<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number: 0-15575
Exact name of registrant as specified in its charter: T. ROWE
PRICE REALTY INCOME FUND II, AMERICA'S SALES-COMMISSION-FREE REAL
ESTATE LIMITED PARTNERSHIP
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification Number: 52-1470895
Address of principal executive offices: 100 East Pratt Street,
Baltimore, Maryland 21202
Registrant's telephone number: 1-800-638-5660
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units
of Limited Partnership Interest
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Partnership dated March 17,
1986, File Number 33-2622 filed with the Commission pursuant to
Rule 424(b) are incorporated herein in Parts I, III, and IV by
reference.
Index to Exhibits is located on page 24.
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T. ROWE PRICE REALTY INCOME FUND II,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED PARTNERSHIP
INDEX
Page
PART I.
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote 12
of Security Holders
PART II.
Item 5. Market for the Partnership's 12
Limited Partnership
Interests and Related Security
Holder Matters
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and 15
Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and 19
Supplementary Data
Item 9. Changes in and Disagreements
with 19
Accountants on Accounting and
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers 19
of the Partnership
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain 22
Beneficial Owners
and Management
Item 13. Certain Relationships and 23
Related Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules 24
and Reports on Form 8-K
<PAGE> 3
PART I
Item 1. Business
T. Rowe Price Realty Income Fund II, America's Sales-Commission-Free
Real Estate Limited Partnership (the "Partnership"), was
formed on January 7, 1986, under the Delaware Revised Uniform
Limited Partnership Act for the purpose of acquiring, operating
and disposing of existing income-producing commercial and
industrial real properties, as well as equity-related
investments. On March 17, 1986, the Partnership commenced an
offering of $100,000,000 of Limited Partnership Units ($1,000 per
Unit) pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933 (Registration No. 33-2622) (the
"Registration Statement"). The Prospectus filed pursuant to Rule
424(b) under the Securities Act of 1933 (the "Prospectus") sets
forth a complete description of the business of the Partnership
in the sections entitled "Investment Objectives" and "Fund
Policies," on pages 18-25 of the Prospectus which pages are
incorporated by reference herein. The Gross Proceeds from the
offering, combined with the contribution of $5,000 from the
original Limited Partner (T. Rowe Price Real Estate Group, Inc.),
totaled $84,144,000. The offering terminated on July 31, 1986,
and no additional Units will be sold. Forty-five Units have been
redeemed by the Partnership on a "hardship" basis; there were
84,099 Units outstanding as of March 7, 1997, and 13,311 Limited
Partners.
In December of 1991, LaSalle Advisors Limited Partnership
("LaSalle") entered into a contract with the Partnership and the
general partner of the Partnership, T. Rowe Price Realty Income
Fund II Management, Inc. ("the General Partner") to perform day-to-
day management and real estate advisory services for the
Partnership 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 Partnership'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
Partnership. Compensation to LaSalle from the Partnership
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 Partnership.
The Partnership is engaged solely in the business of real estate
investment; therefore, presentation of information about industry
segments is not applicable. In the current period, and in 1995
and 1994, only one investment, the Partnership's interest in the
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AMCC Property, produced 15% or more of the Partnership's revenue
related to real estate activity, providing 22% of such revenue in
1996, and 20% in 1995 and 1994. Only one tenant produced 10% or
more of the Partnership's revenue related to real estate activity
in any period: Applied Micro Circuit Corporation (the sole
tenant in the AMCC Property) so contributed in 1996, 1995, and
1994. The AMCC property was sold in early 1997, and exclusive of
revenues produced by this property in 1996 no property produced
15% or more of the Partnership's remaining revenue related to
real estate activity in 1996.
In February, 1996, the Partnership sold the Regal Row property
for a total sales price (exclusive of closing costs) of
$3,794,000. The purchaser, Security Capital Industrial Trust,
Inc. is not an affiliate of the Partnership, its general partner,
or its investment advisor. The sales price equaled less than ten
percent (10%) of the Partnership's assets. The Partnership
acquired the property in December, 1987, for a total purchase
cost of $5,583,000. After real estate brokerage commissions and
closing costs, the net proceeds to the Partnership were
$3,612,000, equal to the adjusted net book value of the property.
A valuation recovery of $112,000 was recognized in 1996 before
the sale.
The Partnership owned a 90% interest in the AMCC property, which
consists of two industrial buildings in San Diego, California.
As noted above, on January 27, 1997, the Partnership sold this
property for a total sales price (exclusive of closing costs) of
$8,200,000. The purchaser, WCB Properties Limited Partnership,
is not an affiliate of the Partnership, its general partner, or
the Partnership's investment adviser. The Partnership acquired
the property in September, 1987. Net book value of the
Partnership's interest in AMCC at the date of sale was $7,772,000
which represented approximately 19% of the Partnership's assets.
In 1996, the Partnership recognized $765,000 of valuation
adjustments with respect to AMCC. The General Partner determined
that this adjustment was a prudent course of action based upon
the uncertainty of the Partnership's ability to recover the net
carrying value of the AMCC project from the ultimate sale of the
property. After real estate brokerage commissions and closing
costs and distribution to the 10% minority interests in the
property, the net cash proceeds to the Partnership were
approximately $7.9 million, resulting in a valuation recovery of
approximately $100,000 in 1997.
During 1996, the Partnership 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
Partnership's net assets to the partners. In this regard the
Partnership has received solicited and unsolicited offers to
purchase one or more of its properties. The Partnership is
pursuing some of these offers. Although there is no assurance
that the Partnership will achieve the disposition of all its
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operating properties during the proposed time-frame, the
disposition of operating properties is expected to cause a
significant decrease in the Partnership's operating activities in
future periods.
