000 square feet. The
current vacancy rate in the submarket has fallen slightly to its
current 16% level. This drop continues a trend which began in
1995, when the vacancy rate dropped to 18% from a 1994 level of
20%. Rents have increased, albeit slowly, over this period.
Asking rental rates increased modestly during the 1996 fiscal
year indicating that leasing momentum may be increasing in the
marketplace and a further decline in vacancy may be on the
horizon. Helping to support this is the fact that submarkets
closer to Washington D.C. have little vacancy, and current market
rents in Gaithersburg do not support new construction. Rates
range from $16.00 per square foot including taxes, insurance, and
operating expenses ("gross") for Class B space to $18.50 gross
for Class A space.
Leases covering 24% of the space in Montgomery
Executive Center expire between May 1997 and December 1998, and
it is estimated that capital improvements, leasing commissions
and tenant improvements over the same period, including expenses
in connection with leases in place, will be approximately
$1,250,000.
Springdale Commerce Center
Springdale Commerce Center consists of two multi-tenant
industrial/warehouse, distribution buildings, containing 144,000
square feet on 6.9 acres of land. It is located in the city of
Santa Fe Springs, California, 13 miles southeast of downtown Los
Angeles. Because of its central location, Santa Fe Springs is one
of the primary industrial centers in the area with excellent
access to major shipping routes. Springdale Commerce Center was
100% occupied as of March 31, 1997, unchanged from the prior
year's level.
The Santa Fe Springs submarket, of which the Property
is a part, is one of four major warehouse distribution centers in
the greater Los Angeles basin. It represents over one-half of the
Mid-Counties market which comprises approximately 99 million
square feet of industrial space in parts of Los Angeles and
Orange Counties. The Santa Fe Springs submarket consists
primarily of small and medium sized, "master planned", business
parks with a number of pockets containing older warehouse
facilities. Most of the area was fully developed by the 1970's,
and no new buildings have been constructed recently. The market
"bottomed out" in 1994, and occupancy rose to 92% in that year
and to 94% in 1995. The current vacancy level has remained
unchanged from the previous year at approximately 6% in the
Mid-Counties market, a figure which essentially represents
temporary vacancies as tenants move between projects, rather than
a lack of demand. Demand appears to be increasing, as reflected
by significant decreases in concessions to tenants.
There are at least eight projects directly competitive
to Springdale Commerce Center ranging in size from 12,000 square
feet to just over 100,000 square feet. Class B rates in the
market are being quoted in the range of $4.08 to $4.80 per square
foot, versus $3.55 to $4.20 per square foot quoted last year,
including taxes, insurance, and utilities, with one month of free
rent for a three to five year lease term. Tenant improvement
allowances are ranging from $.50 to $2.00 per square foot. With
vacancy levels at their lowest point during the last several
years, further upward pressure on rentals can be expected.
Leases covering 53% of the space in Springdale Commerce
Center expire between May 1997 and December 1998, and it is
estimated that capital improvements, leasing commissions and
tenant improvements over the same period will be approximately
$120,000.
The Business Park
The Business Park is located in Gwinnett County,
Georgia, approximately 17 miles northeast of downtown Atlanta.
The Business Park consists of eight multi-tenant office/warehouse
buildings, containing just over 157,000 square feet, situated on
13 acres of land. It is located in a suburban area known as the
"Peachtree Corridor," which contains a wide selection of business
facilities and homes in a park-like setting. In fiscal 1996, the
Fund recorded a provision for value impairment in connection with
The Business Park of $1,322,000. The General Partner determined
that this adjustment was a prudent course of action based upon
the uncertainty of the Fund's ability to recover the net carrying
value of The Business Park through future operations and sale.
This determination was based primarily upon lower anticipated
total cash flow as a result of the Fund's decision to dispose of
its operating Properties by the end of 1998, as well as current
market conditions and future performance expectations of both the
Property and the Atlanta office/warehouse market.
As of March 31, 1997, The Business Park was 99% leased.
The Property experienced a five percentage point increase in
occupancy during the 1996 fiscal year primarily due to leases to
twelve new tenants totaling 35,100 square feet. Additionally,
seven tenants renewed totaling 31,500 square feet. Eleven tenants
totaling 28,200 square feet vacated upon expiration.
The Peachtree Corridor is part of the Gwinnett/I-85
Corridor submarket of Atlanta, which contains approximately 9.9
million square feet of service center space and makes up The
Business Park's competitive area. This market has experienced
strong absorption in recent years, with vacancy rates declining
from 27% in 1993 to 17% in 1994 and 8% in 1995. Activity
marketwide in 1996 remained flat with net absorption during the
first nine months of calendar 1996 totaling a negative 10,000
square feet. Net absorption in this market is expected to remain
flat as build to suit and speculative construction of
distribution buildings, which began in 1994, is expected to
continue. Net effective rents in the market for Class A space
such as The Business Park have increased to $6.00 a square foot,
up dramatically from 1995's level.
Leases covering 39% of the space in The Business Park
expire between May 1997 and December 1998, and it is estimated
that capital improvements, leasing commissions and tenant
improvements over the same period will be approximately $210,000.
Newport Center Business Park
This Property consists of two multi-tenant office/light
industrial buildings containing just over 62,000 square feet, and
is situated on approximately 5.9 acres of land. Newport Center is
located in the city of Deerfield Beach, Florida, immediately
south of Palm Beach County and the City of Boca Raton. It is part
of the Newport Center Business Park, a 119 acre development which
includes research and development facilities, warehousing, and
corporate offices as well as two hotels. In fiscal 1996, the Fund
recorded a provision for value impairment in connection with
Newport Center of $822,000. The General Partner determined that
this adjustment was a prudent course of action based upon the
uncertainty of the Fund's ability to recover the net carrying
value of Newport Center through future operations and sale. This
determination was based primarily upon lower anticipated total
cash flow as a result of the Fund's decision to dispose of its
operating Properties by the end of 1998, as well as current
market conditions and future performance expectations of both the
Property and the South Florida multi-tenant office/light
industrial market. As of March 31, 1997, this Property was 97%
leased.
Newport Center compares favorably to its competition in
the Boca Raton submarket of the South Florida market. This
submarket contains approximately 5.4 million square feet of
office and flex-space, approximately 9% of which was vacant as of
September 30, 1996, down significantly from the prior year's
level of 12%. The market has significantly improved since 1993,
when it had a 27% vacancy rate. Net absorption for the first six
calendar months of 1996 totaled approximately 192,000 square
feet. Over 1996, office/service rents increased to around $8.00 -
$11.00 gross per square foot, $1.00 - $2.00 per square foot
higher than 1995. Concessions are minimal and "as is" deals are
frequently being made on second generation space.
The Newport Center/Deerfield area is attractive to
developers as it is close to I-95 and the Florida Turnpike, and
is a good location for covering a tricounty area business.
Inexpensive land is being bought up and build-to-suit facilities
are being built; additionally, speculative construction is
anticipated within the next year.
Leases covering 44% of the space in Newport Center
expire between May 1997 and December 1998, and it is estimated
that capital improvements, leasing commissions and tenant
improvements over the same period will be approximately $140,000.
Annual Valuation
At the end of each fiscal year, commencing in 1989, the
General Partner establishes an estimated value of the Fund's
portfolio of Properties ("Property Valuation"). In order to
establish the Property Valuation, a range of values is first
established for each of the Fund's Properties. This range is
primarily based on the discounting of expected future cash flows
for the Properties, taking into account current and anticipated
market rental rates and discount rates in the market where the
Property is located, as well as conditions at the Property
itself. Based on the range of values established for each
Property, the General Partner establishes a range for the
estimated current value of the Properties in the aggregate. The
Fund's analysis is primarily based on data provided by LaSalle.
The Fund also retains an independent appraiser to review the data
provided by LaSalle, including LaSalle's assumptions as to market
rates and projected future rental rates, and its application of
these assumptions to the Properties. The appraiser also reviews
the reasonableness of the aggregate market value range. Based
upon the range of values established for the Properties as a
group, the General Partner selects a figure within this range
which then constitutes the Property Valuation.
Once the Property Valuation is established, the General
Partner uses the Property Valuation, along with the Fund's other
assets and liabilities, to prepare an estimated unit value ("Unit
Valuation") by dividing the aggregate net value by the number of
Units outstanding at the end of the fiscal year. The Unit
Valuation is not necessarily representative of the value of the
Units when the Fund liquidates because, among other reasons, the
Unit Valuation includes only an estimate of the value and the
costs of selling the Properties, and does not take into account
the ongoing costs of operating the Properties and the Fund until
liquidation. Nor does the Unit Valuation necessarily represent
the value at which a Limited Partner could sell his or her Units
currently because of the lack of liquidity of the Units. In
addition, this valuation process does not take into account the
possibility that, as a result of the terms of the Fund's
Partnership Agreement, liquidating distributions per Unit to
Taxable Limited Partners (generally, those Limited Partners who
are subject to federal income tax) may vary from those to Tax-
Exempt Limited Partners (Limited Partners such as those who
invested in the Fund from an individual retirement account). See
"CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE--
Taxation Prior to Liquidation." At September 30, 1996, the Unit
Valuation was $420 per Unit. After deducting subsequent
distributions totalling $131.47 made during the period November
1996 through July 15, 1997, the adjusted Unit Valuation is $289.
Included in the subsequent distributions were $14.55 of residual
sales proceeds from Dupont Business Park, $66.59 of sales
proceeds from Royal Biltmore, and $42.33 of sale proceeds from
Van Buren. The sales price under the Purchase and Sale Agreement
after deducting expenses of the Transaction to the Fund, is
estimated to average approximately $299 per Unit. Additional net
assets from current and prior operations are also expected to be
distributed to Limited Partners in conjunction with the
Transaction. When aggregated with the proceeds of the Sale,
total liquidating distributions are expected to exceed the
adjusted Unit Valuation of $289 per Unit.
