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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission File Number 0-17636
Exact Name of Registrant as Specified in Its Charter: T. ROWE PRICE REALTY
INCOME FUND IV, AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED
PARTNERSHIP
State or Other Jurisdiction of Incorporation or Organization: Delaware
I.R.S. Employer Identification No.: 95-4147931
Address and zip code of Principal Executive offices: 100 East Pratt Street,
Baltimore, Maryland 21202
Registrant's telephone number, including area code: 1-800-638- 5660
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of T. Rowe Price Realty Income Fund IV,
America's Sales-Commission-Free Real Estate Limited Partnership
("Partnership") are set forth on pages 5-9 of Exhibit 19 hereto, which
statements are incorporated by reference herein.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources and Results of Operations
The Partnership's liquidity and capital resources and its results of
operations are discussed in the Chairman's letter to partners and Investment
Advisor's Report on pages 2-4 of Exhibit 19 hereto, the Partnership's
Quarterly Report to Security- Holders, which letter and Report are hereby
incorporated by reference herein.
Reinvestment and Redemption Plans
The public offering of Units was terminated on September 30, 1988, and
additional Units will be sold only in connection with the Partnership's
reinvestment plan. As of September 30, 1995 additional capital in the amount
of $6,292,955 has been raised from cash distributions reinvested and 149,164
additional Units were issued in connection therewith. Of this amount
$2,648,593 has been used to redeem 72,133 Units. The amount of additional
capital to be raised from this source in the future will depend on the size of
the Partnership's cash distributions per Unit, as well as the number of Units
held by investors who elect to participate in the plan.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
19 - Quarterly Report Furnished to Security-Holders, including
Financial Statements of the Partnership. All other items are
omitted because they are not applicable or the answers are none.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T. ROWE PRICE REALTY INCOME FUND IV,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED PARTNERSHIP
By: T. Rowe Price Realty Income Fund IV Management, Inc.,
General Partner
Date:November 13, 1995 By: /s/ Charles E. Vieth
Charles E. Vieth
Vice President
Date:November 13, 1995 By: /s/ Joseph P. Croteau
Joseph P. Croteau
Principal Financial Officer of the
Partnership
Date:November 13, 1995 By: /s/ Gary C. Younker
Gary C. Younker
Chief Accounting Officer of the
Partnership
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QUARTERLY REPORT
FOR THE PERIOD ENDED
SEPTEMBER 30, 1995
FELLOW PARTNERS:
The overall decline in revenues and higher expenses at the properties owned
throughout 1995 resulted in lower net income from their operations for both
the three and nine months relative to last year. As indicated in the statement
of operations on page 5, these properties had net income of $778,000 for the
first nine months of 1995, and the equivalent 1994 number was $982,000. The
net income amounts shown for the three-month periods are from comparable
properties.
While the leased status of the portfolio on September 30 was up modestly
over the June 30 level, the average for the three and nine months ended
September 30, 1995, was down significantly from last year. Fairchild Corporate
Center and Tierrasanta, in particular, experienced declines in rental income
for the nine-month period while income from Kent Sea Park and Burnham
improved. Reserves for bad debts continued to be the driving force behind the
higher expenses. Tenants with financial difficulties were most pronounced at
Goshen Plaza, your shopping center in Gaithersburg, Maryland, and added to the
credit problems at Tierrasanta, Westbrook Commons, and Kent Sea Park discussed
in earlier reports this year.
The absence of Metropolitan (which was sold in June 1994) depressed
rental revenues for the nine months and interest income in both periods
relative to last year. Metropolitan made a positive contribution of $157,000
to net income from operations in the first nine months of 1994 but nothing to
that period this year. In addition, the sale proceeds were held until November
1994, so the Fund earned interest on a much higher cash balance in the third
quarter last year. The absence of these proceeds this year is the major reason
cash, as shown in the statements on page 6, was so much lower than in 1994.
The decrease in cash provided by operating activities coupled with the
increased spending on renovations at Westbrook and Fairchild also depleted
cash.
We continue to be disappointed with operations at Goshen Plaza and
Tierrasanta, which currently have 25% vacancy rates. We saw the leased status
at Fairchild move up in the third quarter and believe the improvements we have
made to the property are making it more attractive to potential tenants. As
the Advisor's Report indicates, we could experience a near-term dip in the
leased rate, but we do have prospects for part of the vacant space. We hope to
report on more positive developments at some of your properties next quarter.
Sincerely,
James S. Riepe
Chairman
November 10, 1995
INVESTMENT ADVISOR'S REPORT
Having reviewed the state of the industrial and retail real estate sectors the
last two quarters, we wanted to share with you our view of the office market
this quarter. The office sector was the one most severely impacted by the
excesses of the '80s and early '90s. Construction during this period exceeded
demand, and vacancy rates peaked at approximately 20% in 1991. The weakened
market conditions were exacerbated by the recession when many office tenants
either limited their previously planned expansions or reduced their space
requirements. As a result, building owners aggressively sought tenants by
offering financial incentives. Effective rental rates tumbled, and tenants
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were able to upgrade to Class A buildings and still reduce their occupancy
costs. The sole redeeming factor during the early '90s was that speculative
construction came to a halt.