With the exception of the recently sold AMCC property, the
Partnership now owns directly or through joint venture
partnerships the properties or interests in the properties set
forth in Schedule III to this Report, "Real Estate and
Accumulated Depreciation," which is set forth in Exhibit 99(b) to
this Report, and which is incorporated by reference herein and
contains information as to acquisition date and total cost of
each of the properties. Additional information regarding these
properties and/or interests, including percentage leased as of
December 31, 1996 is set forth in the table, "Real Estate
Investments," appearing on page 1 of the Partnership's 1996
Annual Report to Limited Partners which is hereby incorporated by
reference herein. A brief narrative description of each
investment follows.
Atlantic Business Center
This property, in which the Partnership holds a 100% interest,
consists of three warehouse/industrial buildings with 188,000
square feet of space. Atlantic Business Center ("Atlantic"), is
located in Gwinnett County, Georgia, 20 miles northeast of
downtown Atlanta, in the suburban area known as the "Peachtree
Corridor."
One new, six renewal, and one expansion tenant signed leases
totaling 81% of the property. Much of the year's activity
centered around the successful renewal of one tenant whose lease
covers 46% of the property. This positive leasing activity
caused the property's leased status as of December 31, 1996 to
increase to 100% versus 92% last year. In 1997 leases covering
6% of the property are scheduled expire.
The Northeast/I-85 industrial submarket in which this project
competes consists of approximately 1,300 buildings totaling
approximately 84 million square feet. Although absorption levels
in the submarket were impressive throughout 1996, there are
several trends emerging in the region that indicate a potential
softening. The first trend is the rising vacancy levels in the
service market where the rate has increased from 5.8 percent at
year-end 1995 to 8.1 percent at year-end 1996. Vacant
speculative deliveries remain the primary force behind these
rising levels. A second trend is the performance of the
distribution sector in the region. There remains a substantial
amount of second generation space that is being vacated as
businesses relocate to the newer, larger facilities. As a
result, the vacancy level for the distribution sector has risen
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from 3.9 percent at year-end 1995 to 5.6 percent as of year-end
1996.
Coronado
The Partnership owns a 100% interest in the Coronado property,
which consists of one 96,000 square foot industrial building in
Anaheim, California. This building has a mezzanine area which can
be used as office or storage space and additional office space on
the ground floor.
The building is leased to a single tenant, a textile distributor,
until the year 2003. The lease includes periodic rental rate
increases and requires the tenant to be responsible for all
property expenses. The tenant continues to make rental payments
on a timely basis.
Thus, at year-end, the building was still 100% leased which is
above the 94% overall rate for the North Orange County submarket
as of December 1996. Total competitive inventory in this
submarket is approximately 101 million square feet. The gross
absorption in this submarket has risen to approximately 7.5
million square feet during 1996, versus 6.7 million during the
same period in 1995. Market rental rates remained steady during
the year, and are currently ranging from approximately $3.96 to
$4.40 per square foot per year net of taxes, insurance and
utilities. No new speculative buildings are currently planned
for this area.
Oakbrook Corners
The Partnership owns a 100% interest in Oakbrook Corners Business
Park ("Oakbrook Corners"), which consists of eight
office/showroom buildings containing 124,000 square feet of
space. The property is located in the Northeast/I-85 Industrial
Submarket which is in Gwinnett County, Georgia 15 miles northeast
of downtown Atlanta. The Oakbrook Corners neighborhood is
primarily developed with office/service buildings similar to the
Partnership's property.
The buildings range in size from 11,000 to 27,000 square feet.
Seven of the eight buildings are single-story; the largest
building has 10,000 square feet of space in a second floor
mezzanine. Each building has one or more loading doors of either
the roll-up or overhead type.
The leased status of the property increased from 61% to 94% over
the previous year, as a strong credit tenant leased over 32% of
the property, and no lease expirations or terminations occurred.
Although a portion of the space occupied by this tenant is leased
on a month to month basis, the tenant is considering a long term
lease for both the month to month space and the remaining vacant
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space in the property. In 1997 leases covering 10% of the
property are scheduled to expire.
Market conditions for this property are generally the same as
those affecting Atlantic Business Center.
During 1996, the Partnership recorded a provision for value
impairment of $898,000 in connection with Oakbrook Corners. The
General Partner determined that this adjustment was a prudent
course of action based upon the uncertainty of the Partnership's
ability to recover the net carrying value of the Oakbrook Corners
project through future operations over a shorter anticipated
holding period and the ultimate sale of the property. This
determination was based upon the current market conditions and
future performance expectations for this investment.
Baseline
The Baseline Business Park ("Baseline") in Tempe, Arizona, which
is 100% owned by the Partnership, consists of eight multi-tenant
service-industrial/retail buildings, containing 100,000 square
feet of space. The Baseline property is located in a suburban
area containing similar comparable projects, together with multi-tenant
residential housing and light manufacturing facilities.
The eight one-story buildings which comprise the Baseline
property range in size from 11,000 to 14,000 square feet.
Activity was very brisk at this property during the year, and
leasing efforts resulted in a total of 28,445 square feet of
gross leasing to ten new tenants, against 12 expiring leases
covering 22,249 square feet. Partially because the Partnership
wanted to take advantage of the improving market conditions, it
chose not to renew several short-term tenants upon their lease
expirations. Instead, the Partnership has been attempting to sign
longer term leases and stagger the lease expiration schedule.