It is not anticipated that the Limited Partners who
purchased their Units during the initial public offering of the
Units will receive aggregate distributions, including
distributions from the Sale, equal to the amount that they
originally invested in the Fund.
Fairness Opinion
The General Partner requested Legg Mason Wood Walker,
Incorporated ("Legg Mason") to render it an opinion as to whether
the consideration to be received by the Fund from the Sale is
fair to the Fund and the Limited Partners, from a financial point
of view. The General Partner retained Legg Mason based upon its
prominence as an investment banking and financial advisory firm
with experience in the valuation of businesses, their properties
and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate purposes,
especially with respect to REITs and other real estate companies.
On July 21, 1997, Legg Mason delivered its written
opinion to the General Partner (the "Fairness Opinion") that, as
of the date of such opinion, based on Legg Mason's review and
subject to the limitations described below, the consideration to
be received by the Fund from the Sale is fair to the Fund and the
Limited Partners, from a financial point of view. The Fairness
Opinion does not constitute a recommendation to any Limited
Partner as to whether such Limited Partner should approve the
Sale. Additionally, the Fairness Opinion does not compare the
relative merits of the Sale with those of any other transactions
or business strategies available to the Fund as alternatives to
the Sale, and Legg Mason was not requested to, and did not,
solicit the interest of any other party in acquiring the
Properties.
THE FULL TEXT OF THE FAIRNESS OPINION (WHICH CONTAINS A
DESCRIPTION OF THE ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS IMPOSED ON THE REVIEW AND ANALYSIS) IS
SET FORTH IN APPENDIX I AND SHOULD BE READ IN ITS ENTIRETY. THE
FUND IMPOSED NO CONDITIONS OR LIMITATIONS ON THE SCOPE OF LEGG
MASON'S INVESTIGATION OR THE METHODS OR PROCEDURES TO BE FOLLOWED
IN RENDERING THE FAIRNESS OPINION.
In rendering the Fairness Opinion, Legg Mason, among
other things: (i) reviewed the Purchase and Sale Agreement; (ii)
reviewed and analyzed certain consolidated historic and projected
financial and operating data of the Fund and the Properties,
including certain audited and unaudited financial statements for
the Fund and unaudited cash-basis projections for the Properties,
as provided by the General Partner and LaSalle; (iii) reviewed
and analyzed certain other internal information concerning the
business and operations of the Fund and the Properties furnished
to it by the General Partner and LaSalle; (iv) reviewed and
analyzed certain publicly available information concerning the
Fund, the Properties and the Purchaser; (v) reviewed and analyzed
certain publicly available information concerning the terms of
selected merger and acquisition transactions that Legg Mason
deemed relevant to its inquiry; (vi) reviewed and analyzed
certain selected market purchase price data that Legg Mason
considered relevant to its inquiry; (vii) held meetings and
discussions with certain directors, officers and employees of the
General Partner and LaSalle concerning the operations, financial
condition and future prospects of the Properties; and (viii)
conducted such other financial studies, analyses and
investigations, including visits to certain of the Properties,
and considered such other information as it deemed appropriate.
In preparing its opinion, Legg Mason relied, without
independent verification, on the accuracy and completeness of all
information that was publicly available, supplied or otherwise
communicated to Legg Mason by the General Partner and LaSalle.
Legg Mason assumed that the financial projections (and the
assumptions and bases thereof) examined by it were reasonably
prepared and reflected the best currently available estimates and
good faith judgments of the General Partner and LaSalle as to the
future performance of the Properties. Legg Mason did not make an
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Fund (including the Properties),
nor was Legg Mason furnished with any such independent
evaluations or appraisals. The Fairness Opinion is based upon
financial, economic, market and other conditions and
circumstances existing and disclosed to it as of the date of its
opinion.
The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant
quantitative methods of financial analyses and the application of
those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or
amenable to summary description. Accordingly, Legg Mason
believes that its analysis must be considered as a whole and that
considering any portion of the analysis and of the factors
considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process
underlying the Fairness Opinion. Any estimates contained in
these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be
significantly more or less favorable than as set forth therein.
In addition, analyses relating to the values of real estate
properties are not appraisals and may not reflect the prices at
which such properties may actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial
uncertainty and Legg Mason does not assume responsibility for any
future variations from such analyses or estimates. The following
paragraphs summarize the significant quantitative and qualitative
analyses performed by Legg Mason in arriving at the Fairness
Opinion.
Analyses and Conclusions
As background for its analyses, Legg Mason held
extensive discussions with the General Partner and LaSalle
regarding the history, current business operations, financial
condition and future prospects of the Properties.
In valuing the Properties, Legg Mason considered a
variety of valuation methodologies, including (i) a discounted
cash flow analysis; (ii) an analysis of certain transactions
pursuant to which selected REIT's have acquired a portfolio of
industrial or office properties; and (iii) an analysis of certain
publicly available market purchase price data for industrial and
office properties in the markets in which the Properties are
located.
For purposes of its analysis, Legg Mason relied upon
audited financial statements for the Fund for the fiscal year
ended September 30, 1996, unaudited financial statements for the
Fund for the six months ended March 31, 1997 and unaudited cash-
basis projections for the Properties for the fiscal years ending
September 30, 1997 through 2007, inclusive, as provided by the
General Partner and LaSalle.
In connection with rendering its opinion, Legg Mason
performed a variety of financial and comparative analyses,
including those summarized below, and relied most heavily on the
discounted cash flow analysis. Legg Mason's opinion is directed
only to the fairness to the Fund and to the Limited Partners,
from a financial point of view, of the consideration to be
received by the Fund from the Sale, and does not address any
other aspect of the Sale. The summary set forth below does not
purport to be a complete description of the analyses used by Legg
Mason in rendering its Fairness Opinion.
Discounted Cash Flow Analysis. Legg Mason analyzed the
financial terms of the Sale using a discounted cash flow
analysis. The discounted cash flow approach assumes, as a basic
premise, that the intrinsic value of any business or property is
the current value of the future cash flow that the business or
property will generate for its owners. To establish a current
implied value under this approach, future cash flow must be
estimated and an appropriate discount rate determined. Legg
Mason used projections and other information provided by the
management of the General Partner and LaSalle to estimate the
free cash flows, defined as total projected cash revenue
(including base rent and expense recoveries net of certain free
rent and vacancy allowances) minus total projected cash property
expenses (including utility expense, repair and maintenance
expense, property management fees, insurance, real estate taxes,
tenant improvements, leasing commissions and capital
improvements) ("Free Cash Flows") for the six months ending
September 30, 1997 through the fiscal year ending September 30,
2007, inclusive.
The Free Cash Flows were then discounted to the
present, using discount rates ranging from 11.2% to 14.2% (12.5%
midpoint) and growth rates applied to the average of the Free
Cash Flows for the fiscal years ending September 30, 2005 through
2007 ranging from 4.0% to 5.5%. These discount rates reflected
Legg Mason's assessment of real estate investments in general,
and the specific risks of the Properties, in particular. Legg
Mason's calculations resulted in a range of aggregate imputed
values of the Properties of $21.9 million to $34.8 million, with
a mean of $27.1 million.
Given that the consideration of $27,408,320 to be
received by the Fund from the Sale is within the aggregate values
of the Properties derived from a discounted cash flow analysis,
Legg Mason believes that this analysis supports the fairness to
the Fund and the Limited Partners, from a financial point of
view, of the consideration to be received from the Sale.
Selected Comparable Acquisition Analysis. Legg Mason
also analyzed selected transactions (the "Comparable Industrial
Acquisitions") in which certain office/industrial REIT's (the
"Acquiring Industrial Companies") acquired a portfolio of
industrial properties (the "Target Industrial Portfolios"). Legg
Mason compared the purchase price paid in each Comparable
Industrial Acquisition with the latest twelve months or reported
period, on an annualized basis, revenues, EBITDA and funds from
operations of the Target Industrial Portfolios and calculated the
following range of multiples: a range of purchase price to Target
Industrial Portfolio revenues of 6.0x to 8.7x, with a mean of
7.4x; a range of purchase price to Target Industrial Portfolio
EBITDA of 9.0x to 11.8x, with a mean of 10.4x; and a range of
purchase price to Target Industrial Portfolio funds from
operations of 8.3x to 11.8x, with a mean of 10.3x. Applying the
applicable range of these acquisition multiples to the industrial
Properties' revenues, EBITDA and funds from operations for the
trailing twelve month period ended March 31, 1997, as adjusted to
reflect management's pro forma adjustments and certain additional
adjustments that Legg Mason deemed appropriate, yielded an
implied aggregate range of values of the industrial Properties of
approximately $16.2 million to $25.5 million, with a mean of
$20.7 million.
Legg Mason also analyzed selected transactions (the
"Comparable Office Acquisitions") in which certain
office/industrial REITs (the "Acquiring Office Companies")
acquired a portfolio of office properties (the "Target Office
Portfolios"). Legg Mason compared the purchase price paid in
each Comparable Office Acquisition with the latest twelve months
or reported period, on an annualized basis, revenues, EBITDA and
funds from operations of the Target Office Portfolios and
calculated the following range of multiples: a range of purchase
price to Target Office Portfolio revenues of 2.2x to 10.0x, with
a mean of 5.8x; a range of purchase price to Target Office
Portfolio EBITDA of 6.3x to 15.1x, with a mean of 10.6x; and a
range of purchase price to Target Office Portfolio funds from
operations of 0.7x to 17.3x, with a mean of 11.0x. Applying the
applicable range of these acquisition multiples to the office
Property's revenues, EBITDA and funds from operations for the
trailing twelve month period ended March 31, 1997, as adjusted to
reflect management's pro forma adjustments and certain additional
adjustments that Legg Mason deemed appropriate, yielded an
implied range of values for the office Property of approximately
$0.4 million to $14.6 million, with a mean of $7.2 million. Legg
Mason then combined the respective ranges of valuations of the
industrial Properties and the office Property, which yielded an
implied aggregate range of values of the Properties of
approximately $16.5 million to $40.2 million, with a mean of
$27.9 million.