With multi-tenant vacancy rates currently around 15%, the office market
remains oversupplied. There are, however, several bright spots. First,
construction starts are at one percent of the peak levels achieved in the
'80s, and permit data indicate they will remain far below historical averages
for the next several years. Second, net absorption in 1994 was at the highest
level in five years, and employment growth in 1994 bodes well for further
gains in absorption this year and next. Third, most markets are beginning to
recover, although Southern California still lags the rest of the country.
Despite an overall upturn, there is sufficient instability in the
operating environment to keep many institutional owners from pursuing the
purchase of office buildings. Many current buyers are entrepreneurs like
Carter-Crowley in Dallas and Miller-Anschutz in Denver who are seeking
short-term gains and high returns. However, as the markets become more stable
and occupancy levels rise, institutional buyers should return to the market,
driving up values.
Our goal is to have the Fund's office properties positioned for sale
when this occurs.
The two office properties in the Fund- Tierrasanta and Fairchild-are in
suburban markets, which are recovering, as a general rule, more quickly than
central business districts. This group represents 35% of the total square
footage in the portfolio and 19% of revenues for the quarter ended September
30, 1995. Fairchild Corporate Center is a multi-story building with only
office and some storage space available. Tierrasanta, on the other hand, also
has areas which can be used for distribution, light manufacturing, research
and development, and/or warehousing. However, these properties are heavily
influenced by developments in the office market and are therefore classified
as "Office/Service" in our listing of real estate holdings in each annual
report.
We will continue to monitor the real estate and capital markets to
determine the strategic time to sell each of your properties, including those
in the office sector.
Property Highlights
With the exception of Goshen Plaza, every property's occupancy either improved
or remained the same during the quarter.
The most notable improvement in leased status occurred at Fairchild
Corporate Center where two new tenants signed leases representing 13% of the
property. These gains were partially offset by the loss of one tenant due to
financial problems and the early termination of another tenant to accommodate
a larger new tenant. As a result, overall occupancy rose seven percentage
points. The anticipated loss of two tenants within the next six months lowered
the leased rate by 14 percentage points, but we could have already begun
aggressively marketing these two spaces and have a number of prospects for
some of the already vacant areas.
Real Estate Investments
________________________________________________________________
Gross % Leased
Leasable _________________
Area Prior Current
Property (Sq. Ft.) Quarter Quarter
________ _________ _______ _______
Tierrasanta 104,200 75% 75%
Goshen Plaza 45,500 81 75
Westbrook
Commons 121,600 97 99
Burnham Building 71,200 100 100
Kent Sea Park 138,200 92 92
Fairchild Corporate
Center 104,800 73 80
________ _____ _____
Fund Total 585,500 87% 88%
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At Goshen Plaza, we unfortunately lost a tenant who declared bankruptcy.
Thus, even though a new and a renewal lease were signed, occupancy declined by
six percentage points. We continue to aggressively market the vacant space
and, based on current interest, hope to find at least one replacement tenant
by year-end.
Office Highlights
The Southern California markets in which the Fund's two properties are located
have begun to improve, albeit at a slightly slower pace than most of the rest
of the country. The Irvine submarket in which Fairchild competes has improved
its occupancy slightly since this time last year, as rental rates have risen
between 8% and 14%. Tierrasanta competes in the San Diego submarket, where
occupancy has improved from 80% to 86% and rental rates have risen
substantially. We have several prospects for the vacant space at this property
as well as the probable renewal of a tenant representing 11% of the square
footage.
Outlook
We continue to be optimistic about the future cash flows and occupancy levels
for Fund IV, principally for two reasons. First, although occupancy is
modestly lower than at year-end 1994, we have identified prospective tenants
to fill several vacancies. Second, and of even greater importance, leases are,
as a general rule, being signed at higher rates than we have experienced over
the past couple of years.