Thus, the leasing gains during the year were offset by the loss
of six tenants totaling 11,985 square feet whose leases were not
renewed upon lease expiration. Four tenants whose leases cover
5,656 square feet renewed and/or expanded. Thus, the property's
leased status increased to 96% by year-end versus 88% in 1995.
Lease expirations over the next 12 months represent 39% of the
space in the property.
The Baseline property is part of the Tempe Industrial/Office
submarket. Baseline competes directly against eight projects
totaling approximately 819,000 square feet. They are
experiencing an approximate 4% vacancy rate reflecting no
material change from the previous year's level. Effective and
nominal rental rates have begun to increase and as of year-end
1996 ranged between $6.00 and $9.60 per square foot, full
service. There are no known projects planned or under
construction similar to or which may compete with Baseline.
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During 1996, the Partnership recorded a provision for value
impairment of $762,000 in connection with Baseline. The General
Partner determined that this adjustment was a prudent course of
action based upon the uncertainty of the Partnership's ability to
recover the net carrying value of the Baseline Business Park
project through future operations over a shorter anticipated
holding period and the ultimate sale of the property. This
determination was based upon the current market conditions and
future performance expectations for this investment.
Business Plaza
This property consists of two one-story office buildings in Fort
Lauderdale, Florida with 66,000 square feet of space. It is 100%
owned by the Partnership. It is located in an area known as
Cypress Creek near the Broward County Executive Airport. This
submarket competes for tenants with three other areas: Fort
Lauderdale, Boca Raton, and Deerfield Beach.
The year-end leased status of the property increased from 82% in
1995 to 89% in 1996. New and renewal leases representing 29% of
the property were signed, more than offsetting the loss of five
tenants which vacated 12,000 square feet. Leases covering 15% of
the property expire in 1997. In addition, a tenant who leases 6%
of the space in the property may have its lease terminated for
credit reasons.
The Cypress Creek office market consists of approximately 4
million square feet in 48 competitive buildings. With recorded
net absorption for the first three quarters of the year of
approximately 120,000 square feet and an overall occupancy rate
of approximately 93% at year-end versus a rate of approximately
90% last year, this submarket remains strong. Demand for space
in the Cypress Creek submarket has continued to increase, as
evidenced by a $1.00-$2.00 per square foot increase in market
rental rates over the prior year. Despite the fact that there is
no new speculative office construction planned in the submarket
for the near-term, it is anticipated that a continued rise in
rental rates could trigger new development. Developers have been
taking steps to begin construction in other parts of Broward
County.
Bonnie Lane
The Partnership owns a 100% interest in this two-building multi-tenant
manufacturing/distribution project in Elk Grove Village,
Illinois. The buildings have 65,000 and 55,000 square feet of
space, respectively.
A lease with a tenant representing 13,200 square feet or 11% of
this suburban Chicago property was signed during 1996, increasing
occupancy from 89% at year end 1995 to 100% at year end 1996.
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The western O'Hare suburban Chicago industrial submarket in which
the project is located consists of approximately 160 million
square feet of space in all types of industrial projects. This
submarket is a part of the larger west and northwest Chicago
suburban industrial market which experienced net positive
absorption of approximately 738,000 square feet during the year.
Speculative construction has continued, but primarily in outlying
areas due to the limited supply of available land. The range of
net rental rates in the market for comparable space has increased
from approximately $3.50 to $4.75 net per square foot per year
last year to $3.75 to $5.00 per square foot by year-end 1996.
During 1996, Bonnie Lane and Glenn Avenue, another property owned
by the Partnership, were marketed for sale together with three
similar properties owned by T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership
("RIF III"). The General Partner believes that marketing the
properties together will maximize the sale price of each of the
properties. The properties were placed for sale as investor
interest is strong in the market where the assets are located.
In addition, the projected supply response caused by increased
rental rates is such that future cash flows and values could be
compromised through slowing or decreasing rental rate growth and
higher vacancy. A letter of intent to sell all five properties
to a single buyer was signed in January, 1997. Upon completion
of its due diligence the buyer exercised its right to cancel the
purchase. The Partnership is evaluating other offers on these
properties.
Glenn Avenue
The Partnership holds a 100% interest in the 82,000 square foot
multi-tenant warehouse, distribution and light manufacturing
project. The site is in Wheeling, Illinois, a northwest Chicago
suburb.
During the year, this industrial property remained 100% leased,
as five tenants renewed leases covering 73% of the space in the
property. Leases representing 27% of the property expire in
1997.
This project also competes in the west and northwest Chicago
suburban industrial market, which is discussed above in
connection with the Bonnie Lane property.
The property was also subject to the letter of intent discussed
above in connection with the Bonnie Lane property.
South Point Plaza
The Partnership owns a 50% interest in South Point Partners, a
joint venture with its affiliate, RIF III. South Point Partners
owns a 100% interest in South Point Plaza Shopping Center ("South
<PAGE>10
Point"), in Tempe, Arizona. The property consists of two multi-tenant
buildings in a neighborhood shopping center, which is also
occupied by a supermarket. The total square footage of the
multi-tenant buildings is 49,000 square feet. The Partnership
also owns pads for two 3,000 square foot single-tenant buildings,
one of which is built-out and currently leased as a restaurant
and one of which was paved over to expand parking area to
accommodate a building expansion.