Given that the consideration of $27,408,320 to be
received by the Fund from the Sale is within the aggregate values
for the Properties derived from the range of acquisition
multiples of the Comparable Industrial Acquisitions and the
Comparable Office Acquisitions, Legg Mason believes that this
analysis supports the fairness to the Fund and the Limited
Partners, from a financial point of view, of the consideration to
be received from the Sale.
Selected Comparable Market Purchase Price Analysis.
Legg Mason also compared certain financial information relating
to the Properties to certain publicly available information on
current purchase prices of industrial and office buildings in
particular markets in which the Properties are located.
Legg Mason analyzed the purchase capitalization rate
(calculated by dividing property net operating income for the
applicable trailing twelve month period by the purchase price
paid) for the Atlanta, Georgia; Fort Lauderdale, Florida; and Los
Angeles, California industrial markets as well as for the
suburban Washington, D.C. office market. Legg Mason believes
that these markets closely resemble the respective markets in
which the Properties are located and are an appropriate basis for
the comparison of values.
Applying this selected data to the applicable
Properties' net operating income for the twelve months ended
March 31, 1997, as adjusted to reflect management's pro forma
adjustments and certain additional adjustments that Legg Mason
deemed appropriate, yielded an aggregate value of the Properties
of $28.0 million.
Given that the consideration of $27,408,320 to be
received by the Fund from the Sale is approximately equal to the
aggregate value for the Properties derived from the purchase
capitalization rates, Legg Mason believes that this analysis
supports the fairness to the Fund and the Limited Partners, from
a financial point of view, of the consideration to be received
from the Sale.
Pursuant to an engagement letter dated May 12, 1997,
Legg Mason will receive $35,000 for its services in rendering the
Fairness Opinion. Legg Mason will also be reimbursed for certain
of its expenses, in an amount not to exceed $5,000 without the
prior consent of the General Partner. The Fund and the General
Partner have agreed to indemnify Legg Mason, its affiliates and
each of its directors, officers, employees, agents, consultants
and attorneys, and each person or firm, if any, controlling Legg
Mason or any of the foregoing, against certain liabilities,
including liabilities under federal securities law, that may
arise out of Legg Mason's engagement.
Legg Mason has, from time to time, provided securities
brokerage services to Associates and its affiliates, and may do
so in the future, but the compensation paid by Associates and its
affiliates to Legg Mason is not material, constituting less than
1% of Legg Mason's total 1996 commission revenue, and less than
1% of such commissions paid by Associates and its affiliates in
1996. Legg Mason has also been retained by the Affiliated Funds
for separate fees to render opinions in connection with the sale
by such Affiliated Funds of substantially all of their properties
to the Purchaser.
Recommendation of the General Partner
The General Partner believes that the Transaction is in
the best interests of the Fund and the Limited Partners, and,
therefore, recommends that the Limited Partners approve the
Transaction.
In reaching its recommendation, the General Partner
considered the following factors with respect to the Transaction:
(i) In a sale of all of the Properties in one
transaction, all negotiations including those relating to price
and any adjustments to price as a result of the Purchaser's due
diligence are conducted on a portfolio level, rather than
Property by Property, which is more efficient and is anticipated
to result in fewer price adjustments;
(ii) The purchase price was achieved by arm's length
negotiations and exceeds the Property Valuation;
(iii) The Fairness Opinion of Legg Mason that the Sale
is fair to the Fund and the Limited Partners, from a financial
point of view;
(iv) Prior to entering into the Purchase and Sale
Agreement, the General Partner made inquiries regarding the
Purchaser and determined that the Purchaser has a reputation for
completing purchases it contracts to make and for doing so in a
timely and expeditious manner;
(v) The terms and conditions of the Purchase and Sales
Agreement described under "Terms of the Purchase and Sale
Agreement," in particular: (a) the Purchaser's obligations are
not subject to obtaining financing; (b) the Purchaser will
forfeit its $274,083.20 Escrow Deposit if it fails to consummate
the Transaction other than for the due diligence reasons
discussed under "Terms of the Purchase and Sale Agreement--
Condition of the Properties; Purchaser's Review of the
Properties;" (c) it is unlikely that there will be any
significant adjustment to the purchase price because the
Purchaser had early access to information and because of the
timing of the due diligence review; and (d) the Fund can
terminate the Purchase and Sale Agreement if a more favorable
unsolicited offer is received for the Properties, although the
Fund would then forfeit the Escrow Deposit and pay an additional
$600,000 to the Purchaser;
(vi) No brokerage commissions are required to be paid
by the Fund in connection with the Sale;
(vii) Selling all of the Properties at one time will
result in lower aggregate sales costs;
(viii) Selling all of the Properties at one time will
eliminate the need for the Fund to incur the ongoing
administrative and other expenses of continuing to operate the
Fund and certain Properties during an extended sales period;
(ix) The Sale and Liquidation will result in the more
accelerated return of capital to the Limited Partners; and
(x) The Sale and Liquidation will result in the
opportunity for Taxable Limited Partners who are calendar year
taxpayers to include the results from Schedules K-1 for the 1997
fiscal year ending September 30, 1997, and for the final period
ending December 31, 1997, in their 1997 tax return and, thus,
avoid the future inconvenience and expense of reflecting such
schedules in their 1998 and future income tax returns.
The General Partner considered the following additional
factors with respect to the disposition of the Properties in
general:
(i) The General Partner's belief that current market
conditions are favorable for a sale of the Properties due to the
favorable interest rate environment, the increased availability
of investor capital and the improvement in certain of the
marketplaces in which the Fund's Properties are located, as well
as the likelihood that speculative construction will commence in
several of these markets in the near future, as discussed under
the caption "THE TRANSACTION--Description of the Properties to be
Sold;"
(ii) The historic as well as the present levels of
distributions to the Limited Partners (which have been lower than
originally anticipated);
(iii) The liquidity the Transaction will provide to
Limited Partners that the retention of Units does not provide.
At present, there is no established public trading market for
Units and liquidity is limited to sporadic sales that occur
within an informal secondary market and pursuant to occasional
tender offers for Units, which are generally at a substantial
discount to the Unit Valuation;
(iv) The age and physical condition of the Properties,
anticipated lease expirations and the anticipated need for
substantial expenditures on capital improvements and tenant
improvements in the near term if the Fund continued to hold the
Properties through the end of 1998;
(v) The fact that the Properties have now been held for
their originally anticipated holding period; and
(vi) Retaining the Properties will continue to subject
the Fund to the risks inherent in the ownership of property such
as fluctuations in occupancy rates, operating expenses and rental
rates which in turn may be affected by general and local economic
conditions, the supply and demand for properties of the type
owned by the Fund and federal and local laws and regulations
affecting the ownership and operation of real estate. More
particularly, the Fund would be subject to the risks of
prospective lease expirations over the next few years,
particularly at Springdale Commerce Center and Newport Center
Business Park, which may require substantial cash expenditures to
fund tenant improvement costs and leasing commissions in order to
attract and retain tenants.
The primary disadvantages of disposing of the
Properties pursuant to the Sale are as follows:
(i) The Fund will not benefit from possible
improvements in economic and market conditions which could
produce increased cash flow and enhance the sales price of the
Properties. The concern in continuing to hold the Properties in
an improving market is that the market conditions which led to
this improvement may encourage an increasing supply of new
properties which could eventually lead to oversupply of the
properties and weakening of prices;
(ii) The sale of the Properties at one time may not
result in as high an aggregate sales price as if they were sold
individually; and
(iii) Although not anticipated, the Liquidation may
result in additional compensation to the General Partner equal to
the amount of assets transferred to the General Partner less the
amount necessary to satisfy the ultimate liabilities of the Fund.
The General Partner also examined the alternative of
disposing of the Properties individually or in smaller groups
over the next 18 months. Based upon the General Partner's
analysis as set forth above, the General Partner concluded that
the Sale is a superior alternative to this strategy. The General
Partner also considered liquidating the Fund in the ordinary
course following the Sale, without assuming the outstanding
liabilities of the Fund and receiving a commensurate amount of
assets to satisfy such liabilities. However, such form of
liquidation would likely result in additional administrative
expenses incurred by the continuation of the Fund into calendar
year 1998, and the receipt by Taxable Limited Partners of
Schedules K-1, which would require that such additional Schedules
K-1 be accounted for in preparing their 1998 tax returns. Since
it is unlikely that the Liquidation proposed as part of the
Transaction will result in compensation to the General Partner
(the transfer of assets and liabilities will be based on a
balance sheet prepared in accordance with Generally Accepted
Accounting Principles), the General Partner concluded that the
Liquidation was in the best interests of the Limited Partners.
See "THE TRANSACTION--The Liquidation."
It is not anticipated that the Limited Partners who
purchased their Units during the initial public offering of the
Units will receive aggregate distributions, including
distributions from the Sale, equal to the amount that they
originally invested in the Fund.
Failure to Approve the Transaction
If the Limited Partners fail to approve the
Transaction, the Fund will continue to operate the Properties and
attempt to sell the Properties in single or multiple sales, which
may include sales to the Purchaser, in order to complete the
liquidation of the Fund before the end of the 1998 fiscal year.
Such sales could, under certain circumstances, require the
consent of the Limited Partners.
Terms of the Purchase and Sale Agreement
The following is a summary of the material terms of the
Purchase and Sale Agreement and Joint Escrow Instructions, dated
as of April 11, 1997, by and between the Fund and Purchaser.
