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 //
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 IV,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE 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: 764,230 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 $4,775.40 has been calculated in
accordance with Rule 0-11 under the Exchange Act and is
equal to 1/50 of 1% of $23,877,000 (the aggregate amount of
the cash to be received by the Registrant).
(4) Proposed maximum aggregate value of transaction:
$35,377,000
(5) Total fee paid:
$4,775.40
/x/ Fee paid previously with preliminary materials:
The fee of $4,775.40 was paid in full upon the filing of the
Registrant's preliminary consent solicitation materials with the
Commission on June 18, 1997 (Commission File No. 0-17636).
// 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 IV,
America s Sales-Commission-Free Real Estate 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 IV
Management, Inc., General Partner
July 28, 1997
Fellow Partner:
We are writing to request your consent to sell T. Rowe Price
Realty Income Fund IV s interests in its five remaining
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 generally 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 IV,
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
100 East Pratt Street
Baltimore, Maryland 21202
NOTICE OF CONSENT SOLICITATION
To The Limited Partners of T. Rowe Price Realty Income Fund IV,
America's Sales-Commission-Free Real Estate 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 IV, America's
Sales-Commission-Free Real Estate Limited Partnership, a Delaware
Limited Partnership ("Fund") that T. Rowe Price Realty Income
Fund IV 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 consist of interests in five properties,
as contemplated by the Purchase and Sale Agreements 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 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 give their 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 IV MANAGEMENT, INC.
By: /s/ James S. Riepe
James S. Riepe
Chairman of the Board
and President
T. ROWE PRICE REALTY INCOME FUND IV,
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE 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 IV, America's Sales-Commission-Free Real Estate Limited
Partnership, a Delaware limited partnership ("Fund"), in
connection with the solicitation of written consents ("Consents")
by T. Rowe Price Realty Income Fund IV 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 consist of interests in five properties, as
contemplated by the Purchase and Sale Agreements and Joint Escrow
Instructions, dated as of April 11, 1997 ("Purchase and Sale
Agreements"), 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 1998).
See "THE TRANSACTION The Liquidation."
Under the terms of the Limited Partnership Agreement, dated
as of November 17, 1987, as amended and restated as of February
23, 1988, as subsequently amended (the "Partnership Agreement"),
the disposition of all the Fund's interests in real property and
other assets of the Fund and the receipt of the final payment of
the sale price for all of its assets results in the automatic
dissolution and termination of the Fund. Because the Sale will
result in the disposition of all of the Fund's remaining real
estate assets, the General Partner would not ordinarily be
required to obtain the consent of the Limited Partners to
effectuate the subsequent dissolution and termination of the
Fund. The Partnership Agreement does, however, prohibit the
General Partner from engaging in certain "affiliated"
transactions, including certain transactions between the General
Partner and the Fund. Because the proposed form of the
Liquidation will involve the transfer of certain assets and
liabilities of the Fund to the General Partner, the General
Partner is seeking approval of both the Sale and the Liquidation
in a single proposal to the Limited Partners. 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.
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
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 . . . . . . . . . 7
Annual Valuation . . . . . . . . . . . . . . . . . . . . . 9
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 9
Recommendation of the General Partner . . . . . . . . . 13
Failure to Approve the Transaction . . . . . . . . . . . 15
Terms of the Purchase and Sale Agreements . . . . . . . 15
The Liquidation . . . . . . . . . . . . . . . . . . . . 18
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 19
General . . . . . . . . . . . . . . . . . . . . . . . . 19
Taxation Prior to Liquidation . . . . . . . . . . . . . 20
Taxation of Liquidation . . . . . . . . . . . . . . . . 21
Capital Gains . . . . . . . . . . . . . . . . . . . . . 21
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
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 28
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . . 29
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 29
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 29
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 31
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 IV, America's Sales-Commission-Free
Real Estate Limited Partnership The Fund owns, directly and
through joint venture
partnerships, interests in five
commercial properties
(collectively "Properties" and
individually a "Property")
consisting of two retail centers,
one industrial and one business
park, and one warehouse 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 all five
Properties to the Purchaser for
an aggregate purchase price of
$35,377,000 (of which the Fund's
aggregate interest therein is
$23,877,000), 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 expected 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 Fund's 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 parent of
the General Partner owned 500
Units (less than 1% of the
outstanding Units), and all
officers and directors of the
General Partner, as a group,
beneficially owned 1,370 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 248,454 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 parent of 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
1997, as anticipated, the Sale of
the Properties will result in the
allocation of taxable gains and
losses among the Limited
Partners. The Sale proceeds
distributed to the Limited
Partners in 1997 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
Limited Partners and General
Partner 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 for 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 764,230 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
IV 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 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 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
764,230 issued and outstanding Units entitled to vote held of record
by 4,562 Limited Partners.
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 in a single sale or in multiple sales in the
same 12-month period. "Substantially All of the Assets" is defined by
the Partnership Agreement to mean properties representing 662/3% or
more of the original purchase price of all of the Properties as of the
most recently completed calendar quarter. 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 Delaware 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
IV 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
$75,000.
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 November 1987 for the primary purpose
of acquiring a portfolio of income producing commercial properties on
an unleveraged basis and subsequently operating and holding such
properties for investment. The Fund was structured as a self-
liquidating partnership with a finite life, which would distribute its
cash flow during its operating stage and its proceeds of sale during
its liquidating stage, whereupon the Fund would be liquidated and
dissolved. It was anticipated that the properties would be held for
approximately seven to ten years after acquisition although, depending
on economic and market factors, they could be held for shorter or
longer periods in the complete discretion of the General Partner. The
interests in the Properties were purchased between 1988 and 1991 and
have now generally been held for their anticipated holding periods.
The Fund owns, directly and through joint venture
partnerships, interests in five commercial properties consisting of
two retail centers, one industrial and one business park, and one
warehouse building. One of the retail centers, Westbrook Commons, is
owned by Penasquitos 34, a joint venture in which the Fund and an
affiliated fund each own a 50% interest. The Westbrook Commons
Property was acquired as part of a tax-deferred exchange in 1990 after
Penasquitos 34 sold Rancho Penasquitos, a retail center located in San
Diego, California. The other retail center, Goshen Plaza Shopping
Center, is owned by Goshen Road Limited Partnership, in which the Fund
is the sole general partner and owns a 90% interest and in which
unaffiliated limited partners own a 10% interest. The business park,
Tierrasanta, is owned by Tierrasanta 234, a joint venture in which the
Fund owns a 40% interest and two affiliated funds each own a 30%
interest. The Fund directly owns a 100% interest in the industrial
park, Kent Sea Park, and the warehouse building, Burnham. The Fund
owned two additional properties or interests therein that have been
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 Fund's 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 the southern California and the
suburban Washington, D.C. markets, where two of 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 Properties to be Sold" for more details
concerning these Properties.
Accordingly, the General Partner determined that the Fund
should investigate opportunities for selling the Properties. The Fund
previously sold two property investments, the Metropolitan Industrial
property in 1994, and the Fairchild Corporate Center in 1996. The
Metropolitan Industrial property was sold pursuant to an unsolicited
offer received by the Fund. With respect to the Fairchild Corporate
Center, the Fund owned a 20% interest in a general partnership,
Fairchild 234, which owned a note secured by a deed of trust on
Fairchild Corporate Center. Fairchild Corporate Center was sold as a
result of Fairchild 234 advertising the property for auction as part
of the process of foreclosing on the deed of trust. Several favorable
offers were received in response and the property was sold to one of
the offerors without proceeding with the foreclosure.