One new lease of 18,615 square feet and five renewal leases
totaling 6,412 square feet were signed during the year. This
positive activity was partially offset by the loss of one 1,499
square foot tenant who vacated upon its lease expiration. Thus,
at year-end, the property improved its leased status to 90%
versus 69% in 1995. Subsequent to year-end, the tenant on the new
lease indicated that due to poor customer traffic it may be
vacating the space and attempting to sublease it. The tenant
remains obligated for its rent payments over the balance of its
initial lease term, which expires in August, 2001. Scheduled
expirations in 1997 represent 18% of the property's leasable
area.
The metropolitan area Phoenix retail market remains somewhat
strong. In the Tempe submarket, approximately 298,895 net square
feet were absorbed during the first three quarters of 1996.
Although there were additions to the inventory of retail space in
the Tempe submarket, vacancy remained stable at 7%. This level
is better than the Metropolitan Phoenix vacancy rate of 8%.
Average market rental rates per square foot for space in Tempe
increased approximately 15% over the previous year from $9.67 to
$11.15 per square foot net of taxes, insurance, and utilities.
Rents at South Point are somewhat below the average, ranging from
$7.50 to $11, because the property is older than competing
centers and is in a less affluent section of Tempe.
During 1996, the General Partner approved a plan for the
disposition of South Point Plaza. Based upon the estimated
realizable value less selling costs for the property, the
Partnership recorded a valuation allowance of $26,000. The
Partnership is currently marketing the property for sale, and
entered into a contract to sell the property on March 20, 1997.
There is no assurance the sale will be consumated.
Tierrasanta
The Partnership owns a 30% interest in Tierrasanta 234, a joint
venture with its affiliates, RIF III and T. Rowe Price Realty
Income Fund IV, America's Sales-Commission-Free Real Estate
Limited Partnership ("RIF IV"). Tierrasanta 234 owns a 100%
interest in Tierrasanta Research Park in San Diego, California.
The project 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
<PAGE>11
San Diego, which is part of the larger "Interstate 15" commercial
corridor.
The property lost one 39,971 square-foot tenant when the tenant's
lease expired, and one tenant was renewed for 8,305 square-foot
space to bring the leased status to 62% at year-end versus 100%
at year-end 1995. During 1997, only one lease covering 8,900
square feet expires. There has been interest in the vacant
space, and the market is tightening but several competitive
properties have comparable space available.
Tierrasanta Research Park is part of the Kearny Mesa research and
development ("R&D")/office market. The Park competes against
both R&D and office buildings. Overall activity in the submarket
has been good, with approximately 1,475,000 square feet of gross
absorption for the year in R&D space, and slightly higher rents
than year-end 1995, as discussed below. Vacancy rates at year-end 1996
were approximately 5.7% and 13.6% for R&D space and
office space, respectively, versus approximately 8.0% and 15.4%,
respectively, for the previous year.
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
Kearney Mesa submarket which compete directly with the
Tierrasanta vacancy.
During 1996, the Partnership recorded a provision for value
impairment of $829,000 in connection with Tierrasanta. The
General Partner determined that this adjustment was a prudent
course of action based upon the uncertainty of the Partnership's
ability to recover the net carrying value of the project through
future operations over a shorter anticipated holding period and
the ultimate sale of the property.
Employees
The Partnership has no employees and, accordingly, the General
Partner, the Partnership's investment adviser, LaSalle, and their
affiliates and independent contractors perform services on behalf
of the Partnership in connection with administering the affairs
of the Partnership and operating properties for the Partnership.
The General Partner, LaSalle and their affiliates receive
compensation in connection with such activities, as described
above. Compensation to the General Partner and its affiliates,
and the terms of transactions between the Partnership and the
General Partner and its affiliates are set forth in Items 11. and
13. below, to which reference is made for a description of those
terms and the transactions involved.
<PAGE>12
Item 2. Properties
The Partnership owns the properties referred to under Item 1.
above, to which reference is made for the name, location and
description of each property. All properties were acquired on an
all-cash basis.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters
At March 16, 1997, there were 13,311 Limited Partners. There is
no active public trading market for the Units. However, during
the period commencing in the third quarter of 1996, two bidders,
neither of whom is affiliated with the General Partner or
LaSalle, made tender offers for the Units, at prices of $210 and
$324 per Unit, less the amount per Unit of distributions declared
or paid during a specified period. As of February 28, 1997,
sales of 267 Units to the firm making offers at $210 have been
presented for processing, and the firm making offers at $324 has
stated that it has purchased 946 Units.
In 1987 Congress adopted certain rules concerning "publicly
traded partnerships". The effect of being classified as a
publicly traded partnership would be that income produced by the
Partnership 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 partnerships will be considered to
be publicly traded. The Final Regulations do not take effect
with respect to existing partnerships until the year 2006. Due
to the nature of the Partnership's income and to the low volume
of transfers of Units, it is not anticipated that the Partnership
will be treated as a publicly traded partnership under currently
applicable rules and interpretations or under the Final
Regulations. However, in the event the transfer of Units
presented for transfer within a tax year of the Partnership could
cause the partnership to be treated as a "publicly traded
partnership" for federal tax purposes, the General Partner will
accept such transfers only after receiving from the transferor or
the transferee an opinion of reputable counsel satisfactory to
the General Partner that the recognition of such transfers will
not cause the Partnership to be treated as a "publicly traded
<PAGE>13
partnership" under the Internal Revenue Code of 1986, as amended.