This summary does not purport to be complete and reference is
made to the Purchase and Sale Agreement, which is incorporated
herein by reference. Copies of the Purchase and Sale Agreement
will be provided to Limited Partners upon written request to T.
Rowe Price Services, Inc., P.O. Box 89000, Baltimore, Maryland
21289-0270, or by calling (800) 962-8300. Capitalized terms used
but not defined herein have the meaning ascribed to them in the
Purchase and Sale Agreement.
The Purchase and Sale Agreement provides for the Sale
by the Fund to Purchaser of the Properties. The purchase price
("Purchase Price") for the Properties is $27,408,320, payable as
follows: (i) $274,083.20 of the Purchase Price, the Escrow
Deposit, was deposited by Purchaser into an escrow account
contemporaneously with the execution of the Purchase and Sale
Agreement; and (ii) the balance of the Purchase Price, subject to
adjustment as described below, is payable by Purchaser at the
Closing. The Closing Date is scheduled for the first business
day that is five days after the latest to occur of: (a) the
approval of the Transaction by a majority of the Limited Partners
of the Fund; (b) the expiration of the last of the Due Diligence
Periods (as described below); and (c) the receipt of the Fairness
Opinion.
Condition of the Properties; Purchaser's Review of the
Properties
The Purchaser is purchasing the Properties on an "As
Is," "Where Is" and "With All Faults Basis" without any
representation by the Fund as to the condition of the Properties
or their fitness for any purpose except as specifically described
below.
The Purchase and Sale Agreement provides that, prior to
Closing, Purchaser has three periods (collectively, the "Due
Diligence Periods") during which it has the opportunity to review
and analyze certain aspects of the Properties and certain
limited rights to cancel the Purchase and Sale Agreement. During
the period that commenced April 11, 1997 and expired May 1, 1997
("Financial Due Diligence Period"), the Purchaser had the
opportunity to review all of the Fund's Records and request other
information concerning the Properties. The Purchaser had the
right, by written notice to the Fund, to terminate the Purchase
and Sale Agreement and have the entire Escrow Deposit refunded to
it. Because the Fund did not receive such a notice from the
Purchaser during the Financial Due Diligence Period, 50% of the
Escrow Deposit became non-refundable on May 1, 1997.
Additionally, pursuant to the Purchase and Sale
Agreement, the Fund provided the Purchaser with an ASTM Phase I
Environmental Report (each an "Environmental Report" and
collectively, the "Environmental Reports") with respect to each
Property. The Purchaser had a 30-day period (the "Environmental
Due Diligence Period"), commencing on the date that it received
all such Environmental Reports, to review and analyze the
Environmental Reports and terminate the Purchase and Sale
Agreement by written notice to the Fund and have 50% of the
Escrow Deposit refunded to it. Because the Fund did not receive
written notice from the Purchaser terminating the Purchase and
Sale Agreement prior to June 23, 1997, the date on which the
Environmental Due Diligence Period expired, the entire Escrow
Deposit became non-refundable, subject to the provisions for
title review described below.
Finally, the Purchase and Sale Agreement provides for a
time period (the "Title Due Diligence Period") for the Purchaser
to review the state of title to the Properties. For each
Property, the Purchaser was provided with a preliminary title
insurance commitment and a current ALTA survey (collectively, the
"Title Review Material"). Upon receipt of the Title Review
Material, the Purchaser provided the Fund with written notice of
the matters revealed by the Title Review Material of which the
Purchaser disapproved (the "Disapproved Exceptions"). Except for
certain monetary liens, the Fund has no obligation to remove any
Disapproved Exceptions. Within ten days of the receipt of
Purchaser's notice of Disapproved Exceptions, the Fund provided
the Purchaser with a response specifying which Disapproved
Exceptions it would remove prior to Closing. Although the Fund
did not agree to remove all Disapproved Exceptions, the Purchaser
did not elect to terminate the Purchase and Sale Agreement.
Consequently, as of the date hereof, the Escrow Deposit is non-
refundable.
Conditions Precedent to Closing
The obligation of the Fund to close under the Purchase
and Sale Agreement is subject to (i) the approval of the
Transaction by a majority of the Limited Partners, (ii) the
validity of the Fund's representations and warranties on the
Closing Date, (iii) the absence of a fire or other insured
casualty for which the Fund has elected to terminate the Purchase
and Sale Agreement in accordance with its terms, and (iv) the
receipt of the Fairness Opinion.
The obligation of the Purchaser to close under the
Purchase and Sale Agreement is subject to (i) Purchaser having
received an estoppel certificate with respect to 90% of the Major
Tenants (defined as a tenant leasing 10,000 square feet of more
of space) from either the tenant or the Fund, (ii) the absence of
a casualty or condemnation for which Purchaser has elected to
terminate the Purchase and Sale Agreement in accordance with its
terms, (iii) the willingness of the Title Company to issue title
insurance policies insuring the Purchaser's ownership of the
Properties, and the (iii) the absence of Material Inaccuracies
(defined as an inaccuracy resulting in an aggregate loss to the
Purchaser in the excess of $274,083.20) in the Fund's
representations and warranties.
Casualty to or Condemnation of the Properties
If, prior to the Closing, any one Property is damaged
due to a fire or other insured casualty and the cost of repairing
such damage is in excess of $100,000, then the Purchaser may
elect to terminate the Purchase and Sale Agreement with respect
to such Property and the Purchase Price shall be reduced by the
market value of such Property under the Fund's casualty insurance
policy prior to the casualty.
If, prior to Closing, any one Property is damaged due
to fire or other insured casualty and either: (i) the cost of
repairing such damage is $100,000 or less, or (ii) the cost of
repairing such damage is in excess of $100,000 and Purchaser has
not elected to terminate the Purchase and Sale Agreement with
respect to such damaged Property, the Closing shall occur as
scheduled, the Fund shall assign to the Purchaser the proceeds of
all casualty insurance with respect to such damage and the
Purchase Price shall be reduced by the amount of the deductible
under Fund's casualty insurance.
If, prior to Closing, more than 10% of any one Property
is condemned or taken by eminent domain and, as a consequence,
the Property cannot be operated consistently with its use prior
to such taking, then the Purchaser may elect to terminate the
Purchase and Sale Agreement with respect to such Property and the
Purchase Price shall be reduced by the allocated value of the
affected Property. If, prior to Closing, a portion of any one
Property is taken by eminent domain and either the Purchaser does
not elect to terminate the Purchase and Sale Agreement with
respect to the affected Property or the taking is not of a
character that would permit the Purchaser to make such election,
the Closing shall occur as scheduled without reduction in the
Purchase Price and the Fund shall assign to the Purchaser all
awards, if any, resulting from such condemnation.
Operation of the Properties Prior to Closing
Prior to the Closing, the Fund shall operate and
maintain the Properties in substantially the same manner as they
were operated prior to execution of the Purchase and Sale
Agreement, provided, however, that during the pendency of the
Purchase and Sale Agreement, the Fund shall not, without the
prior consent of the Purchaser, (i) enter into any material
agreement affecting the Properties or any one of them; (ii) waive
a material obligation of a tenant, (iii) materially modify any
Tenant Lease or Service Contracts, or (iv) perform any physical
alterations to the Properties costing in the aggregate in excess
of $50,000.
Representations and Warranties
The Purchase and Sale Agreement contains various
representations and warranties of the Fund relating to, among
other things: (i) due organization and authority to enter into
the Purchase and Sale Agreement, (ii) the absence of conflicts
under any documents to which it is party and of violations of
agreements and instruments by which it is bound, (iii) the
absence of legal proceedings, governmental investigations and
violations of law and (iv) the accuracy of the rent roll and
schedule of service contracts provided to the Purchaser.
The Purchase and Sale Agreement also contains various
representations and warranties of the Purchaser relating to,
among other things: (i) due organization and authority to perform
its obligations under the Purchase and Sale Agreement, (ii) the
absence of conflicts under any documents to which it is party and
of violations of agreements and instruments by which it is bound
and (iii) the confidential nature of the transaction.
Default and Damages
The Purchase and Sale Agreement provides that the
Purchaser's sole recourse for any uncured breach (a "Default") by
the Fund of any representation or warranty, or any other matter
related to the Purchase and Sale Agreement prior to the Closing,
shall be to terminate the Purchase and Sale Agreement and receive
a refund of the Escrow Deposit together with a reimbursement of
out-of-pocket expenses of up to $75,000, provided, however, the
Purchaser shall have no such right to terminate the Purchase and
Sale Agreement and receive a refund of the Escrow Deposit and
reimbursement of out-of-pocket expenses unless all such Defaults
by the Fund in the aggregate materially and adversely affect the
value of any one Property by at least $100,000 or the value of
the Properties by at least $500,000.
In the event that a Default by the Fund is first
discovered by the Purchaser after the Closing, Purchaser shall
have no remedy for such Default unless such Default (i) relates
to a matter expressly stated in the Purchase and Sale Agreement
to survive the Closing, and (ii) Purchaser brings a claim with
respect to such Default prior to the earlier of (a) October 31,
1997 or (b) 90 days following the Closing. In addition, the Fund
shall have no liability to the Purchaser based upon any
inaccuracy in the Fund's representations and warranties contained
in the Purchase and Sale Agreement unless the same results in
damage to the Purchaser of more than $274,083.20, and the Fund's
aggregate liability to the Purchaser for all such inaccuracies is
$2,500,000.
Proration
All items of income and expense will be apportioned and
adjusted between the Fund and the Purchaser as of 12:00 midnight,
Eastern Standard time, of the day preceding the Closing Date.