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 all of the Fund's
Properties, including its interests in the Tierrasanta, Westbrook
Commons and Goshen Plaza Properties, at a price of $20,140,000.
On March 7, 1997, the Fund made a counteroffer to sell its
Burnham Building and Kent Sea Park Properties to the Purchaser for
$9,100,000 and the Goshen Plaza Property for $5,000,000, and, with the
Affiliated Funds, made counteroffers to sell to the Purchaser the
Tierrasanta Property for $6,750,000 and the Westbrook Commons Property
for $15,200,000. On March 10, 1997, the Purchaser made a counteroffer
to purchase the Burnham Building and Kent Sea Park Properties for
$8,827,000, and the Goshen Plaza Property for $4,850,000, subject in
both cases to negotiation of additional terms of sale, which the Fund
accepted on March 12, 1997. On March 12, 1997 the Purchaser also made,
and the Funds accepted, subject to negotiation of additional terms of
sale, an offer to purchase the Tierrasanta Property at a price of
$5,250,000 and the Westbrook Commons Property for $15,200,000. Thus,
the total aggregate purchase price for all of the Properties was
$34,127,000, and the Fund's interest therein was $23,377,000.
LaSalle Advisors Limited Partnership ("LaSalle"), the real
estate adviser to the Fund, thereafter received indications of
interest on behalf of the Fund from third parties to purchase
Tierrasanta at prices ranging from $6.8 million to $7.3 million.
However, all of these offers would have involved substantial due
diligence by the offerors, and possible downward price adjustment.
The Funds gave the Purchaser an opportunity to increase its offer for
Tierrasanta and, on April 8, 1997, the Purchaser increased its offer
for Tierrasanta to $6.5 million. The Funds accepted the Purchaser's
new offer for Tierrasanta on April 11, 1997. Thus, the Fund's
interest in the aggregate purchase price of $35,377,000 for all of the
Properties is $23,877,000.
The Purchase and Sale Agreements for the Properties were
executed on April 11, 1997, and the Purchaser deposited a total of
$353,770 (the "Escrow Deposit"), representing 1% of the aggregate
purchase price for all of the Properties, in an escrow account.
Description of the Properties to be Sold
Tierrasanta
The Fund owns a 40% interest in Tierrasanta 234, a joint
venture with T. Rowe Price Realty Income Fund II, America's Sales-
Commission-Free Real Estate Limited Partnership ("RIF II") and T. Rowe
Price Realty Income Fund III, America's Sales-Commission-Free Real
Estate Limited Partnership ("RIF III"), two of the Affiliated Funds.
Tierrasanta 234 owns a 100% interest in Tierrasanta Research Park in
San Diego, California. The project, built in 1984 and acquired in
1988, contains four buildings utilized for research and development
purposes, for a total of 104,000 square feet of space. It is located
in the Kearny Mesa market area, north of San Diego, which is part of
the larger "Interstate 15" commercial corridor.
Tierrasanta is part of the Kearny Mesa research and
development ("R&D")/office market. The Property competes against both
R&D and office buildings. Overall activity in the submarket was good
in 1996, with approximately 1,475,000 square feet of gross absorption
for the year in R&D space, and slightly higher rents than at year-end
1995. The vacancy rate in the market at year-end 1994 was
approximately 13%, improving to approximately 10% in 1995 and 6% in
1996.
Rental rates in this submarket at year-end for R&D space
range between $6.60 and $9.00 per square foot net of expenses, with
tenant improvements ranging between $5.00 and $15.00 per square foot.
Office rents are ranging between $10.80 and $16.20 per square foot
with tenant improvements ranging anywhere from $7.00 to $20.00 per
square foot. There continue to be several 15,000 to 25,000 square
foot buildings available for lease in the Kearny Mesa submarket which
compete directly with the Tierrasanta vacancy.
Leases covering 32% of the space in Tierrasanta expire
between May 1997 and December 1998, and it is estimated that the
Fund's share of capital improvements, leasing commissions and tenant
improvements over the same period would be approximately $230,000.
Westbrook Commons
The Fund owns a 50% interest in Penasquitos 34, a joint
venture in which RIF III also owns a 50% interest. Penasquitos 34
owns a 100% interest in Westbrook Commons Shopping Center, a
neighborhood shopping center in the Village of Westchester, Illinois,
a Chicago suburb. The Property, which contains 122,000 rentable
square feet of space, was built in 1984 and acquired in 1990.
The Westchester market in which Westbrook Commons is located
continues to remain a stable and relatively healthy environment for
retailers. The 1996 year-end vacancy rate for the competitive centers
within a three-mile radius of Westbrook Common is approximately 2%,
down from 7% at year-end 1994, and 4% at year-end 1995. Westbrook
Common's average leased status for the three months ended March 31,
1997 was 98%, up 4% from the year-ago period. Leases at the Property
are generally at market rates.
Leases covering 20% of the space in Westbrook Commons expire
between May 1997 and December 1998, and it is estimated that the
Fund's share of capital improvements, leasing commissions and tenant
improvements over the same period would be approximately $130,000.
Goshen Plaza
The Fund owns a 90% interest in Goshen Road Limited
Partnership, which owns Goshen Plaza Shopping Center, a neighborhood
shopping center in Montgomery County, Maryland, a suburb of the
District of Columbia. The Fund is the sole general partner of the
Goshen Road Limited Partnership; the remaining 10% interest is owned
by unaffiliated limited partners.
The Property was built in 1989, was acquired in 1990 and
consists of four buildings: two multi-tenant buildings on either side
of a single-tenant building occupied by a CVS Drug Store and a free-
standing, single-tenant restaurant building on a pad. The total gross
leasable area of the Property is 46,000 square feet.
The Property competes primarily with nine other neighborhood
shopping centers located within a five-mile radius, ranging in size
from 11,000 square feet to 165,000 square feet and totaling
approximately 782,000 square feet. Vacancy in these projects was 9%
during 1996 versus 4% during 1995. The increase in vacancy can be
attributed to one large tenant who vacated a center within the
subject's submarket. In general, conditions in the market have been
improving in the past two years. Retail activity in the Montgomery
County submarket improved slightly in 1996, as market rates have moved
to $15.00 to $24.00 per square foot net of taxes, insurance and
utilities in 1996, above the $13.00 to $18.00 per square foot net of
taxes, insurance and utilities in 1995. Tenants signing new leases
within this market are typically negotiating one to two months of free
rent on a five-year term. Goshen Plaza was 88% leased on average in
the first three months of 1997, compared to 75% in the comparable
period in 1996. Leases are generally at market rates.
Leases covering 51% of the space in Goshen Plaza expire
between May 1997 and December 1998, and it is estimated that capital
improvements, leasing commissions and tenant improvements over the
same period would be approximately $190,000.
Burnham Building
The Fund owns a 100% interest in this warehouse facility
located in the South Congress Industrial Park in the northern section
of Boca Raton, Florida. It is leased to a single tenant, Burnham
Services Corporation, under a long-term lease which expires February
28, 2000. Burnham, which uses this Property as its Southeast Florida
regional headquarters, subleases a portion of the Property to other
tenants. This one-story industrial facility was built in 1980 and
acquired in 1991, and contains 71,000 rentable square feet and is
situated on 4.4 acres of land.