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 $ 8.75
June 30, 1995 $39.92
September 30, 1995 $ 8.75
December 31, 1995 $21.05
March 31, 1996 $49.45
June 30, 1996 $ 6.50
September 30, 1996 $34.41
December 31, 1996 $16.00
All of the foregoing distributions were paid from net cash flows
from operating activities, with the exception of the distribution
for the quarter ended June 30, 1995, which included a
distribution of $31.17 per unit representing the sale proceeds of
Sullyfield Circle, the distribution for the quarter ended
December 31, 1995, which included $9.62 per unit representing the
balance of the 1993 sale proceeds of one of the buildings in the
Coronado property, the distribution for the quarter ended March
31, 1996, which included $42.95 representing the proceeds of the
sale of Regal Row, and the distribution for the quarter ended
September 30, 1996, which included a distribution of $27.91 per
unit representing the proceeds of the sale of Fairchild Corporate
Center. The distributions for the fourth quarters of 1995 and
1996 included cash flow from operating activities of prior
quarters.
There are no material legal restrictions on the Partnership's
present or future ability to make distributions in accordance
with the provisions of the Agreement of Limited Partnership,
annexed to the prospectus as Exhibit A thereto. Reference is
made to Item 7., below for a discussion of the Partnership's
ability to continue to make future distributions.
At the end of 1996, the Partnership conducted its annual formal
unit valuation. The valuation of the Partnership's properties
was performed by the General Partner, and then reviewed by an
independent professional appraiser to assess the analysis and
assumptions utilized. The estimated investment value of limited
partnership Units resulting from this process was $487 per Unit.
After distributions in February 1997 of $16.00 per unit, the
<PAGE>14
estimated valuation is $471 per unit. In general, Units cannot
currently be sold at a price equal to this estimated value, and
this valuation is not necessarily representative of the value of
the Units when the Partnership ultimately liquidates.
Item 6. Selected Financial Data
The following sets forth a summary of the selected financial data
for the Partnership:
YEARS ENDED DECEMBER 31,
(Dollars in thousands except per-unit amounts)
1996 1995 1994 1993 1992
Total assets $40,192 $50,529 $53,770 $54,365 $65,241
Total revenues $ 6,189 $6,964 $6,983 $ 6,728 $ 6,710
Net income (loss) $ (720) $2,392 $1,862 $(8,142) $(1,818)
Net income (loss)
per Unit $(8.48) $28.16 $21.92 $(95.84) $(21.40)
Cash distributions
declared per
Unit $106.36 $78.47 $35.50 $ 32.00 $ 20.00
Notes:
1. The above financial data should be read in conjunction with
the financial statements and the related notes appearing
elsewhere in this report.
2. The figures for Net income (loss) include provisions for
value impairment of $2,489 in 1996, $550 in 1994, $793 in
1993, and $1,785 in 1992. These figures also include
valuation allowance adjustments of $679 in 1996, $(682) in
1995, $(1,410) in 1994, $8,722 in 1993, and $612 in 1992,
and gain from sale of Fairchild Corporate Center of $699 in
1996, and from the sale of one of the Coronado buildings in
1993 of $188.
3. The figures for Net income (loss) per Unit include
provisions for value impairment as discussed in note 2 above
of $29.30 per Unit in 1996, $6.47 per Unit in 1994, $9.33
per Unit in 1993, and $21.01 per Unit in 1992. The figures
for Net income (loss) per Unit also include valuation
allowances (recoveries) of $7.99 per Unit in 1996, $(8.03)
<PAGE>15
per Unit in 1995, $(16.60) per Unit in 1994, $102.67 per
Unit in 1993, and $7.20 per Unit in 1992, and gain from sale
of Fairchild Corporate Center of $8.23 per Unit in 1996, and
from the sale of one of the Coronado buildings in 1993 of
$2.21 per Unit.
4. The above distributions per Unit were paid from cash from
operating activities with the exception of the distributions
for 1993, which included $12.00 of proceeds from the sale of
one of the Coronado buildings, the distributions for 1995,
which included $9.62 of retained proceeds from the 1993 sale
of one of the Coronado buildings and $31.17 of proceeds from
the sale of Sullyfield Circle, and the distributions for
1996, which included $42.95 of proceeds from the sale of
Regal Row and $27.91 of proceeds from the sale of Fairchild
Corporate Center.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership sold 84,144 Units for a total of $84,144,000,
including the contribution of $5,000 from the original Limited
Partner. The offering was terminated on July 31, 1986 and no
additional units will be sold. After deduction of organizational
and offering costs of $4,746,000, the Partnership had $79,398,000
available for investment and cash reserves.
The Partnership originally purchased twelve 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. Through December
31, 1996 the Partnership had sold four property investments: a
portion of the Coronado property, the Sullyfield Circle property,
the Regal Row property, and Fairchild Corporate Center, in which
the Partnership had a 24% interest.
As of December 31, 1996 the Partnership classified the AMCC,
South Point Plaza, Bonnie Lane and Glenn Avenue properties as
held for sale, at a total carrying value of $14,860,000. The
cost of the Partnership's remaining real estate investments,
including subsequent improvements, was $41,164,000. The
Partnership has also recorded provisions for value impairments in
connection with these properties totaling $5,789,000. In
recording the new carrying basis for these properties accordance
with Statement of Financial Accounting Standards No. 121, which
was adopted in 1996, the Partnership offset these properties'
accumulated depreciation balances, totaling $7,580,000, against
their historical cost. Accumulated depreciation and amortization
after this reclassification equals $6,625,000. Therefore,
investment in real estate for financial reporting purposes
<PAGE>16
including properties held for sale, after accumulated
depreciation, amortization and valuation allowances, was
$36,030,000 as of December 31, 1996.