Termination
The Purchase and Sale Agreement may be terminated by
the Fund if it receives a more favorable offer for the purchase
of the Properties from a bona fide third party. In the event of
a termination of the Purchase and Sale Agreement as a result of a
more favorable offer, the Escrow Deposit would be returned to the
Purchaser and the Fund would pay the Purchaser a topping fee of
$600,000 when, and if, the Fund actually closes on such more
favorable offer. The Purchase and Sale Agreement prohibits the
Fund from actively seeking a more favorable offer, but allows the
Fund to negotiate in good faith in the event that it receives an
unsolicited offer.
The Liquidation
Following the consummation of the Sale, the General
Partner will prepare a balance sheet (the "Balance Sheet") in
accordance with Generally Accepted Accounting Principles
("GAAP"), setting forth the total amount of remaining assets and
liabilities of the Fund, which will be audited by the Fund's
independent auditors. The General Partner shall then determine
the amount of net assets ("Net Assets") of the Fund by deducting
all of such liabilities reflected on the Balance Sheet from the
total assets of the Fund at such time. Promptly thereafter, such
Net Assets, which will include net proceeds from the Sale, shall
be distributed to the Limited Partners and the General Partner in
accordance with the terms of the Partnership Agreement by
utilizing any remaining cash proceeds derived from the Sale and
any other cash held by the Fund. If necessary, in order to avoid
a distribution in kind to the Limited Partners, the General
Partner will provide additional cash to the Fund, in exchange for
non-cash assets of the Fund of equal value, to facilitate a cash
distribution to the Partners equal to the total amount of Net
Assets.
The General Partner has determined that it is in the
best interests of Limited Partners to terminate the Fund by
December 31, 1997, if possible, in order to eliminate the need
for the Fund to prepare, and the Taxable Limited Partners to
receive, Schedules K-1 with respect to calendar year 1998. In
order to make reasonable provision to pay all outstanding
liabilities of the Fund prior to December 31, 1997, the General
Partner has agreed to assume all liabilities of the Fund, subject
to its receipt of sufficient assets of the Fund to satisfy those
liabilities set forth on the Balance Sheet. Although unlikely,
if the amount necessary to satisfy the liabilities proves to be
less than the assets transferred to the General Partner for such
purpose, the General Partner would receive additional
compensation in an amount equal to the difference between such
assets and liabilities.
BENEFITS OF THE TRANSACTION TO AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNER AND ITS AFFILIATES
The General Partner does not anticipate receiving any
fees or distributions in connection with the Sale of the
Properties. In accordance with the Partnership Agreement, during
the operating stage of the Fund, the General Partner was entitled
to receive a distribution of 10% of certain monies which were
derived from operations. Any amounts which are due to the
General Partner with respect to prior periods may be paid
following the consummation of the Sale. However, the General
Partner is entitled to these monies, regardless of whether the
Sale is consummated. The Sale of all of the Properties at any
one time may, however, accelerate the timing for the receipt of
these monies by the General Partner.
There was a potential conflict created by the Sale
because the Purchaser simultaneously offered to purchase
substantially all of the assets of all of the Funds. Associates
is the indirect parent company and controls the General Partner
of the Fund, as well as all of the general partners and the
investment manager, as the case may be, of the Affiliated Funds.
The apparent conflict was addressed by insisting that the
Purchaser negotiate and sign separate contracts with each of the
selling entities. In order to further confirm the fairness of
these third party contracts, each of the general partners or
board of directors of the Affiliated Funds, as the case may be,
has obtained a fairness opinion from Legg Mason that the
consideration to be received by the respective Affiliated Fund
from the sale to the Purchaser of such Affiliated Fund's
properties or interests therein is fair, from a financial
viewpoint, to the Affiliated Fund and its limited partners or
stockholders, as the case may be.
There is also a potential conflict for the General
Partner in recommending the Sale because a mutual fund sponsored
by Associates owns 1.8% of the outstanding shares of Glenborough
Realty Trust Incorporated, the value of which could be enhanced
by the consummation of the Sale. As of July 16, 1997, this
holding constituted less than 1% of the net asset value of the
fund and is not considered by Associates to be material to the
fund.
Conversely, the General Partner will be adversely
affected by the Sale because the 10% of cash flows from
operations which it presently receives will be eliminated (it
received $335,000 during 1996). Further, in connection with the
Liquidation, the General Partner may be obligated to contribute
to the Fund for distribution to the Limited Partners an amount
not in excess of $913,000, representing the negative balance in
the General Partner's capital account. However, the consummation
of the Sale will also eliminate any liability of the General
Partner for liabilities of the Fund which could arise from
continued operation of the Fund. See "THE TRANSACTION--The
Liquidation."
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
General
The Transaction, if approved, will have certain tax
implications to the Limited Partners that must be considered.
The following summarizes the material estimated federal income
tax consequences for Taxable Limited Partners arising from the
Transaction and provides a general overview of certain state
income tax considerations. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, court decisions and published positions of the
Internal Revenue Service (the "Service"), each as in effect on
the date of this Consent Solicitation Statement. There can be no
assurance that the Service will agree with the conclusions stated
herein or that future legislation or administrative changes or
court decisions will not significantly modify the federal or
state income tax law regarding the matters described herein,
potentially with retroactive effect. This summary is not
intended to, and should not, be considered an opinion respecting
the federal or state income tax consequences of the Transaction.
Taxation Prior to Liquidation
A partnership is not a taxable entity and incurs no
federal income tax liability. Instead, each Partner is required
to take into account in computing his or her income tax liability
his or her allocable share of the Fund's items of income, gain,
loss, deduction and credit (hereinafter referred to as "income or
loss") in accordance with the Partnership Agreement. If the
allocation of income or loss in the Partnership Agreement does
not have "substantial economic effect" as defined in Code Section
704(b), the law requires the Fund's income or loss to be
allocated in accordance with the Limited Partners' or Partners'
economic interests in the Fund. The distribution of cash
attributable to Fund income is generally not a separate taxable
event.
For tax purposes, the Fund will realize and recognize
gain or loss separately for each Property (and in some cases, for
each building which is part of a Property). The amount of gain
for tax purposes recognized with respect to an asset, if any,
will be an amount equal to the excess of the amount realized
(i.e., cash or consideration received reduced by the expenses of
the Sale) over the Fund's adjusted tax basis for such asset.
Conversely, the amount of loss recognized with respect to an
asset, if any, will be an amount equal to the excess of the
Fund's adjusted tax basis over the amount realized by the Fund
for such asset. The "adjusted tax basis" of a Property is its
cost (including nondeductible capital expenditures made by the
Fund at the time of purchase) or other basis with certain
additions or subtractions for expenditures, transactions or
recoveries of capital during the period of time from acquisition
of the Property until the sale or other disposition. To
determine the gain or loss on the sale or other disposition of a
Property the unadjusted basis must be (i) increased to include
the cost of capital expenditures such as improvements,
betterments, commissions and other nondeductible charges; and
(ii) decreased by depreciation and amortization.
Each Limited Partner must report his or her allocable
share of these gains and losses in the year in which the
Properties are sold. Actual gain or loss amounts may vary from
the estimates set forth below. Each Limited Partner's allocable
share of any Section 1245 gain, Section 1231 gain or loss and
Fund net taxable income or loss from operations will be reflected
on his or her applicable Schedule K-1 (as determined in
accordance with the allocation provisions contained in the
Partnership Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is
required to separately state, and the Partners are required to
account separately for, their distributive share of all gains and
losses. Accordingly, each Limited Partner's allocable share of
any Section 1231 gain or loss and depreciation recapture realized
by the Fund as a result of the Transaction would be reportable by
such Limited Partner on his or her individual tax return.
Section 1231 gains are those gains arising from the sale or
exchange of "Section 1231 Property" which means (i) depreciable
assets used in a trade or business or (2) real property used in a
trade or business and held for more than one (1) year.
Conversely, Section 1231 losses are those losses arising from the
sale or exchange of Section 1231 Property. If Section 1231
losses exceed Section 1231 gains, such losses would be treated as
ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable
year exceed certain Section 1231 losses for the year, subject to
certain exceptions (such as depreciation recapture, as discussed
below), such gains and losses shall be treated as long-term
capital gains. However, Section 1231 gains will be treated as
ordinary income to the extent of prior Section 1231 losses from
any source that were treated as ordinary in any of the previous
five years.
Under Sections 1245 and 1250 of the Code, a portion of
the amount allowed as depreciation expense with respect to
Section 1231 Property may be "recaptured" as ordinary income upon
sale or other disposition rather than as long-term capital gains
("Section 1245 gains" and "Section 1250 gains", respectively).
The Fund does not anticipate that it would have Section 1250
gains as a result of the Transaction, and believes that Section
1245 gains, if any, will be de minimis.
In general, under Section 4.3.D of the Partnership
Agreement, gain from a "Terminating Transaction" is first
allocated among Partners having negative capital account balances
in proportion to and to the extent of their respective negative
capital account balances prior to making distributions of the
sale proceeds. A "Terminating Transaction" means a "Sale" or
"Financing" which results in the termination or dissolution of
the Fund. Thereafter, any remaining gains and losses, subject to
an overriding 1% allocation of recognized tax loss to the General
Partner, will be allocated to the Limited Partners so that, to
the extent possible, the ratio of the positive capital account
balance of each Limited Partner to the aggregate capital account
balances for all Limited Partners equals the ratio of the number
of Units held by each Limited Partner to the total of all Units
held by the Limited Partners.
The per-unit capital account balances of the Limited
Partners before the Transaction vary. In particular, the capital
account balances of Taxable Limited Partners are substantially
lower than the balances of Tax-Exempt Limited Partners. This
variance is primarily the result of greater allocations of
depreciation for tax purposes to the Taxable Limited Partners
during the life of the Fund. This disproportionate allocation
was mandated by the Fund's Partnership Agreement and enabled the
Taxable Limited Partners to shelter a portion of their Fund
income from federal income taxes. In addition, the per-unit
capital accounts of Limited Partners may vary as a result of
different admission dates to the Fund.