The downsizing of IBM's one million square foot personal
computer manufacturing headquarters in Boca Raton in the late 1980's
created a glut of space that prompted the deterioration of this flex
office/industrial market. In 1996, IBM continued to reduce their
commitment to space in the area. However, the market is almost fully
absorbed and industrial space is still somewhat scarce. Overall
market rents have remained stable. Rental rates for low-finish
industrial buildings are at an average of between $3.50 to $9.50 per
square foot per year net of taxes, insurance and utilities. No new
significant speculative projects are expected in the near future, due
to high land costs and restrictive zoning regulations.
Kent Sea Park
The Fund owns a 100% interest in Kent Sea Park, which is
located in the southern end of the Kent Valley industrial market, four
miles southeast of the Seattle-Tacoma International Airport, and about
15 miles south of downtown Seattle. The Property was constructed in
1980 and acquired in 1991, and consists of two one-story warehouse
buildings containing 138,000 square feet located on 3.7 acres.
The Property continues to compare favorably to the Kent
Valley industrial market, which remains relatively strong overall. In
1996 there was a slight decline in the average occupancy level to 95%
versus 96% in 1995 due to increased construction, but the overall
trend is for continuing strong absorption. Total square footage in
the submarket is approximately 70 million square feet. Although
additional construction is expected to occur in 1997, occupancy and
rental rates at Kent Sea Park should remain relatively stable near
term as much of the new construction is expected to be designed for
larger tenants than those which exist at the Property. Kent Sea Park
was 100% leased as of March 31, 1997. It was 95% leased on average
during the three months ended March 31, 1997, compared to 99% in the
comparable period in 1996, generally at market rents.
Leases covering 48% of the space in Kent Sea Park expire
between May 1997 and December 1998, and it is estimated that capital
improvements, leasing commissions and tenant improvements over the
same period would be approximately $80,000.
Annual Valuation
At the end of each year, commencing in 1991, 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 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). At December 31, 1996, the Unit
Valuation was $31.05 per Unit. Adjusted for a $0.75 per Unit
distribution of operating cash flows in February 1997, the adjusted
Unit Valuation is $30.30 per Unit. The sales price under the Purchase
and Sale Agreements, after deducting expenses of the Transaction to
the Fund, is estimated to exceed the adjusted Unit Valuation of $30.30
per Unit. Additional net assets from current and prior operations, as
well as cash balances from the Fund's reinvestment plan, are also
expected to be distributed to Limited Partners in conjunction with the
Transaction. When aggregated with the proceeds of the Sale, total
distributions are expected to exceed $31 per Unit. However,
liquidating distributions per Unit may vary among Partners. See
"CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE-
Taxation Prior to Liquidation."
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 Agreements; (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 retail
properties; and (iii) an analysis of certain publicly available market
purchase price data for industrial and retail 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 year ended December 31,
1996, unaudited financial statements for the Fund for the three months
ended March 31, 1997 and unaudited cash-basis projections for the
Properties for the years ending December 31, 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 nine months ending December 31, 1997
through the year ending December 31, 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
years ending December 31, 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 $18.0 million to $28.4
million, with a mean of $22.2 million.
Given that the consideration of $23,877,000 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 $8.7 million to $13.0 million, with a mean of $11.1
million.
Legg Mason also analyzed selected transactions (the
"Comparable Retail Acquisitions") in which certain retail REITs (the
"Acquiring Retail Companies") acquired a portfolio of retail
properties (the "Target Retail Portfolios"). Legg Mason compared the
purchase price paid in each Comparable Retail Acquisition with the
latest twelve months or reported period, on an annualized basis,
revenues, EBITDA and funds from operations of the Target Retail
Portfolios and calculated the following range of multiples: a range of
purchase price to Target Retail Portfolio revenues of 5.1x to 8.4x,
with a mean of 6.8x; a range of purchase price to Target Retail
Portfolio EBITDA of 8.3x to 15.2x, with a mean of 10.4x; and a range
of purchase price to Target Retail Portfolio funds from operations of
5.4x to 15.6x, with a mean of 9.0x. Applying the applicable range of
these acquisition multiples to the retail 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
retail Properties of approximately $5.4 million to $15.7 million, with
a mean of $10.5 million. Legg Mason then combined the respective
ranges of valuations of the industrial Properties and the retail
Properties, which yielded an implied aggregate range of values of the
Properties of approximately $14.5 million to $28.8 million, with a
mean of $21.8 million.
Given that the consideration of $23,877,000 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 Retail
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 retail buildings in particular
markets in which the Properties are located.
Legg Mason analyzed the prevailing purchase capitalization
rate (calculated by dividing property net operating income for the
applicable trailing twelve month period by the purchase price paid)
for the San Diego, California; Ft. Lauderdale, Florida; and Seattle,
Washington industrial markets, as well as for the Washington, D.C. and
Chicago, Illinois retail markets. 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 $23.1 million.
Given that the consideration of $23,877,000 to be received
by the Fund from the Sale is greater than the 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 $25,000 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
Agreements, 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
Agreements described under "Terms of the Purchase and Sale
Agreements," in particular: (a) the Purchaser's obligations are not
subject to obtaining financing; (b) the Purchaser will forfeit its
$353,770 Escrow Deposit if it fails to consummate the Transaction
other than for the due diligence reasons discussed under "Terms of the
Purchase and Sale Agreements--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
Agreements with respect to Burnham Building and Kent Sea Park if a
more favorable unsolicited offer is received for these Properties,
although the Fund would then forfeit the Escrow Deposit of $88,270
with respect to these Properties and pay an additional $250,000 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 sale 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 is anticipated to result in
the opportunity for the Taxable Limited Partners to receive their
final Schedules K-1 for 1997 and avoid future inconvenience and
expense from the requirement to reflect such schedules in their income
tax returns in subsequent years.
The General Partner considered the following additional
factors with respect to the disposition of the Properties in general:
(i) The fact that the Properties have now generally been
held for their originally anticipated holding period;
(ii) 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 discussed under the
caption "THE TRANSACTION-Description of Properties To Be Sold;"
(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, occasional tender offers for Units (which are generally at a
substantial discount to the Unit Valuation) and the Fund's redemption
plan (which provides liquidity only at a discount to the Unit
Valuation and which has been suspended pending the Consent by the
Limited Partners to the Transaction);
(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 historic as well as the present levels of
distributions to the Limited Partners; 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 Tierrasanta and Goshen Plaza,
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 all 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
1998, and the receipt by Taxable Limited Partners of Schedules K-1 for
1998. 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."
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 1998. Such sales could, under certain circumstances, require
the consent of the Limited Partners.
If the Transaction is not approved, the sale to the
Purchaser of Tierrasanta (the Property held by a joint venture in
which the Fund has a 40% interest) and/or Westbrook Commons (the
Property held by a joint venture in which the Fund has a 50% interest)
may nevertheless be consummated because the sale of the Fund's
interests in either or both of such Properties does not require the
approval of the Limited Partners. Moreover, the consummation of such
sales may be required under the terms of the agreements governing such
joint ventures or limited partnership.
Under each of the joint venture agreements governing
Tierrasanta and Westbrook Commons, if the Fund chooses not to sell a
Property, but either of the other two joint venture partners (in the
case of Tierrasanta) or the single other joint venture partner (in the
case of Westbrook Commons) chooses to sell the Property, the Fund will
have the right to buy out the interests of the venture partners
proposing the sale. If the Fund fails to buy such joint venture
interests, the sale of the Property will be consummated without the
Fund's consent. The General Partner does not anticipate that the Fund
would purchase the joint venture interests in such case.