The Partnership expects to incur capital expenditures
during 1997 totaling approximately $1.1 million for tenant
improvements, lease commissions, and other major repairs and
improvements. Three quarters of these expenditures are
dependent on the execution of leases with new and renewing
tenants, including a substantial portion for the renovation of
the large vacant space at Tierrasanta. While the percentage of
leases expiring is lower than in 1996, the Partnership's business
plan now calls for the disposition of all of its real estate
investments by the end of 1998. In order to strategically
position the properties for sale, the Partnership will place
greater emphasis on entering into longer-term leases with
creditworthy tenants. This strategy is likely to result in
higher leasing commission and tenant improvement costs, but
should result in higher sales prices for the properties than
would otherwise be the case.
The Partnership 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 year-end cash balances and cash generated from
operating activities in 1997 will be adequate to fund the
Partnership's current investing and operating needs. Based on
current expectations, cash distributions to partners from
operating income are expected to be lower than those in 1996,
because the Partnership no longer owns the Regal Row, Fairchild
Corporate Center and AMCC properties, which contributed
$1,121,000 to 1996 net income, and because the Partnership
expects to dispose of additional properties during 1997. As of
March 26, 1997, the Partnership was evaluating offers on the
Glenn Avenue and Bonnie Lane properties, and the South Point
property was under contract to be sold. In 1997, management will
determine cash distributions from operations each quarter based
on net cash flows for the quarter, money needed to operate the
properties and pay Partnership expenses, and anticipated capital
needed to repair and maintain the properties and make occupancy
related tenant improvements.
As of December 31, 1996, the Partnership maintained cash and cash
equivalents aggregating $3,667,000, a decrease of $1,115,000 from
the prior year end. This decrease resulted from lower net cash
provided by operating activities, primarily due to the sale of
Fairchild Corporate Center. Net cash provided by investing
activities increased by $3,234,000 due to the Regal Row and
Fairchild Corporate Center sales in 1996. Net cash used in
financing activities increased by $3,567,000 due primarily to the
<PAGE>17
distribution of the proceeds of the Regal Row and Fairchild
Corporate Center dispositions.
Operations
1996 v. 1995
The Partnership had a net loss of $720,000 in 1996 compared with
net income of $2,392,000 in 1995. The change in property
valuation adjustments of $3,850,000 accounted for much of the
difference, which was partly offset by a $699,000 gain on the
sale of Fairchild Corporate Center. Net income before the gain
on the property sale declined $3,811,000, due largely to downward
valuation adjustments for Oakbrook Corners, Baseline,
Tierrasanta, and AMCC. While conditions in the markets where
these properties are located are generally improving, the
shortened anticipated holding period due to the Partnership's
disposition plans caused it to adjust the carrying values
downward.
Income from operations before valuation adjustments was up
$39,000 over 1995. Revenues from rental income and interest
income resulted in total gross revenues of $6,189,000 for the
year compared with $6,964,000 a year earlier. However, this
comparison was affected by the absence of a full year's rental
income from Regal Row and Fairchild, the two properties sold in
1996. Results were helped by a decline of $814,000 in operating
expenses before valuation adjustments primarily due to the
property sales.
Leases representing 21% of the portfolio's leasable square
footage are scheduled to expire in 1997. These leases
represented approximately 24% of the portfolio's rental income
for 1996. This amount of potential lease turnover is normal for
the types of properties in the portfolio, which typically lease
to tenants under three to five year leases. The overall
portfolio occupancy was 94% as of the end of 1996. Management
anticipates that occupancy levels will remain generally level in
1997. In most markets, new leases are generally expected to
reflect level to higher market rental rates in comparison to the
rates of expiring leases. To the extent that the Partnership
sells one or more properties during the year, cash flow from
operations would be expected to decline, while cash flow from
sales would increase substantially.
The Coronado property is the only single-tenant property in the
Partnership's portfolio. The tenant accounted for less than 10%
of the Partnership's revenues in 1996 and appears to be
financially sound.
1995 v. 1994
<PAGE>18
Excluding Sullyfield, rental income from continuing operations
was flat in 1995 compared to 1994, as the effect of declines in
average leased status at Oakbrook Corners, Bonnie Lane, and
Fairchild Corporate Center was offset by the higher average
leased status at Regal Row and higher rental rates at Glenn
Avenue. Total revenues were up $98,000, however, because of the
increase in interest income. Overall expenses for continuing
portfolio properties declined by $600,000, primarily because of
improved bad debt experience and lower charge-offs for tenant
improvements. As a result, operating income from continuing
properties increased approximately $700,000.
The sale of Sullyfield Circle in June 1995 resulted in less
rental income in 1995 than in 1994, lower operating expenses, and
a valuation adjustment compared to a significant recovery in
1994. The net effect of these changes on 1995 net income was a
decrease of $524,000.
Tierrasanta and Atlantic were the two largest contributors to the
decline in expenses and rise in net income in 1995 relative to
1994. At Tierrasanta, there was a $550,000 value impairment
recorded in 1994, but none was made in 1995. Atlantic benefited
from collection of delinquent rent from a large tenant and from
lower tenant improvement write-offs in 1995. In addition,
Coronado did not have as large a charge for leasehold
improvements as it did in the prior year.
A major tenant at Bonnie Lane who was behind in its rent made
substantial progress toward becoming current and contributed to
the decline in the portfolio's overall property operating costs.
Even though Bonnie Lane's average leased status, and therefore
its rental income, was down, other expenses associated with the
property declined more, so Bonnie Lane had a positive effect on
1995 net income.
Business Plaza's contribution to net income in 1995, although
positive, was $237,000 less than in 1994 when an upward property
valuation adjustment of $511,000 was made.