In accordance with the Partnership Agreement,
distributions in liquidation are determined based on positive
capital account balances for the Limited Partners. The Fund
expects to recognize taxable gains of approximately $1.1 million
and taxable losses of approximately $5.1 million as a result of
the Sale. It is expected that the allocation of net gains and
losses from the Sale will be sufficient to completely equalize
the per-unit capital account balances of the Limited Partners.
Thus, the expected distribution as a result of the Sale is
estimated to be approximately $299 per Unit.
Taxation of Liquidation
After allocating income or loss to the Partners, with
the concomitant tax basis adjustments, the distribution of
proceeds from the Transaction will reduce each Limited Partner's
federal income tax basis in his or her Unit. To the extent that
the amount of the distribution is in excess of that basis, such
excess will be taxed as a long-term or short-term capital gain
depending on a Limited Partner's holding period. Upon the
subsequent termination of the Fund, most Limited Partners will
likely have basis remaining for their Units. The amount of such
remaining basis will give rise, in the year of the termination,
to a long-term or short-term capital loss, depending on the
Limited Partner's holding period.
Capital Gains
Net long-term capital gains of individuals, trusts and
estates will be taxed at a maximum rate of 28%, unless the rate
applicable to long-term capital gains is decreased by
legislation, while ordinary income (such as Section 1245 gain or
Section 1250 gain) will be taxed at a maximum rate of up to
39.6%. The amount of net capital loss that can be utilized to
offset income will be limited to the sum of net capital gains
from other sources recognized by the Limited Partner during the
tax year, plus $3,000 ($1,500 in the case of a married individual
filing a separate return). The excess amount of such net
long-term capital loss may be carried forward and utilized in
subsequent years subject to the same limitations.
Passive Loss Limitations
Limited Partners who are individuals, trusts, estates,
or personal service corporations are subject to the passive
activity loss limitations rules. A Limited Partner's allocable
share of Fund income or loss is treated as derived from a passive
activity, except to the extent of the Fund's portfolio income.
Portfolio income includes such items as interest and dividends.
A Limited Partner's allocable share of any Fund gain realized on
the Sale will be characterized as passive activity income. Such
passive activity income may be offset by passive activity losses
from other passive activity investments. Moreover, because the
Transaction will terminate the Limited Partner's interest in the
passive activity, a Limited Partner's allocable share of any Fund
loss realized on the sale of its investments, or loss realized by
the Limited Partner upon liquidation of his or her Units, will
not be subject to the loss limitations.
Certain State Income Tax Considerations
Because each state's tax law varies, it is impossible
to predict the tax consequences to the Limited Partners in all
the state tax jurisdictions in which they are subject to tax.
Accordingly, the following is a general summary of certain common
(but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Limited Partner
will depend upon the provisions of the state tax laws to which
the Limited Partner is subject. The Fund will generally be
treated as engaged in business in each of the states in which the
Properties are located, and the Limited Partners would generally
be treated as doing business in such states and therefore subject
to tax in such state. Most states modify or adjust the taxpayer's
federal taxable income to arrive at the amount of income
potentially subject to state tax. Resident individuals generally
pay state tax on 100 percent of such state-modified income, while
corporations and other taxpayers generally pay state tax only on
that portion of state-modified income assigned to the taxing
state under the state's own apportionment and allocation rules.
Tax Conclusion
The discussion set forth above is only a summary of the
material federal income tax consequences to the Taxable Limited
Partners of the Properties and of certain state income tax
considerations. It does not address all potential tax
consequences that may be applicable to a Limited Partner and may
not be applicable to Tax-Exempt Limited Partners and certain
other categories of Limited Partners, such as non-United States
persons, corporations, insurance companies, subchapter S
corporations, partnerships or financial institutions. It also
does not address the state, local or foreign tax consequences of
the transactions. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX
CONSEQUENCES OF THE TRANSACTION TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the
outstanding Units on the Record Date consent to the Transaction,
such approval will bind all Limited Partners. The Partnership
Agreement and the Maryland Revised Uniform Limited Partnership
Act, under which the Fund is governed, do not give rights of
appraisal or similar rights to Limited Partners who dissent from
the vote of the majority in approving or disapproving the
Transaction. Accordingly, dissenting Limited Partners do not
have the right to have their Units appraised or to have the value
of their Units paid to them if they disapprove of the action of a
majority in interest of the Limited Partners.
MARKET FOR THE FUND'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS
At July 2, 1997 there were 17,355 Limited Partners.
The Fund will not redeem or repurchase the Units. There is no
active public trading market for the Units. However, in the last
quarter of fiscal 1996 and the first two quarters of fiscal 1997,
three bidders, none of which is affiliated with the General
Partner or LaSalle, made tender offers for the Units, at prices
of $180, $250, and $298 per Unit, subject to adjustment for
certain distributions by the Fund. The Fund has made material
distributions of property sale proceeds since these offers were
made. See "THE TRANSACTION--Annual Valuation." The General
Partner is not aware of how many sales have actually occurred at
these prices. As of July 2, 1997, sales of 1,602 Units purchased
pursuant to these offers have been presented for processing.
In 1987 Congress adopted certain rules concerning
"publicly traded partnerships". The effect of being classified as
a publicly traded partnership would be that income produced by
the Fund would be classified as portfolio income rather than
passive income. After December 31, 1997, if the Fund does not
have qualifying income, the Fund could be taxed as a corporation.
On November 29, 1995, the Internal Revenue Service adopted final
regulations ("Final Regulations") describing when interests in
partnerships will be considered to be publicly traded. The Final
Regulations do not take effect with respect to the Fund until the
year 2006. Due to the nature of the Fund's income and to the
historically low volume of transfers of Units, it was not
anticipated that the Fund would be treated as a publicly traded
partnership under currently applicable rules and interpretations
or under the Final Regulations. However, in the event the
transfer of Units presented for transfer within a tax year of the
Fund could cause the Fund to be treated as a "publicly traded
partnership" for federal tax purposes, the General Partner will
accept such transfers only after receiving from the transferor or
the transferee an opinion of reputable counsel satisfactory to
the General Partner that the recognition of such transfers will
not cause the Fund to be treated as a "publicly traded
partnership" under the Code. The General Partner is closely
monitoring this situation in light of the recent tender offers.
Cash distributions declared to the Limited Partners
during the two most recent fiscal years are as follows:
Distribution for the Amount of
Quarter Ended Distributions per Unit
December 31, 1994 $ 4.00
March 31, 1995 $ 4.00
June 30, 1995 $ 4.00
September 30, 1995 $18.00
December 31, 1995 $ 4.75
March 31, 1996 $22.54
June 30, 1996 $ 4.75
September 30, 1996 $21.55
All of the foregoing distributions were paid from cash
flows from operating activities with the exception of the
distribution for the quarter ended September 30, 1995 which
included a distribution of $9.00 per Unit representing previously
retained proceeds from the sales of Corporate Square and Dupont
Business Park, the distribution for the quarter ended March 31,
1996, which included $17.79 per Unit representing the proceeds of
the sale of Spring Creek, and the distribution for the quarter
ended September 30, 1996, which included $14.55 per Unit of
residual proceeds retained from the sale of Dupont Business Park.
Distributions made for fiscal 1997 are $1.00 per Unit from
operations for the first quarter of fiscal 1997, $66.59 per Unit
from the sale of Royal Biltmore in April and $42.33 per Unit from
the sale of Van Buren in June. The Fund has distributed all
sales proceeds for transactions to date.
There are no material legal restrictions on the Fund's
present or future ability to make distributions in accordance
with the provisions of the Partnership Agreement. Reference is
made to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," below, for a discussion of
the Fund's plans regarding future distributions.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for
each of the fiscal years in the five-year period ended September
30, 1996, has been derived from the Fund's financial statements
audited by the Fund's independent auditors. The following
selected historical financial data for the six month periods
ended March 31, 1997 and 1996 are unaudited and, in the opinion
of the General Partner, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair
presentation of such data. Financial data for the six month
period ended March 31, 1997 are not necessarily indicative of the
results of operations to be expected for the entire year. The
selected financial data set forth below should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the audited
and unaudited financial statements and related notes thereto
appearing elsewhere herein.
(Dollar amounts in thousands, except per-unit data)
Year ended September 30,
1992 1993 1994 1995 1996
Total
assets $61,260 $52,710 $47,844 $46,133 $38,729
Total
revenues $6,542 $6,339 $5,993 $6,043 $6,171
Net income
(loss) $(3,012) $(6,610) $165 $8 $(2,603)
Net income
(loss) per
Unit $(29.91) $(65.65) $1.64 $0.08 $(25.85)
Cash distri-
butions
declared per
Unit:
From oper-
ations $20.00 $16.00 $16.00 $21.00 $21.25
From sale
proceeds $21.00 $34.00 $9.00 $32.34 $17.79
6 months ended (unaudited)
March 31, 1996 March 31, 1997
Total assets $44,467 $37,225
Total revenues $ 3,067 $ 3,008
Net income (loss) $ 705 $ 758
Net income (loss) per
Unit $ 7.00 $ 7.53
Cash distributions
declared per Unit:
From operations $ 9.50 $ 1.00
From sale
proceeds $ 17.79 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three and Six Months ended March 31, 1997 compared to
Three and Six Months ended March 31, 1996
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 The 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 three months ended March 31, 1997,
mainly as a result of necessary costs incurred in responding to
the recent tender offers for Units.
At the property level, the average leased status of the
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, the Fund 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 1997. In addition, a new
lease representing another 14.5% of the Property was signed at
Montgomery in May 1997.
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.
Year ended September 30, 1996 compared to Year ended
September 30, 1995
For the fiscal year ended September 30, 1996, the Fund's
net income declined 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 Executive
Center 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 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 two years. While leases on 31% of the space at
Airport Perimeter expire in fiscal 1997, leasing activity in the
submarket is positive, and the property is receiving attention
from prospective tenants.