Terms of the Purchase and Sale Agreements
The following is a summary of the material terms of the
Purchase and Sale Agreements and Joint Escrow Instructions, dated as
of April 11, 1997, by and between the Fund and Purchaser and, with
respect to Tierrasanta, Westbrook Commons and Goshen Plaza, between
the joint ventures or limited partnership in which the Fund owns
interests and the Purchaser. This summary does not purport to be
complete and reference is made to the Purchase and Sale Agreements,
which are incorporated herein by reference. Copies of the Purchase and
Sale Agreements 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 Agreements.
The Purchase and Sale Agreements provide for the Sale by the
Fund to Purchaser of the Properties. The aggregate purchase price
("Purchase Price") for all of the Properties is $35,377,000 (of which
the Fund's aggregate interest therein is $23,877,000) payable as
follows: (i) $353,770 of the Purchase Price, the Escrow Deposit, was
deposited by Purchaser into an escrow account contemporaneously with
the execution of the Purchase and Sale Agreements; 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 the Limited
Partners holding a majority of the outstanding Units; (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 Agreements provide that, prior to
Closing, the 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 Agreements. 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 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 Agreements,
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 Agreements 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 Agreements 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 Agreements provide 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 Agreements. Consequently, as
of the date hereof, the Escrow Deposit is non-refundable.
Conditions Precedent to Closing
The obligations of the Fund to close under the Purchase and
Sale Agreements are subject to (i) the approval of the Transaction by
the Limited Partners holding a majority of the outstanding Units, (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
Agreements in accordance with their terms, and (iv) the receipt of the
Fairness Opinion.
The obligations of Purchaser to close under the Purchase and
Sale Agreements are subject to (i) the 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
Agreements in accordance with their terms, (iii) the willingness of
the Title Company to issue title insurance policies insuring
Purchaser's ownership of the Properties, and (iii) the absence of
Material Inaccuracies (defined as an inaccuracy resulting in an
aggregate loss to Purchaser in excess of amounts ranging from $48,500
to $152,000, depending on the Property in question) 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 amounts ranging from $75,000 to $300,000, depending on
the Property in question, then the Purchaser may elect to terminate
the Purchase and Sale Agreements 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 less than amounts ranging from $75,000 to $300,000,
depending on the Property in question, or (ii) the cost of repairing
such damage is in excess of amounts ranging from $75,000 to $300,000,
depending on the Property in question, and the Purchaser has not
elected to terminate the Purchase and Sale Agreements 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 Agreements, provided,
however, that during the pendency of the Purchase and Sale Agreements,
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 Agreements contain various
representations and warranties of the Fund relating to, among other
things (i) due organization and authority to enter into the Purchase
and Sale Agreements, (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 Agreements also contain 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 Agreements, (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 Agreements provide 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
a Purchase and Sale Agreement prior to the Closing shall be to
terminate such Purchase and Sale Agreement and receive a refund of the
Escrow Deposit set forth in that Purchase and Sale Agreement, together
with a reimbursement of out-of-pocket expenses of up to $15,000 with
respect to each Purchase and Sale Agreement, provided, however, the
Purchaser shall have no such right to terminate the Purchase and Sale
Agreements and receive a refund of the Escrow Deposit and
reimbursement of out-of-pocket expenses unless all such Defaults by
the Fund or other selling entity in the aggregate materially and
adversely affect the value of the Burnham and Kent Sea Park Properties
by at least $150,000, the Goshen Plaza Property by at least $100,000,
the Tierrasanta Property by at least $150,000, or the Westbrook
Commons Property by at least $300,000.
In the event that a Default is first discovered by the
Purchaser after the Closing, the Purchaser shall have no remedy for
such Default unless such Default (i) relates to a matter expressly
stated in the Purchase and Sale Agreements to survive the Closing, and
(ii) the 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 or other selling entity shall have no
liability to the Purchaser based upon any inaccuracy in its
representations and warranties contained in the Purchase and Sale
Agreements unless the same results in damage to the Purchaser of more
than $88,270 with respect to the Burnham Building and Kent Sea Park
Properties, more than $65,000 with respect to Tierrasanta, more than
$152,000 with respect to Westbrook Commons, or more than $48,500 with
respect to Goshen Plaza. The Fund's or other selling entity's
aggregate liability to the Purchaser for all such inaccuracies is
$800,000 with respect to the Burnham Building and Kent Sea Park
Properties, $500,000 with respect to Tierrasanta, $1,500,000 with
respect to Westbrook Commons, and $450,000 with respect to Goshen
Plaza.
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 relating to the Burnham
Building and Kent Sea Properties may be terminated by the Fund if it
receives a more favorable offer for the purchase of both of such
Properties from a bona fide third party. In the event of a termination
of such Purchase and Sale Agreement as a result of a more favorable
offer for these Properties, the Escrow Deposit of $88,270 with respect
to these Properties would be returned to the Purchaser and the Fund
would pay the Purchaser an aggregate topping fee of $250,000 when, and
if, the Fund actually closes on such more favorable offer. Such
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 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
the 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 the 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 1998. In order to make reasonable provision to pay
all outstanding liabilities of the Fund prior to the end of 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
such liabilities set forth in 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 9%
management fee, as well as a General Partner distribution of 1% 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 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 9% management fee and the 1% of cash from
operations which it presently receives will be eliminated (it received
$191,000 and $15,000, respectively, for these fees 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 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 (ii)
real property used in a trade or business and held for more than one
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 11.4.4 of the Partnership
Agreement, gain from a "Terminating Sale" is 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 Sale" means
the earlier of the sale of the Fund's last three properties or the
sale of the Fund's properties which causes the aggregate acquisition
cost of all Fund properties which have been sold to exceed 662/3% of
the original acquisition cost of all Fund properties. Thereafter, any
gain generally will be allocated among the Partners until the capital
account balance of each Partner equals the Partner's "Adjusted Capital
Contribution," which is defined as the Partner's original capital
contribution less the portion of such contribution previously returned
to the Partner. However, if such gain is insufficient to bring the
capital account balance of each Limited Partner up to his or her
Adjusted Capital Contribution, such gain will be allocated so as to
equalize, to the extent possible, the capital accounts of the Limited
Partners on a per-unit basis.
The per-unit capital account balances of the Limited
Partners vary. In particular, the capital account balances of Taxable
Limited Partners are lower than the balances of Tax-Exempt Limited
Partners. This variance is primarily the result of special 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 $4.9 million and taxable losses of
approximately $2.2 million as a result of the Sale. Management of the
Fund believes that the net gain from the Sale will not be sufficient
to completely equalize the per-unit capital account balances of the
Limited Partners. Limited Partners with higher per-unit capital
account balances will receive a per-unit distribution in excess of
that paid to Limited Partners with lower per-unit capital account
balances. Thus, the expected distribution as a result of the Sale is
anticipated to range from $31 to $32 per Unit, depending on whether
the Limited Partner is a Taxable Limited Partner or a Tax-Exempt
Limited Partner and the admission date of the Partner.
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% 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 the 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
Delaware 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 consent 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 4,562 Limited Partners. There
is no active public trading market for the Units. However, during the
period commencing in the fourth quarter of 1996, one bidder, who is
not affiliated with the General Partner or LaSalle, made a tender
offer for the Units at a price of $22 per Unit, subject to adjustment
for certain distributions by the Fund. As of July 2, 1997, sales of
10,616 Units to the bidder pursuant to such offer have been presented
for processing.
The Fund had a reinvestment plan (the "Reinvestment Plan"),
which was terminated in August of 1996. As of the termination of the
Reinvestment Plan, 167,874 additional Units had been sold at prices
ranging from $31 to $50 per Unit, for a total of $6,947,000. As of
July 2, 1997, there were 764,230 Units outstanding.
