ANNUAL REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1996
FELLOW PARTNERS:
Now that we have initiated the disposition phase of your Fund,
the amount of your distributions and the estimated value of a
Fund unit will be influenced more by sales than by operations. As
a result, we thought it appropriate to begin this report by
providing you with the estimated unit value of the Fund and then
with a report on your fourth quarter distribution.
At this stage of your Fund's life cycle, our primary focus
is shifting from the production of income to the strategic
positioning of Fund properties to maximize potential sales
proceeds.
Unit Valuation
As you know, at the end of each year we employ a third-party
appraiser to review and assess the analysis and assumptions used
to prepare an estimated current value of the properties held in
your Fund. We then use these valuations to prepare an estimated
unit value, which may not be representative of the value of your
units when the Fund ultimately liquidates. Nor is there any
assurance that you could sell your units today at a price equal
to the current estimated value.
At December 31, 1996, the estimated unit value of the Fund
was $31.05. After adjusting for our February distribution of
$0.75, the value per unit is $30.30. Total appreciation for the
year, including net appreciation on the property sold, is 5.9%.
As you may recall, we mailed this information to you in a
letter dated January 22, 1997, in response to the offerings made
to you by other investors. While we cannot assure that you will
ultimately receive the exact amount of the estimated unit value,
we believe our valuation process has been sound, and we want you
to be as well-informed as possible about the value of your
investment. Our objective is to supply you with the information
you need to make the best decisions based on your particular
circumstances.
Real Estate Investments (Dollars in thousands)
_________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
___________ _____________ ____________
Gross Twelve Twelve
Leasable Months Ended Months Ended
Property Area December 31, December 31, December 31,
Name (Sq. Ft.) 1996 1995 1996 1995 1996
_________ __________ __________ _____ _____ _____ _____
Tierrasanta 104,200 62% 75% 87% $ 113 $(976)
Goshen Plaza 45,500 88 84 81 80 143
Westbrook
Commons 121,600 98 98 96 472 367
Burnham
Building 71,200 100 100 100 199 181
Kent Sea Park 138,200 95 97 99 341 355
________ ____ ____ ____ _____ ______
480,700 89 92 94 1,205 70
Properties Sold - - - - 31 597
Fund Expenses
Less Interest
Income - - - - (192) (252)
________ ____ ____ ____ _____ ______
Total 480,700 89% 92% 94% $1,044 $ 415
Cash Distributions
The Fund declared a fourth quarter distribution from
operations of $0.75 per unit, bringing the total distributions
from operations for the year to $1.95. Additionally, $2.53 per
unit was paid out to you during the year from sales proceeds for
the Fund's 20% share of Fairchild, resulting in total
distributions of $4.48 per unit for 1996. Future distributions
will be determined each quarter based on cash flow, anticipated
capital requirements, and the status of property dispositions.
Results of Operations
The Fund had a loss of $167,000 from operations in 1996, before
the gain on property sold during the year, compared with net
income of $1,044,000 in 1995. This difference is primarily due to
a valuation impairment of $1,099,000 at Tierrasanta, accompanied
by a $105,000 decline in contribution to income from Westbrook
Commons caused by normal tenant turnover. This decline in income
from operations was partly offset by the $582,000 gain on the
sale of Fairchild. While conditions in Tierrasanta's submarket
are generally improving, the shortened anticipated holding period
due to our disposition plans caused us to adjust the carrying
value downward. Property carrying amounts for financial statement
purposes should not be confused with the estimated fair market
values used to determine your estimated unit value.
Revenues from rental income and interest income resulted in
total gross revenues of $3,465,000 for the year compared with
$3,706,000 a year earlier. This comparison was negatively
affected by the absence of a full year's rental income from
Fairchild. Results were helped by a decline of $129,000 in
operating expenses before the valuation adjustment during the
year, largely due to a decrease in bad debt expenses at Goshen
Plaza.
At the property level, the average leased status of Fund
properties increased by two percentage points to 94% in 1996. At
Westbrook Commons, three new leases, five renewals, and one
expansion lease were signed during the year. Previously, three
tenants had not renewed, including one lost due to credit
reasons. The lower average leased status at this property was
temporary and the property remains healthy.
As we reported previously, a tenant that occupied 38% of
Tierrasanta did not renew its lease, which expired at the end of
August. There is interest in the property and the market is
tightening, but several competitive properties have comparable
space available, and we cannot be sure when this space will be
re-leased.
Goshen enjoyed an increase in leased status over the year.
Three new leases and one renewal accounted for much of the boost.
New tenants in this suburban Maryland retail center include a
large restaurant, which has brought the property to near market
occupancy levels.
Outlook
Currently, the Fund has no properties held for sale, but we will
begin to market them soon. Some of you have asked why we are
beginning to sell now, just as the market has been exhibiting
signs of strengthening.
Our primary goal is to take advantage of rising property values
as the Fund nears the end of its planned lifespan. As real estate
markets have been improving during the past few years, we have
used the opportunity to capture higher prices for investors.
As usually happens in improving markets, the turnaround in
real estate is broadly encouraging an increasing supply of new
properties, which could eventually lead to an oversupply and
softer prices down the road. This is normal as the real estate
cycle runs its course. While we do not expect a recession in
either real estate or the general economy to emerge in the near
future, the country's economic expansion is almost six years old
and is approaching an advanced stage, by historical measures.
It is possible that by selling Fund properties during the
next few years, we might miss some further advances in real
estate values. However, with prices currently rising due to
strong tenant and investor demand, supply growing in many
markets, and the Fund nearing the end of its planned lifespan, we
believe it is prudent to sell into that strength while prices are
on the upswing.
Sincerely,
James S. Riepe
Chairman
February 7, 1997
REAL ESTATE HOLDINGS
December 31, 1996
(In thousands)
Date Carrying
Property Name Type and Location Acquired Amount
_______________ ________________ _________ ________
Tierrasanta Business Park 5/88 $ 2,303
San Diego,
California
Goshen Plaza Retail 11/90 6,146
Gaithersburg,
Maryland
Westbrook Retail 12/90 4,897
Commons Westchester,
Illinois
Burnham Building Warehouse 01/91 2,225
Boca Raton,
Florida
Kent Sea Park Industrial 08/91 4,610
Kent, Washington
_______
$ 20,181
_______
_______
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
_______ _______ _______
_______ _______ _______
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)
_______ _______ _______
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.
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