The impact of Montgomery Executive Center'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.
Leases representing 26% of the portfolio's leasable
square footage are scheduled to expire in fiscal 1997. These
leases represented approximately 21% of the portfolio's rental
income for fiscal 1996. This amount of potential lease turnover
is normal for the types of properties in the portfolio, which
typically lease to tenants under three to five year leases. The
overall portfolio occupancy was 89% as of the end of fiscal 1996.
Montgomery Executive Center accounted for 24% of the
Fund's revenue from operating activities in fiscal 1996. Leases
covering 12% of the space in this property expire in 1997, and
the property was 32% vacant as of September 30, 1996. The Fund
expects that rents ultimately obtained on this space will in some
cases be slightly lower than that received under the previous
leases, which were executed several years ago in stronger
markets. Expenditures for tenant improvement work are anticipated
in connection with any new leases.
The Business Park provided 19% of the Fund's revenue
from operations in fiscal 1996. This Property did well in
renewing tenants whose leases expired in 1996, as well as
attracting new tenants, and conditions in its competitive market
are expected to continue to remain favorable.
Year ended September 30, 1995 compared to Year ended
September 30, 1994
Rental income from Properties owned during all of fiscal
1995 was up $317,000 over 1994, and expenses, excluding the
effect of the Corporate Square sale and valuation adjustments,
were down $62,000. Without the adjustments, net income from these
Properties' operations would have increased by $379,000 over 1994
to $555,000. Corporate Square, which was sold in January 1994,
contributed $264,000 to rental income and $234,000 to net income
in fiscal 1994 and nothing in 1995. In addition, the carrying
values of three properties still owned declined a total of
$547,000. At Airport Perimeter, an initial permanent value
impairment of $189,000 was recorded, while at the Business Park
there was permanent impairment of $165,000 in addition to
$860,000 of impairment recorded in 1993 and 1994. Spring Creek,
which the Fund was trying to sell, incurred a net downward
valuation adjustment of $193,000. (This Property had previously
recorded $489,000 of permanent impairment in 1992, and a total of
$1,244,000 of net valuation allowances in 1993 and 1994.)
The biggest gain in rental income from the current
portfolio of Properties was experienced by Royal Biltmore, whose
average leased status was up from 91% in fiscal 1994 to 98% in
1995, resulting in $123,000 of additional income. The Business
Park, Springdale, and Newport Center also experienced higher
leased levels, while rental rates being paid by new tenants at
the first two Properties were also up over those in prior leases.
Bad debt expense was down or flat for all Properties in
1995 relative to 1994, with Montgomery and Newport Center showing
the greatest improvement in tenant credit quality. Savings in
this property operating expense category, excluding Corporate
Square, totaled $71,000, and repairs and maintenance costs at
Montgomery declined by $44,000 relative to 1994. Increased tax
assessments at The Business Park and Royal Biltmore more than
offset the absence of taxes for Corporate Square, pushing real
estate taxes higher. Excluding the effect of Corporate Square,
depreciation on continuing Properties remained flat. There were
significant fluctuations on several Properties (Newport Center
down $120,000, Van Buren up $56,000, Montgomery Executive Center
up $48,000, and Airport Perimeter up $17,000) resulting from
variations in the write-off of tenant improvements for vacating
and expiring leases.
Liquidity and Capital Resources
The Fund sold 90,612 Units in connection with its
initial public offering for a total of $90,612,000. Combined with
the initial contribution of $10,000 from the Initial Limited
Partners, the total Limited Partners' capital contributions were
$90,622,000. The initial public offering was terminated in May
1985, and no additional Units have been or will be sold by the
Fund. After deduction of organizational and offering costs of
$5,212,617, the Fund was left with $85,409,383 available for
investment.
The Fund purchased ten properties on an all-cash basis,
and has sold five property investments - its interest in Dupont,
and the Corporate Square, Spring Creek, Royal Biltmore and Van
Buren properties. The remaining five Properties are reflected in
the March 31, 1997 financial statements as investments in real
estate of $26,523,000 after accumulated depreciation,
amortization and valuation allowances recognized in prior years.
The Fund expected to incur capital expenditures during
fiscal 1997 totaling approximately $1,544,000 for tenant
improvements, lease commissions, and other major repairs and
improvements; the majority of these expenditures are dependent on
the execution of leases with new and renewing tenants. In the
first six months of fiscal 1997, the Fund incurred $483,000 of
such expenses. Under the terms of the Purchase and Sale
Agreement, the Fund agreed to operate and maintain the Properties
in substantially the same manner as they were operated prior to
the execution of the Purchase and Sale Agreement, provided that
the Fund has agreed that it will not, without the prior consent
of the Purchaser, perform any physical alterations to the
Properties costing in the aggregate in excess of $50,000.
Subsequent to the execution of the Purchase and Sale Agreement,
the Fund and the Purchaser agreed that the Fund will perform
approximately $57,000 of specified capital work on the
Properties.
The Fund maintains cash balances to fund its operating
and investing activities including the costs of tenant
improvements and leasing commissions, costs which must be
disbursed prior to the collection of any resultant revenues. The
General Partner believes that cash balances and cash generated
from operating activities in fiscal 1997 will be adequate to fund
the Fund's current investing and operating needs. The Fund has
suspended distributions pending completion of the Sale, with the
exception of the distribution in July 1997 of the proceeds of the
sale of Van Buren.
As of March 31, 1997, the Fund held cash and cash
equivalents aggregating $1,140,000, a decrease of $1,150,000 from
the prior year end. This decrease resulted primarily because of
the distribution in November 1996 of previously retained proceeds
of the sale of the Dupont property. Net cash provided by
operating activities increased by $219,000 from 1995, primarily
due to improved operating results (exclusive of property
valuation adjustments). Net cash provided by investing activities
increased by $2,174,000, primarily because the Fund received the
proceeds of the Spring Creek sale in 1996, did not sell a
property in 1995, and made fewer capital expenditures in 1996.
Cash used in financing activities increased by $3,164,000,
reflecting the higher distributions during the current year.
Reconciliation of Financial and Tax Results
For fiscal 1996, the Fund's financial statement net loss
was $2,603,000, and its taxable net loss was $632,000. The
primary differences between the two are allowances for property
valuations of $3,115,000, and a tax basis loss on the sale of
Spring Creek of $1,296,000. For fiscal 1995, the Fund's
financial statement net income was $8,000, and its taxable net
income was $613,000. The primary difference between the two was
allowances for property valuation of $547,000. For fiscal 1994,
the Fund's financial statement net income was $165,000, and its
taxable net loss was $2,938,000. The primary difference between
the two was the net loss for tax purposes of $3,133,000 resulting
from the sale of the Corporate Square property. For a complete
reconciliation, see Note 7 to the Fund's year-end financial
statements, which note is hereby incorporated herein by
reference.
BUSINESS
The Fund 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 real estate properties. On December 7,
1984, the Fund commenced an offering of $100,000,000 of Units
($1,000 per Unit) pursuant to a Registration Statement on Form S-
11 under the Securities Act of 1933, as amended. The Gross
Proceeds from the offering, combined with the contribution of
$10,000 from the Initial Limited Partners (the General Partner
and Coldwell Banker Real Estate Fund Management, Inc.) totaled
$90,622,000. The offering terminated in May 1985, and no
additional Units were sold. As of July 2, 1997, there were
17,355 Limited Partners and 90,622 Units outstanding.
In December of 1991, LaSalle entered into a contract
with the Fund and the General Partner to perform day-to-day
management and real estate advisory services for the Fund under
the supervision of the General Partner and its affiliates.
LaSalle's duties under the contract include disposition and asset
management services, including recordkeeping, contracting with
tenants and service providers, and preparation of financial
statements and other reports for management use. The General
Partner continues to be responsible for overall supervision and
administration of the Fund's operations, including setting
policies and making all disposition decisions, and the General
Partner and its affiliates continue to provide administrative,
advisory, and oversight services to the Fund. Compensation to
LaSalle from the Fund consists of accountable expense
reimbursements, subject to a fixed maximum amount per year. All
other compensation to LaSalle is paid out of compensation and
distributions paid to the General Partner by the Fund.
The Fund is engaged solely in the business of real
estate investment, therefore, presentation of information about
industry segments is not applicable. In fiscal 1996, three of
the Fund's Properties were responsible for 15% or more of
revenues from operating activities. Montgomery Executive Center
provided 24%, The Business Park provided 19%, and Royal Biltmore
provided 16%. In fiscal 1995, three properties were responsible
for 15% or more of revenues from operating activities:
Montgomery Executive Center provided 27%, The Business Park
provided 17%, and Royal Biltmore provided 15%. In fiscal 1994,
only two properties provided such revenues: Montgomery Executive
Center provided 28% and The Business Park provided 15%.
During fiscal 1996, the Fund reviewed its portfolio and
operating plans with the intent to dispose of all its operating
properties by the end of 1998, and to thereafter distribute all
of the Fund's net assets to the Partners. For a description of
the Fund's current plan for disposing of its operating
Properties, see "THE TRANSACTION--Background of the Disposition
Plan" and "--Background of the Sale."
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were issued and outstanding
90,622 Units held of record by 17,355 Limited Partners, all of
which are entitled to consent to the Transaction. At the Record
Date, the General Partner owned five Units (less than 1% of the
outstanding Units), and all officers and directors of the General
Partner, as a group, beneficially owned 52 Units (less than 1% of
the outstanding Units). T. Rowe Price Trust Company, as
custodian for participants in the T. Rowe Price Funds Individual
Retirement Accounts, as custodian for participants in various
403(b)(7) plans, and as custodian for various profit sharing and
money purchase plans, is the registered owner of 30,070 Units
(33% of the outstanding Units). T. Rowe Price Trust Company has
no beneficial interest in such accounts and no control over
investment decisions with respect to such accounts, nor any other
accounts for which it may serve as trustee or custodian with
respect to an investment in the Fund. The General Partner and
all officers and directors of the General Partner intend to
consent to the Transaction.