Reconciliation of Financial and Tax Results
For 1996, the Partnership's book net loss was $720,000, and its
taxable net loss was $3,738,000. The losses for tax purposes on
the sales of Regal Row and Fairchild Corporate Center accounted
for the majority of the difference. For 1995, the Partnership's
book net income was $2,392,000, and its taxable net loss was
$385,000. The loss for tax purposes on the sale of Sullyfield
Circle accounted for the majority of the difference. For 1994,
the Partnership's book net income was $1,862,000 and its taxable
net income was $1,905,000, as substantial depreciation expense
was more than offset by a negative property valuation allowance.
For a complete reconciliation see Note 7 to the Partnership's
<PAGE>19
financial statements, which note is hereby incorporated by
reference herein.
Item 8. Financial Statements and Supplementary Data
The financial statements appearing on pages 5 through 12 of the
Partnership's 1996 Annual Report to Limited Partners are
incorporated by reference in this Form 10-K Annual Report. The
report on such financial statements of KPMG Peat Marwick LLP
dated January 30, 1997, is filed as Exhibit 99(c) to this form
10-K Annual Report and is hereby incorporated by reference
herein. Financial Statement Schedule III, Consolidated Real
Estate and Accumulated Depreciation, is filed as Exhibit 99(b) to
this Form 10-K Annual Report, and is hereby incorporated by
reference herein. All other schedules are omitted either because
the required information is not applicable or because the
information is shown in the financial statements or notes
thereto.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The General Partner of the Partnership is T. Rowe Price Realty
Income Fund II Management, Inc. ("Fund II Management"), 100 East
Pratt Street, Baltimore, Maryland 21202. The General Partner has
the primary responsibility for overseeing the evaluation,
structuring, negotiation, management, and liquidation of the
Partnership's investments as well as the cash management of the
Partnership's liquid assets and the administration of investor
services of the Partnership, including general communications,
periodic reports and distributions to Limited Partners, and
filings with the Securities and Exchange Commission. Fund II
Management is a wholly-owned subsidiary of T. Rowe Price Real
Estate Group, Inc. ("Real Estate Group"), which is, in turn, a
wholly-owned subsidiary of T. Rowe Price Associates, Inc.
("Associates"). Affiliates of the General Partner, T. Rowe Price
Realty Income Fund I Management, Inc., ("Fund I Management"), T.
Rowe Price Realty Income Fund III Management, Inc., ("Fund III
Management"), and T. Rowe Price Realty Income Fund IV Management,
Inc., ("Fund IV Management") are the General Partners of other
real estate limited partnerships sponsored by Associates. Real
Estate Group, which is also an affiliate, is investment manager
to T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment ("Renaissance Fund"), a real
estate investment trust sponsored by Associates. Associates was
founded in 1937 and as of December 31, 1996 managed over $99
billion of assets.
<PAGE>20
As more fully discussed in Item 1, above, LaSalle is providing
certain real estate advisory and other services to the
Partnership.
The directors and executive officers of Fund II Management are as
follows:
Position with T. Rowe
Price Realty Income
Name Fund II Management, Inc.
James S. Riepe Chairman of the Board,
President, also Principal
Executive Officer for the
Partnership
Henry H. Hopkins Vice President and Director
Lucy B. Robins Vice President and Secretary
Mark B. Ruhe Vice President
Kenneth J. Rutherford Vice President
Alvin M. Younger, Jr. Treasurer and Director
Joseph P. Croteau Controller and Director, also
Principal Financial Officer for
the Partnership
Mark S. Finn Chief Accounting Officer for
the Partnership
Mr. Riepe was elected President in 1991. Ms. Robins was first
elected to her current offices in 1987, and Mr. Ruhe was first
elected in 1988. Mr. Hopkins was first elected a director in
January, 1987. Mr. Croteau was first elected as Controller in
1988, and as a director in 1996, and was designated as Principal
Financial Officer for the Partnership in 1992. Mr. Rutherford
was elected as Vice President in 1994. Mr. Finn was designated
as Chief Accounting Officer in 1996. In all other cases these
individuals have served in these capacities since the inception
of Fund II Management in 1986. There is no family relationship
among the foregoing directors or officers.
The background and business experience of the foregoing
individuals is as follows:
<PAGE>21
James S. Riepe (Born 1943) is Managing Director and
Director, T. Rowe Price Associates, Inc. ("Associates") and
Director of its Investment Services Division; President and
Chairman of Real Estate Group and each of the general partners of
T. Rowe Price Realty Income Fund I, A No-Load Limited Partnership
("RIF I"), RIF III, and RIF IV,(the "Realty Income Funds");
Chairman of six of the 42 mutual funds sponsored by Associates on
which he serves as a director or trustee; Chairman of New Age
Media Fund; Director, Rhone-Poulenc Rorer, Inc., a
pharmaceuticals company. Mr. Riepe joined Associates in 1982.
Henry H. Hopkins (Born 1942) is a Managing Director,
Director, and Legal Counsel of Associates. In addition, Mr.
Hopkins is Vice President and Director of each of the general
partners of the Realty Income Funds. He is also a Vice President
certain of the mutual funds managed by Associates. Mr. Hopkins
joined Associates in 1972.
Lucy B. Robins (Born 1952) is Vice President and
Associate Legal Counsel of Associates and Vice President of Real
Estate Group, and each of the general partners of the Realty
Income Funds. Ms. Robins joined Associates in 1986.
Mark B. Ruhe (Born 1954) is an Asset Manager for Real
Estate Group, and Vice President of the Investment Manager and
each of the general partners of the Realty Income Funds. Mr.