The Fund has a redemption plan (the "Redemption Plan"),
whereby Limited Partners have the opportunity to present some or all
of their Units to the Fund for redemption, and to have those Units
redeemed provided the Fund then has sufficient proceeds from the
Reinvestment Plan available for this purpose. Under the Redemption
Plan, the redemption price per Unit is 90% of the Unit Valuation as
determined from time to time. As of July 2, 1997, 96,242 Units had
been redeemed for a total of $3,319,000. The Redemption Plan was
suspended on April 15, 1997 pending the consummation of the
Transaction.
In 1987 Congress adopted certain rules concerning "publicly
traded partnerships." The effect of being classified as a publicly
traded Fund would be that income produced by the Fund would be
classified as portfolio income rather than passive income. On
November 29, 1995, the Internal Revenue Service adopted final
regulations ("Final Regulations") describing when interests in Funds
will be considered to be publicly traded. The Final Regulations do
not take effect with respect to existing Funds until the year 2006.
Due to the nature of the Fund's income and to the low volume of
transfers of Units, it is not anticipated that the Fund will be
treated as a publicly traded Fund 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 Fund"
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 Fund" 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
March 31, 1995 $ 0.47
June 30, 1995 $ 0.47
September 30, 1995 $ 0.47
December 31, 1995 $ 0.47
March 31, 1996 $ 0.40
June 30, 1996 $ 0.40
September 30, 1996 $ 2.93
December 31, 1996 $ 0.75
All of the foregoing distributions were paid from net cash
flows from operating activities, with the exception of the
distribution for the quarter ended September 30, 1996, which included
a distribution of $2.53 per Unit representing the sale proceeds of the
sale of Fairchild Corporate Center. No additional distributions have
been declared for 1997.
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 years in the five-year period ended December 31, 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 three-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 three-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 December 31,
1992 1993 1994 1995
Total assets $ 33,129 $ 32,652 $26,206 $25,585
Total revenues $ 3,959 $ 4,230 $ 4,112 $ 3,706
Net income(1) $ 725 $ 1,358 $ 1,095 $ 1,044
Net income per
Unit(1) $ 0.97 $ 1.80 $ 1.45 $ 1.35
Cash distributions
declared per Unit:
From operations $ 2.79 $ 2.57 $ 2.62 $ 1.88
As a return of
capital -- -- $ .78 --
From sale proceeds -- -- $ 7.85 --
Year ended
December 31, 3 months ended (unaudited)
1996 March 31, 1996 March 31, 1997
Total assets $22,717 $25,445 $21,525
Total revenues $ 3,465 $ 887 $ 820
Net income (1) $ 415 $ 201 $ 277
Net income per
Unit(1) $ 0.53 $ 0.26 $ 0.36
Cash distributions
declared per Unit:
From Operations $ 1.95 $ 0.40 --
As a return of
capital -- -- --
From sale proceeds $ 2.53 -- --
(1) The figures for Net income and Net income per Unit include a gain
on real estate sold of $577 ($0.77 per Unit) for 1994 and $582 ($0.75
per Unit) for 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended March 31, 1997 compared to Three Months
ended March 31, 1996
The Fund had net income of $277,000 in the quarter ended
March 31, 1997, an increase of $76,000 over the comparable 1996
period. The increase was primarily attributable to an improvement in
the average leased status and lower bad debt expenses at both
Westbrook Commons and Goshen Plaza from a year earlier. The absence
of income from Fairchild Corporate Center, which was sold in 1996, led
to a decline in both operating revenues and expenses. However, there
was no impact on net income during the first three months of 1997
since operating income from the property was minimal during the same
period of 1996. Fund expenses rose during the quarter ended March 31,
1997, mainly as a result of necessary costs incurred in responding to
a recent tender offer for Units.
Year ended December 31, 1996 compared to Year ended December
31, 1995
The Fund had a loss of $167,000 from operations in 1996,
before the gain on the Fairchild Corporate Center sale, compared with
net income of $1,044,000 in 1995. This difference was primarily due to
a downward property valuation adjustment at Tierrasanta of $1,099,000
accompanied by an decreased contribution to income of $105,000 from
Westbrook Commons. While conditions in the market where Tierrasanta is
located were generally improving, the shortened anticipated holding
period due to the Fund's disposition plans caused it to adjust the
carrying value downward.
Revenues from rental income and interest totaled $3,465,000
for 1996 compared with $3,706,000 a year earlier. This comparison was
negatively affected by the absence of a full year's rental income from
the Fairchild Corporate Center. Results were helped by a decline of
$129,000 in operating expenses before valuation adjustments during the
year, largely due to a decrease in bad debt expenses at Goshen Plaza.
Leases representing 9% of the portfolio's leasable square
footage are scheduled to expire in 1997. These leases represented
approximately 11% of the portfolio's rental income for 1996. This
amount of potential lease turnover is below 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 1996.
The Burnham Property is the only single-tenant property in
the Fund's portfolio, and no single tenant accounted for more than 10%
of the Fund's revenue in 1996. The Fund therefore does not expect any
material adverse effect on revenue on account of the failure of any
single tenant in 1997.
Year ended December 31, 1995 compared to Year ended December
31, 1994
Net income from operations in 1995 was $1,044,000, an
increase of $526,000 from 1994 (before gain on real estate sold).
Properties held throughout both years contributed $675,000 over 1994
operations. Metropolitan Industrial contributed $149,000 to net income
before its sale in 1994 but nothing in 1995. The effect of increased
bad debt expense in 1995 at Goshen Plaza, Kent Sea Park, and
Tierrasanta was more than offset by not having any valuation
adjustments that year compared with $730,000 in 1994.
The absence of operations at Metropolitan Industrial
accounted for a decline of $379,000 in revenues and $230,000 in
expenses in 1995 relative to 1994. Proceeds from the sale of this
property in June 1994 contributed a gain of $577,000 to net income in
1994.
The leased status of the portfolio at the end of 1995 was
the same as it was in 1994, but the average for 1995 was lower,
primarily driven by Goshen Plaza and Fairchild Corporate Center. Even
so, revenue gains at other properties offset the effect of the
declines at these two Properties. Within the expense categories,
management fees in 1995 experienced a sharp drop from 1994 primarily
because there was less cash available for distribution in 1995. The
Fund's net income of $1,044,000 for 1995 equates to $1.35 per Unit
compared with $1,095,000, or $1.45 per Unit, in 1994.
The cash position declined from the beginning of year level.
Cash from operating activities declined by $325,000 during 1995, and
capital improvements increased $343,000. Proceeds from dividend
reinvestments net of redemptions increased $540,000.
Liquidity and Capital Resources
The Fund originally sold 692,598 Units in connection with
the public offering of Units, for a total of $34,630,000, including
the contribution of $25,000 from the Initial Limited Partner. After
deduction of organizational and offering costs of $2,078,000, the Fund
had $32,552,000 available for investment and cash reserves.
The public offering of Units was terminated on September 30,
1988, and additional Units were sold only in connection with the
Fund's Reinvestment Plan. As of August 1996, when the Reinvestment
Plan was terminated, additional capital in the amount of $6,947,000
had been raised from cash distributions reinvested and 167,874 Units
issued in connection therewith. Of this amount $3,319,000 has been
used to redeem Units, and the majority of the balance has been used to
fund property improvements. Assuming the Transaction is consummated,
the remaining funds from the Reinvestment Plan will be distributed to
the Partners together with the other net assets of the Fund.