LITIGATION
The Fund is not currently involved in any pending legal
proceedings, other than ordinary routine litigation incidental to
the business of the Fund, which management believes are,
individually or in the aggregate, material to the Fund's
financial condition or results of operations.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, statements
and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, statements and other
information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and should be available at the
Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such material may also be accessed on the World Wide Web through
the Commission's Internet address at "http://www.sec.gov."
The Commission permits the Fund to "incorporate by
reference" information into this Consent Solicitation Statement,
which means that the Fund can disclose important information to
Limited Partners by referring them to another document filed
separately with the Commission. The information incorporated by
reference is deemed to be a part of this Consent Solicitation
Statement, except for any information superseded by information
in this Consent Solicitation Statement.
The following documents, which have been filed with the
Securities and Exchange Commission, contain important information
about the Fund and its financial condition and are hereby
incorporated herein by reference:
(i)The Fund's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996 (Commission File No. 0-14308).
(ii)All other reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act since September 30, 1996, including the
Fund's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1997.
The Fund also hereby incorporates by reference all
additional reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act that it may file with the Commission between the
date of this Consent Solicitation Statement and the date of
action by Consent.
A Limited Partner of the Fund may obtain any of the
documents incorporated by reference through the Commission at the
above addresses. Documents incorporated by reference are also
available from the Fund without charge, excluding all exhibits
unless such exhibits have been specifically incorporated by
reference in this Consent Solicitation Statement. Limited
Partners may obtain documents incorporated by reference in this
Consent Solicitation Statement by requesting them in writing or
by telephone from T. Rowe Price Realty Income Fund I, P.O. Box
89000, Baltimore, Maryland 21289-0270, telephone number 1-800-
962-8300.
If you would like to request documents from the Fund,
please do so by September 3, 1997 to receive them before the
action by Consent.
T. ROWE PRICE REALTY INCOME
FUND I MANAGEMENT, INC.
General Partner
By:/s/James S. Riepe
James S. Riepe
Chairman of the Board
and President
Baltimore, Maryland
July 28, 1997
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page No.
Independent Auditors' Report . . . . . . . . . . . . . . F-1
Balance Sheets at September 30, 1996 and 1995 . . . . . F-2
Statements of Operations for each of the
three years in the period ended September 30, 1996 . . F-3
Statements of Partners' Capital for each of the three
years in the period ended September 30, 1996 . . . . . . F-4
Statements of Cash Flows for each of the three years
in the period ended September 30, 1996 . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . F-6
Condensed Balance Sheets at March 31, 1997
and September 30, 1996 (unaudited) . . . . . . . . . F-10
Condensed Statements of Operations for the three and
six months ended March 31, 1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . F-11
Condensed Statement of Partners' Capital for the
six months ended March 31, 1997 (unaudited) . . . . F-12
Condensed Statements of Cash Flows for the six
months ended March 31, 1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . F-13
Notes to Condensed Financial Statements (unaudited) . F-14
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
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.
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
_________ _________
________ ________
March 31, September 30,
1997 1996
___________ ____________
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 Ended Six Months 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
________ _______ _______ _______
________ _______ _______ _______
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
____ ____ ____ ____
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 Operations - 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)
________ ________
Six Months Ended
March 31,
1997 1996
________ ________
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.
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
Baltimore, MD 21203-1476
July 21, 1997
T. Rowe Price Realty Income Fund I Management, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Mr. James S. Riepe, President
Gentlemen:
We understand that T. Rowe Price Realty Income Fund I, a No-Load
Limited Partnership (the "Fund") and Glenborough Realty Trust
Incorporated and Glenborough Properties, L.P. (collectively, the
"Acquiror") have entered into an agreement dated as of April 11,
1997 (the "Agreement"), which provides that the Fund will sell
all of its real estate assets (the "Properties") to the Acquiror
for cash consideration of $27,408,320 (the "Sale").
In connection with the Sale, we have been requested to provide
our opinion to T. Rowe Price Realty Income Fund I Management,
Inc., the general partner of the Fund (the "General Partner")
regarding the fairness to the Fund and the limited partners, from
a financial point of view, of the consideration to be received by
the Fund in the Sale.
In conducting our analysis and arriving at the opinion set forth
below, we have, among other things:
(i) reviewed the Agreement;
(ii) reviewed and analyzed the audited financial statements of
the Fund for the fiscal years ended September 30, 1995 and 1996;
(iii)reviewed and analyzed the unaudited consolidated financial
statements of the Properties for the six months ended March 31,
1997;
(iv) reviewed and analyzed certain internal information
concerning the business and operations of the Fund and the
Properties furnished to us by the General Partner and by LaSalle
Advisors Limited ("LaSalle"), including unaudited cash-basis
projections for the Properties for the fiscal years ending
September 30, 1997 through 2007;
(v) reviewed and analyzed certain publicly available information
oncerning the Fund, the Properties and the Acquiror;
(vi) reviewed and analyzed certain publicly available information
concerning the terms of selected merger and acquisition
transactions that we deemed relevant to our inquiry;
(vii)reviewed and analyzed certain selected market purchase price
data that we deemed relevant to our inquiry;
(viii)held meetings and discussions with certain directors,
officers and employees of the General Partner and LaSalle
concerning the operations, financial condition and future
prospects of the Properties; and
(ix) conducted such other financial studies, analyses and
investigations, including visits to certain of the Properties,
and considered such other information as we deemed appropriate.
In connection with our review, we relied, without
independent verification, on the accuracy and completeness of all
information that was publicly available, supplied or otherwise
communicated to Legg Mason by the General Partner and LaSalle.
Legg Mason assumed that the financial projections (and the
assumptions and bases thereof) examined by it were reasonably
prepared and reflected the best currently available estimates and
good faith judgments of the General Partner and LaSalle as to the
future performance of the Properties. Legg Mason has not made an
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Fund (including the Properties),
nor has Legg Mason been furnished with any such independent
evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions and
circumstances existing and disclosed to us as of the date hereof.
Additionally, our opinion does not compare the relative merits of
the Sale with those of any other transactions or business
strategies available to the Fund as alternatives to the Sale, and
we were not requested to, nor did we, solicit the interest of any
other party in acquiring the Properties.
We have acted as financial advisor to the General Partner
and will receive a fee for our services. It is understood that
this opinion is provided to the General Partner in its evaluation
of the Sale and our opinion does not constitute a recommendation
to any limited partner of the Fund as to whether such limited
partner should approve the Sale. This letter is not to be quoted
or referred to, in whole or in part, in any registration
statement, prospectus, or in any other document used in
connection with the offering or sale of securities, nor shall
this letter be used for any other purposes, without the prior
written consent of Legg Mason; provided that this opinion may be
included in its entirety in any filing made by the Fund with the
Securities and Exchange Commission with respect to the Sale and
as an appendix to the Fund s consent solicitation statement
furnished to limited partners in connection with the Sale.
Based upon and subject to the foregoing, we are of the
opinion that, as of the date hereof, the consideration to be
received by the Fund in the Sale is fair to the Fund and its
limited partners from a financial point of view.
Very truly yours,
Legg Mason Wood Walker,Incorporated
By:/s/Jeff M. Rogatz
Jeff M. Rogatz
Managing Director
T. ROWE PRICE REALTY INCOME FUND I,
A NO-LOAD LIMITED PARTNERSHIP
100 East Pratt Street
Baltimore, Maryland 21202
WRITTEN CONSENT
This written consent to approve a transaction consisting of
(i) the sale of substantially all of the assets (the "Sale") of
T. Rowe Price Realty Income Fund I, A No-Load Limited
Partnership, a Maryland limited partnership (the "Fund"),
consisting of five properties, as contemplated by the Purchase
and Sale Agreement and Joint Escrow Instructions, dated as of
April 11, 1997, with Glenborough Realty Trust Incorporated and
Glenborough Properties, L.P. as the buyers, and (ii) the complete
liquidation and dissolution of the Fund (the "Liquidation" and,
together with the Sale, the "Transaction") in the manner
described in the accompanying Consent Solicitation Statement is
solicited by T. Rowe Price Realty Income Fund I Management, Inc.,
the General Partner of the Fund (the "General Partner"). The
Sale and Liquidation are being consented to as one proposal to
approve the Transaction. All written consents must be received
by the Fund and delivered to the General Partner before 10:00
a.m., New York City time, on September 11, 1997 to be valid,
unless such date or time is extended. All signed written
consents will be counted FOR the Transaction unless otherwise
marked. The General Partner recommends a vote FOR the
Transaction.
/ / FOR THE TRANSACTION
/ / AGAINST THE TRANSACTION
/ / ABSTAIN FROM CONSENTING TO THE TRANSACTION
(Please date and sign on reverse side.)
Please mark, sign, date and return the consent card promptly
using the enclosed envelope to T. Rowe Price Realty Income Fund
I.
CONSENT NUMBER
UNITS
Dated: , 1997
Signature
Dated: , 1997
Signature
Please sign EXACTLY as YOUR name appears HEREIN. If signing as
attorney, executor, administrator, trustee or guardian, indicate
such capacity. All joint tenants must sign. If a corporation,
please sign in full corporate name by president or other
authorized officer. If a partnership or other entity, please sign
in partnership or entity name by authorized person.
The General Partner requests that you fill in the date and sign
the consent and return it in the enclosed envelope. IF THE
CONSENT IS NOT DATED IN THE ABOVE SPACE, IT IS DEEMED TO BE DATED
ON THE DAY ON WHICH IT WAS MAILED BY THE FUND.