LaSalle Advisors
November 10, 1995
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (In thousands)
September 30, December 31,
1995 1994
____________ ____________
Assets
Investments in Real Estate, at Cost
Land. . . . . . . . . . . . . $ 8,502 $ 8,502
Buildings and Improvements. . 18,098 17,771
________ ________
26,600 26,273
Less: Accumulated Depreciation
and Amortization. . . . . . . (3,696) (3,171)
________ ________
22,904 23,102
Cash and Cash Equivalents. . . 2,027 2,327
Accounts Receivable (less allowances
of $265 and $123). . . . . . . 580 622
Other Assets . . . . . . . . . 218 155
________ ________
$ 25,729 $ 26,206
________ ________
________ ________
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Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents . . . . . . . . $ 217 $ 197
Accrued Real Estate Taxes. . . 487 326
Accounts Payable and Other
Accrued Expenses. . . . . . . 215 320
Minority Interest. . . . . . . 688 688
________ ________
Total Liabilities. . . . . . . 1,607 1,531
Partners' Capital. . . . . . . 24,122 24,675
________ ________
$ 25,729 $ 26,206
________ ________
________ ________
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited (In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, December 31, 1994 . . . $ (58) $24,733 $24,675
Net Income . . . . . . . . . . . 8 770 778
Reinvestments in Units . . . . . - 840 840
Redemptions of Units . . . . . . - (228) (228)
Cash Distributions . . . . . . . (20) (1,923) (1,943)
________ ________ ________
Balance, September 30, 1995. . . $ (70) $24,192 $24,122
________ ________ ________
________ ________ ________
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (In thousands except per-unit amounts)
Three Months EndedNine Months Ended
September 30, September 30,
1995 1994 1995 1994
____ ____ ____ ____
Revenues
Rental Income. . . . . . $ 888 $ 927 $2,651 $3,039
Interest and Other
Income . . . . . . . . 22 75 69 106
_______ _______ _______ _______
910 1,002 2,720 3,145
_______ _______ _______ _______
Expenses
Property Operating
Expenses . . . . . . . . 243 184 626 569
Real Estate Taxes. . . . 138 164 421 501
Depreciation and
Amortization . . . . . . 211 182 573 587
Management Fee to
General Partner. . . . . 36 44 108 147
Partnership Management
Expenses . . . . . . . . 62 72 214 201
_______ _______ _______ _______
690 646 1,942 2,005
_______ _______ _______ _______
Net Income from Operations
before Real Estate Sold. 220 356 778 1,140
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Gain on Real Estate
Sold . . . . . . . . . - - - 577
_______ _______ _______ _______
Net Income . . . . . . . $ 220 $ 356 $ 778 $1,717
_______ _______ _______ _______
_______ _______ _______ _______
Activity per Limited
Partnership Unit
Net Income . . . . . . . $ 0.28 $0.47 $ 1.01 $ 2.28
_______ _______ _______ _______
_______ _______ _______ _______
Cash Distributions Declared
from Operations. . . . $ 0.47 $0.60 $ 1.41 $ 1.80
from Sale Proceeds . . - 7.85 - 7.85
_______ _______ _______ _______
Total Distributions
Declared . . . . . . . $ 0.47 $8.45 $ 1.41 $ 9.65
_______ _______ _______ _______
_______ _______ _______ _______
Weighted Average Number of
Units Outstanding. . . 768,999 745,847 764,673 746,333
_______ _______ _______ _______
_______ _______ _______ _______
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
Nine Months Ended
September 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . $ 778 $ 1,717
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization. . 573 587
Gain on Real Estate Sold . . . . - (577)
Change in Accounts Receivable,
Net of Allowances. . . . . . . . 42 (143)
Increase in Other Assets . . . . (63) (25)
Increase in Security Deposits and
Prepaid Rents. . . . . . . . . . 20 14
Increase in Accrued Real Estate Taxes 161 1
Change in Accounts Payable and Other
Accrued Expenses . . . . . . . . (105) 10
________ ________
Net Cash Provided by
Operating Activities . . . . . . 1,406 1,584
________ ________
Cash Flows from Investing Activities
Proceeds from Property
Disposition. . . . . . . . . . . - 5,870
Investments in Real Estate . . . . (375) (236)
________ ________
Net Cash Provided by (Used in)
Investing Activities . . . . . . . (375) 5,634
________ ________
Cash Flows from Financing Activities
Cash Distributions . . . . . . . . (1,943) (1,395)
Reinvestments in Units . . . . . . 840 591
Redemptions of Units . . . . . . . (228) (542)
________ ________
Net Cash Used in
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Financing Activities . . . . . . . (1,331) (1,346)
________ ________
Cash and Cash Equivalents
Net Increase (Decrease)
during Period. . . . . . . . . . . (300) 5,872
At Beginning of Year . . . . . . . 2,327 2,333
________ ________
At End of Period . . . . . . . . . $ 2,027 $ 8,205
________ ________
________ ________
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated 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 consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the 1994
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 earns a partnership management fee equal to
9% of net operating proceeds. The General Partner earned a partnership
management fee of $108,000 during the first nine months of 1995. In addition,
the General Partner's share of cash available for distribution from operations
totaled $11,000 for the first nine months of 1995.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $49,000 for communications and administrative
services performed on behalf of the Partnership during the first nine months
of 1995.
An affiliate of the General Partner earned a normal and customary fee of
$5,000 from the money market mutual funds in which the Partnership made its
interim cash investments during the first nine months of 1995.
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 nine months of 1995 totaled
$60,000.
NOTE 2 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $.47 per unit to
Limited Partners of the Partnership as of the close of business on September
30, 1995, the record date. The distribution totals $365,000 and represents
cash available for distribution from operations for the period July 1, 1995
through September 30, 1995. The Limited Partners will receive $361,000, and
the General Partner will receive $4,000.
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