The Fund originally purchased six properties or interests
therein on an all-cash basis, and made an investment in an interest in
a participating mortgage loan, completing the initial acquisition
phase of its business plan. The Westbrook Commons Property, in which
the Fund has a 50% interest, was acquired as part of a tax-deferred
exchange in 1990 after Penasquitos 34 sold Rancho Penasquitos, a
retail center located in San Diego, California. Through December 31,
1996 the Fund had sold two other property investments: the
Metropolitan Industrial property and Fairchild Corporate Center, in
which the Fund had a 20% interest.
As of March 31, 1997, the carrying value of the Fund's five
Properties for financial reporting purposes, including Properties held
for sale, after subsequent improvements, accumulated depreciation,
amortization and valuation allowances, was $19,343,000.
The Fund expected to incur capital expenditures during 1997
totaling approximately $400,000 for tenant improvements, lease
commissions, and other major repairs and improvements. In the first
quarter of 1997, the Fund incurred $10,000 of such expenses. Under
the terms of the Purchase and Sale Agreements, the Fund has 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
Agreements 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 Agreements, the
Fund and the Purchaser agreed that the Fund would perform $4,000 of
specified capital work on Kent Sea Park, and the Funds will spend
$70,000 on such work at Tierrasanta, $19,500 at Goshen Plaza and
$50,000 at Westbrook Commons.
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
1997 will be adequate to fund the Fund's current investing and
operating needs. The Fund has suspended distributions pending
completion of the Sale.
As of December 31, 1996, the Fund maintained cash and cash
equivalents aggregating $1,769,000, substantially unchanged from the
prior year end. Net cash provided by investing activities increased by
$2,146,000 due primarily to the Fairchild Corporate Center sale in
1996. Net cash used in financing activities increased by $1,724,000
due primarily to distribution of the proceeds of the Fairchild
Corporate Center sale, the termination of the Reinvestment Plan, and
an increase in the number of Units redeemed. The Fund's cash position
decreased slightly during the three months ended March 31, 1997, due
primarily to a larger distribution made during the first quarter of
1997, coupled with the termination of the Fund's Reinvestment Plan in
1996.
Reconciliation of Financial and Tax Results
For 1996, the Fund's book net income was $415,000 and its
taxable loss was $2,084,000. The loss for tax purposes on the
Fairchild Corporate Center sale was the primary reason for the
difference. For 1995, the Fund's book net income was $1,044,000 and
its taxable income was $1,414,000. Interest on the loan secured by
Fairchild Corporate Center, which was recognized only for tax
purposes, and bad debt expense, which was recognized only for book
purposes, were the primary differences between the two. For 1994, the
Fund's book net income was $1,095,000 and its taxable income was
$2,167,000. The gain for tax purposes on the sale of the Metropolitan
Industrial property was the primary reason for the difference. 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 November 17, 1987 under the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring,
operating and disposing of primarily existing income-producing
commercial and industrial real properties. On February 26, 1988, the
Fund commenced an offering of $75,000,000 of Units ($50 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 totaled
$34,605,000, and an additional $25,000 was contributed by the initial
limited partner, T. Rowe Price Real Estate Group, Inc. There were
4,562 Limited Partners as of July 2, 1997. The offering terminated on
September 30, 1988. The Fund had a Reinvestment Plan, which was
terminated in August of 1996. As of the termination of the
Reinvestment Plan, 167,874 additional Units had been sold at prices
ranging from $31 to $50 per Unit, for a total of $6,947,000. Pursuant
to the fund's Redemption Plan, 96,242 Units had been redeemed as of
July 2, 1997 for a total of $3,319,000. The Redemption Plan was
suspended on April 15, 1997 pending completion of the Transaction. As
of July 2, 1997, there were 764,230 Units outstanding.
In December of 1991, LaSalle entered into a contract with
the General Partner and the Fund 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 1996, three of the Fund's properties
produced 15% or more of the Fund's revenue: Westbrook Commons (32%),
Kent Sea Park (22%), and Goshen Plaza (19%). In 1995, three of the
Fund's investments produced 15% or more of the Fund's revenue:
Westbrook Commons (32%), Kent Sea Park (21%), and Goshen Plaza (19%).
In 1994, three of the Fund's investments produced 15% or more of the
Fund's revenue: Westbrook Commons (27%), Goshen Plaza (22%), and Kent
Sea Park (16%). In none of these periods did any tenant produce more
than 10% of the Fund's revenues from real estate operations.
During 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 764,230 issued and
outstanding Units entitled to vote held of record by 4,562 Limited
Partners. At the Record Date, the parent of the General Partner owned
500 Units (less than 1% of the outstanding Units), and all officers
and directors of the General Partner, as a group, beneficially owned
1,370 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 248,454 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 parent of 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 year ended
December 31, 1996 (Commission File No. 0-17636).
(ii)All other reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 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 Fund or the
Commission. Documents incorporated by reference are 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 IV, 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 IV 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
Consolidated Balance Sheets at
December 31, 1996 and 1995 . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations
for each of the three years in the
period ended December 31, 1996 . . . . . . . . . . . . F-3
Consolidated Statements of Partners' Capital
for each of the three years
in the period ended December 31, 1996 . . . . . . . . . F-4
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1996 . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 (unaudited) . . . . . . . . . . F-10
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . F-11
Condensed Consolidated Statement of Partners' Capital for
the three months ended March 31, 1997 (unaudited) F-12
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . F-13
Notes to Condensed Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . F-14
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund IV,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets of T.
Rowe Price Realty Income Fund IV, America's Sales-Commission-Free Real
Estate Limited Partnership and its consolidated ventures as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' capital and cash flows for each of the years in
the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of T. Rowe Price Realty Income Fund IV, America's
Sales-Commission-Free Real Estate Limited Partnership and its
consolidated ventures as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 27, 1997
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land . . . . . . . . . . . . . . $ 7,413 $ 8,502
Buildings and Improvements . . . 15,818 18,295
________ ________
23,231 26,797
Less: Accumulated Depreciation and
Amortization . . . . . . . . . (3,050) (3,848)
________ ________
20,181 22,949
Cash and Cash Equivalents . . . . . 1,769 1,733
Accounts Receivable (less
allowances of $28
and $367) . . . . . . . . . . . . 525 623
Other Assets . . . . . . . . . . . 242 280
________ ________
$ 22,717 $ 25,585
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents . . . . . . . . . . $ 209 $ 200
Accrued Real Estate Taxes . . . . . 358 353
Accounts Payable and
Other Accrued
Expenses . . . . . . . . . . . . 270 234
Minority Interest . . . . . . . . . 688 688
________ ________
Total Liabilities . . . . . . . . . 1,525 1,475
Partners' Capital . . . . . . . . . 21,192 24,110
________ ________
$ 22,717 $ 25,585
________ ________
________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-unit amounts)
Years Ended December 31,
1996 1995 1994
_________ __________________
Revenues
Rental Income . . . . . . . $ 3,366 $ 3,616 $ 3,950
Interest Income . . . . . . 99 90 162
_______ _______ _______
3,465 3,706 4,112
_______ _______ _______
Expenses
Property Operating
Expenses . . . . . . . . 709 940 823
Real Estate Taxes . . . . . 568 589 635
Depreciation and
Amortization . . . . . . 745 786 873
Decline of Property
Values . . . . . . . . . 1,099 - 730
Management Fee to General
Partner . . . . . . . . 191 85 267
Partnership Management
Expenses . . . . . . . . 320 262 266
_______ _______ _______
3,632 2,662 3,594
_______ _______ _______
Income (Loss)
from Operations before
Real Estate Sold . . . . (167) 1,044 518
Gain on Real Estate Sold . 582 - 577
_______ _______ _______
Net Income . . . . . . . . $ 415 $ 1,044 $ 1,095
_______ _______ _______
_______ _______ _______
Years Ended December 31,
1996 1995 1994
_________ __________________
Activity per Limited
Partnership Unit
Net Income . . . . . . . . $ 0.53 $ 1.35 $ 1.45
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations . . . . $ 1.95 $ 1.88 $ 2.62
as Return of
Capital . . . . . . . . - - 0.78
from Sale Proceeds . . . 2.53 - 7.85
_______ _______ _______
Total Distributions
Declared . . . . . . . . $ 4.48 $ 1.88 $ 11.25
_______ _______ _______
_______ _______ _______
Weighted Average Number of
Units Outstanding . . . 773,703 766,443 747,028
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance,
December 31, 1993 . . . $ (47) $31,186 $31,139
Net Income . . . . . . . . 8 1,087 1,095
Reinvestments in
Units . . . . . . . . . - 792 792
Redemptions of
Units . . . . . . . . . - (632) (632)
Cash Distributions . . . . (19) (7,700) (7,719)
_______ _______ _______
Balance,
December 31, 1994 . . . (58) 24,733 24,675
Net Income . . . . . . . . 10 1,034 1,044
Reinvestments in
Units . . . . . . . . . - 999 999
Redemptions of
Units . . . . . . . . . - (299) (299)
Cash Distributions . . . . (24) (2,285) (2,309)
_______ _______ _______
Balance,
December 31, 1995 . . . (72) 24,182 24,110
Net Income . . . . . . . . 4 411 415
Reinvestments in
Units . . . . . . . . . - 421 421
Redemptions of
Units . . . . . . . . . - (502) (502)
Cash Distributions . . . . (7) (3,245) (3,252)
_______ _______ _______
Balance, December 31, 1996 $ (75) $21,267 $21,192
. . . . . . . . . . . . _______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Cash Flows from Operating
Activities
Net Income . . . . . . . . . $ 415 $ 1,044 $ 1,095
Adjustments to Reconcile
Net Income to
Net Cash
Provided by Operating
Activities
Depreciation and
Amortization . . . . . . 745 786 873
Decline of Property
Values . . . . . . . . . 1,099 - 730
Gain on Real Estate
Sold . . . . . . . . . . (582) - (577)
Change in Accounts
Receivable, Net
of Allowances . . . . . 94 (1) (139)
Change in Other
Assets . . . . . . . . . 35 (125) (27)
Change in Accounts
Payable and
Other Accrued
Expenses . . . . . . . . 36 (86) 24
Other Changes in
Assets and
Liabilities . . . . . . 14 30 (6)
_______ _______ _______
Net Cash Provided by
Operating
Activities . . . . . . . . 1,856 1,648 1,973
_______ _______ _______
Cash Flows from Investing
Activities
Proceeds from
Property
Disposition . . . . . . . 1,956 - 5,870
Investments in Real
Estate . . . . . . . . . . (443) (633) (290)
_______ _______ _______
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Net Cash Provided by
(Used in)
Investing
Activities 1,513 (633) 5,580
_______ _______ _______
Cash Flows Used in
Financing Activities
Cash Distributions (3,252) (2,309) (7,719)
Reinvestments in
Units 421 999 792
Redemptions of Units (502) (299) (632)
_______ _______ _______
Net Cash Used in Financing
Activities (3,333) (1,609) (7,559)
_______ _______ _______
Cash and Cash Equivalents
Net Increase (Decrease)
during Year 36 (594) (6)
At Beginning
of Year 1,733 2,327 2,333
_______ _______ _______
At End of
Year $1,769 $1,733 $2,327
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund IV, America's
Sales-Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on November 17, 1987, under the
Delaware 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 IV Management, Inc.,
is the sole General Partner. The initial offering resulted in
the sale of 692,598 limited partnership units at $50 per unit.
The Partnership had a reinvestment plan whereby the Limited
Partners could elect to have their cash distributions
automatically reinvested in additional units of the Partnership,
or fractions thereof, instead of receiving cash payments. The
reinvestment price per unit was the estimated fair market value
of the unit as determined by the General Partner in accordance
with the partnership agreement. During 1996, the reinvestment
program was terminated. A total of 167,874 units were purchased
under this plan from reinvestments of $6,947,000.
The Partnership has a redemption plan whereby Limited Partners
may request that the Partnership redeem their units. Since
September 30, 1992, the redemption price of a unit has been
equal to 90% of the estimated fair market value of a unit as
determined by the General Partner in accordance with the
partnership agreement. As of December 31, 1996, 92,722 units had
been redeemed under this plan for a total of $3,227,000.
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 1% and 99%, respectively. Sale or
refinancing proceeds are generally allocated first to the Limited
Partners in an amount equal to their capital contributions, next
to the Limited Partners to provide specified returns on their
adjusted capital contributions, next 3% to the General Partner,
with any remaining proceeds allocated 85% to the Limited Partners
and 15% to the General Partner. Gain on property sold is
generally allocated first between the General Partner and Limited
Partners in an amount equal to the depreciation previously
allocated from the property and then 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.
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.
The accompanying consolidated financial statements include the
accounts of the Partnership and its pro-rata share of the
accounts of Tierrasanta 234 and Penasquitos 34 (Westbrook
Commons), both of which are California general partnerships, in
which the Partnership has 40% and 50% interests, respectively.
They also include the Partnership's pro-rata share of the
accounts of Fairchild 234, a California general partnership in
which the Partnership had a 20% interest prior to disposition of
the property on August 28, 1996. The other partners in these
ventures are affiliates of the Partnership. Additionally, the
accounts of Goshen Road Limited Partnership, a Maryland limited
partnership in which the Partnership has a 90% controlling
general partnership interest have been consolidated. All
intercompany accounts and transactions have been eliminated in
consolidation.
Depreciation is calculated primarily 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 money market mutual funds, the cost
of which approximates fair value.
The Partnership uses the allowance method of accounting for
doubtful accounts. Provisions for uncollectible tenant
receivables in the amounts of $34,000, $269,000, and $102,000
were recorded in 1996, 1995, and 1994, respectively. Bad debt
expense is included in Property Operating Expenses.
The Partnership will review 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 results 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 projected 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 $188,000 and $192,000 at
December 31, 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 consolidated financial statements.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
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 partnership management fees of $191,000, $85,000,
and $267,000 in 1996, 1995, and 1994, respectively. In addition,
the General Partner's share of cash available for distribution
from operations, as discussed in Note 1, totaled $15,000,
$15,000, and $20,000 in 1996, 1995, and 1994, respectively.
In accordance with the partnership agreement, certain operating
expenses are reimbursable to the General Partner. The General
Partner's reimbursement of such expenses totaled $74,000,
$58,000, and $55,000 for communications and administrative
services performed on behalf of the Partnership during 1996,
1995, and 1994, respectively.
An affiliate of the General Partner earned a normal and customary
fee of $3,000, $6,000, and $17,000 from the money market mutual
funds in which the Partnership made its interim cash investments
during 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 $80,000.
An affiliate of LaSalle earned $84,000, $78,000, and $73,000 in
1996, 1995, and 1994, respectively, for property management fees
and leasing commissions on tenant renewals and extensions at
several of the Partnership's properties.
NOTE 4 - PROPERTY DISPOSITIONS
In June 1994, the Partnership sold Metropolitan Industrial and
received net proceeds of $5,870,000. The net book value of this
property at the time of disposition was $5,293,000, after
accumulated depreciation expense. Accordingly, the Partnership
recognized a gain of $577,000. Results of operations at the
property were $149,000 in 1994.
On August 28, 1996, Fairchild Corporate Center, an office
property in which the Partnership had a 20% interest, was sold.
The Partnership received net proceeds of $1,956,000. The net
book value of the Partnership's interest at the date of sale was
$1,374,000, after deduction of accumulated depreciation, and
previously recorded impairments. Accordingly, the Partnership
recognized a $582,000 gain on the sale of this property. Income
from operations for this property, before the gain on real estate
sold, was $15,000, $31,000, and $82,000 in 1996, 1995, and 1994,
respectively.
NOTE 5 - PROPERTY VALUATIONS
On January 1, 1996, 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 Tierrasanta may not be fully recoverable
from future operations and disposition, and recognized impairment
charges of $1,099,000 in 1996 and $730,000 in 1994.
NOTE 6 - LEASES
Future minimum rentals (in thousands) to be received by the
Partnership under noncancelable operating leases in effect at
December 31, 1996, are:
1997 $ 2,227
1998 1,840
1999 1,242
2000 891
2001 677
Thereafter 3,841
_______
Total $ 10,718
_______
_______
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
the last three years:
1996 1995 1994
_________ __________ ________
(In thousands)
Book net income
(loss) . . . . . . . . . $ 415 $ 1,044 $ 1,095
Allowance for
doubtful accounts . . . . (320) 246 74
Property valuation
and losses on
disposition . . . . . . (2,218) - 730
Normalized and
prepaid rents . . . . . 44 (93) (65)
Interest income . . . . . . - 252 254
Other items . . . . . . . . (5) (35) 79
________ ________ ________
Taxable income
(loss) . . . . . . . . . $(2,084) $ 1,414 $ 2,167
________ ________ ________
________ ________ ________
NOTE 8 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $.75
per unit to Limited Partners of the Partnership as of the close
of business on December 31, 1996. The Limited Partners will
receive $576,000, and the General Partner will receive $6,000.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
March 31, December 31,
1997 1996
___________ ___________
Assets
Real Estate Property
Investments
Land . . . . . . . . . . $ 7,413 $ 7,413
Buildings and
Improvements . . . . . 15,140 15,818
________ ________
22,553 23,231
Less: Accumulated Depreciation
and Amortization . . . . (3,210) (3,050)
________ ________
19,343 20,181
Cash and Cash
Equivalents . . . . . . 1,445 1,769
Accounts Receivable (less
allowances of $28
and $28) . . . . . . . . 520 525
Other Assets . . . . . . . 217 242
________ ________
$ 21,525 $ 22,717
________ _______
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents . . . . . $ 172 $ 209
Accrued Real Estate
Taxes . . . . . . . . . 309 358
Accounts Payable and Other
Accrued Expenses . . . . 220 270
Minority Interest . . . . . - 688
________ ______
Total Liabilities . . . . . 701 1,525
Partners' Capital . . . . . 20,824 21,192
________ ________
$ 21,525 $ 22,717
________ ________
________ ________
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Ended
March 31,
1997 1996
____ ____
Revenues
Rental
Income . . . . . . . . . $ 798 $ 862
Interest Income . . . . . . . 22 25
________ ________
820 887
________ ________
Expenses
Property Operating Expenses . 126 214
Real Estate Taxes . . . . . . 137 147
Depreciation and Amortization 160 189
Management Fee to General
Partner . . . . . . . . . 42 72
Partnership Management
Expenses . . . . . . . . 78 64
________ ________
543 686
________ ________
Net Income . . . . . . . . . $ 277 $ 201
________ ________
________ ________
Activity per Limited
Partnership Unit
Net Income . . . . . . . . . $ 0.36 $ 0.26
________ _________
________ _________
Cash Distributions Declared from
Operations . . . . . . . - $ 0.40
________ ________
________ ________
Weighted Average Number of
Units Outstanding . . . . 766,561 772,056
________ ________
________ ________
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
_______ _______ ______
Balance,
December 31,
1996 . . . . . . . $ (75) $ 21,267 $ 21,192
Net Income . . . . . 3 274 277
Redemptions of Units - (63) (63)
Cash Distributions . (6) (576) (582)
_______ _______ _______
Balance, March 31,
1997 . . . . . . . $ (78) $ 20,902 $ 20,824
_______ _______ _______
_______ _______ _______
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
March 31,
1997 1996
________ ________
Cash Flows from Operating
Activities
Net Income . . . . . . . . . . $ 277 $ 201
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating Activities
Depreciation and
Amortization . . . . . 160 189
Decrease in Accounts Receivable,
Net of Allowances . . . . 5 101
Decrease in Other Assets . . 25 68
Decrease in Security Deposits
and Prepaid Rent . . . . . (37) (6)
Decrease in Accrued Real
Estate Taxes . . . . . . . (49) (39)
Change in Accounts Payable and
Other Accrued Expenses . . (50) 55
________ ________
Net Cash Provided by Operating
Activities . . . . . . . . . 331 569
________ _________
Cash Flows Used in Investing Activities
Investments in Real Estate . . (10) (106)
________ ________
Cash Flows from Financing Activities
Cash Distributions . . . . . . (582) (361)
Reinvestments in Units . . . . - 151
Redemptions of Units . . . . . (63) (141)
________ ________
Net Cash Used in Financing
Activities . . . . . . . . . (645) (351)
________ ________
Three Months Ended
March 31,
1997 1996
________ ________
Cash and Cash Equivalents
Net Increase (Decrease) during
Period (324) 112
At Beginning of Year 1,769 1,733
________ ________
At End of Period $1,445 $1,845
________ ________
_______ ________
See accompanying notes to 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 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 earns a partnership
management fee equal to 9% of net operating proceeds. The General
Partner earned a partnership management fee of $42,000 during the
first three months of 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 $19,000 for
communications and administrative services performed on behalf of
the Partnership during the first three months of 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
three months of 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 three
months of 1997 totaled $20,000.
An affiliate of LaSalle earned $19,000 in the first three months
of 1997 as property manager for several of the Partnership's
properties.
NOTE 2 - REAL ESTATE PROPERTY INVESTMENTS
On April 11, 1997, the Partnership and its consolidated ventures
entered into contracts with a buyer for the sale of all
properties in which the Partnership holds an interest at a sales
price of $23,877,000 before selling expenses. The transactions
are subject to further due diligence by the buyer and approval of
the Limited Partners which could result in changes to or the
cancellation of the contracts. If the transactions are closed,
the Partnership will have sold all of its real estate property
investments and will begin liquidation.
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
Baltimore, MD 21203
July 21, 1997
T. Rowe Price Realty Income Fund IV 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 IV,
America s Sales-Commission-Free Real Estate 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 $23,877,000 (the "Sale").
In connection with the Sale, we have been requested to
provide our opinion to T. Rowe Price Realty Income Fund IV
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 years ended December 31, 1995 and 1996;
(iii)reviewed and analyzed the unaudited consolidated
financial statements of the Properties for the three 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 years
ending December 31, 1997 through 2007;
(v)reviewed and analyzed certain publicly available
information concerning 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 IV,
AMERICA S SALES-COMMISSION-FREE REAL ESTATE 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 IV, America s
Sales-Commission-Free Real Estate Limited Partnership, a Delaware
limited partnership (the "Fund"), consisting of interests in five
properties, as contemplated by the Purchase and Sale Agreements
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 IV 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
IV.
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.