Ruhe joined Associates in 1987.
Alvin M. Younger, Jr. (Born 1949) is Treasurer and
Director of each of the general partners of the Realty Income
Funds and a Managing Director, Secretary and Treasurer of
Associates, and Secretary and Treasurer of Real Estate Group.
Mr. Younger joined Associates in 1973.
Kenneth J. Rutherford (Born 1963) is Marketing Manager
for Associates since 1996 and Vice President of each of the
general partners of the Realty Income Funds. Mr. Rutherford
joined Associates in 1992. From 1992 to 1996 he was Assistant to
the Director of Associates' Investment Services Division. From
1990 to 1992 he was a student at the Stanford Graduate School of
Business.
Joseph P. Croteau (Born 1954) is a Vice President and
Controller for Associates, and Director and Controller of each of
the general partners of the Realty Income Funds. Mr. Croteau
joined Associates in 1987.
Mark S. Finn (Born 1963) is Assistant Vice President of
Associates, and Chief Accounting Officer of the Realty Income
Funds and the Renaissance Fund. Mr. Finn joined Associates in
1990.
<PAGE>22
No Forms 3, Forms 4, Forms 5, or amendments to any of them, were
furnished to the Partnership for its most recent fiscal year.
Based on a review of and written representations pursuant to
Item 405(b)(2) of Regulation S-K, none of the directors,
officers, or beneficial owners of more than 10% of the Units, if
any, nor the General Partner failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the
most recent fiscal or prior fiscal years.
Item 11. Executive Compensation
The directors and executive officers of the General Partner
receive no current or proposed remuneration from the Partnership.
The General Partner is entitled to receive a share of cash
distributions and a share of profits or losses as described under
the captions "Compensation and Fees," and "Income and Losses and
Cash Distributions" of the Prospectus, on pages 7-8 and 31-35
respectively, which pages are incorporated herein by reference.
For a discussion of compensation and fees to which the General
Partner is entitled, see Item 13., which is incorporated herein
by reference.
As discussed in Item 1, above, LaSalle receives reimbursement
from the Partnership for certain expenses incurred in performance
of its responsibilities under the advisory contract. In
addition, under the contract, LaSalle receives from the General
Partner a portion of the compensation and distributions received
by the General Partner from the Partnership.
In addition to the foregoing, certain officers and directors of
the General Partner receive compensation from Associates and/or
its affiliates (but not from the Partnership) for services
performed for various affiliated entities, which may include
services performed for the Partnership. Such compensation may be
based, in part, on the performance of the Partnership. Any
portion of such compensation which may be attributable to such
performance is not material.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Partnership is a limited partnership which issues units of
limited partnership interest. No limited partner is known by the
Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.
The percentage of outstanding interests of the Partnership held
by all directors and officers of the General Partner is less than
1%. Certain officers and/or directors of the General Partner
presently own securities in Associates. As of February 1, 1997,
<PAGE>23
the directors and officers of the General Partner, as a group,
beneficially owned 4.77% of the common stock of Associates,
including options to purchase 336,000 shares exercisable within
60 days of February 1, 1997, and shares as to which voting power
is shared with others. Of this amount, Mr. Riepe owned 2.34% of
such stock (1,380,978 shares, including 106,400 shares which may
be acquired by Mr. Riepe upon the exercise of stock options,
140,000 shares held in trusts for members of Mr. Riepe's family
and 40,000 shares held by a member of Riepe's family, as to which
Mr. Riepe disclaims beneficial ownership, and 82,000 shares held
in a charitable foundation of which Mr. Riepe is a trustee and as
to which Mr. Riepe has shared voting and disposition power). Mr.
Hopkins owned 1.11% (643,768 shares, including 120,800 shares
which may be acquired by Mr. Hopkins upon the exercise of stock
options). Mr. Younger owned 1% (580,000 shares, including 16,500
shares which may be acquired by Mr. Younger upon the exercise of
stock options, and 25,000 shares owned by a member of Mr.
Younger's family as to which Mr. Younger disclaims beneficial
ownership). No other director or officer owns 1% or more of the
common stock of Associates.
There exists no arrangement, known to the Partnership, the
operation of which may at any subsequent date result in a change
in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partner and its affiliates are permitted to engage in
transactions with the Partnership as described under the captions
"Compensation and Fees," and "Conflicts of Interest" of the
Prospectus, on pages 7-12, which pages are hereby incorporated by
reference herein.
The General Partner has been reimbursed for expenses incurred by
it in the administration of the Partnership and the operation of
the Partnership's investments, which amounted to $117,000 in
1996. The General Partner's management fee and share of cash
distributions during 1996 totaled $328,000. An affiliate of the
General Partner received a fee of $10,000 from the money market
mutual funds in which the Partnership made its interim cash
investments in 1996. For a discussion of distributions to which
the General Partner may be entitled upon disposition of real
estate investments by the Partnership, see Note 1 to the
Partnership's consolidated financial statements, which note is
hereby incorporated by reference herein.
<PAGE>24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Incorporated by reference from the indicated pages of the
Partnership's 1996 Annual Report to Limited Partners:
PAGES
Consolidated Balance Sheets at 5
December 31, 1996 and 1995
Consolidated Statements of Operations 6
for each of the three years in the
period ended December 31, 1996
Consolidated Statements of Partners' 7
Capital for each of the three years
in the period ended December 31, 1996
Consolidated Statements of Cash Flows 8
for each of the three years in the
period ended December 31, 1996
Notes to Consolidated Financial Statements 9-12
Independent Auditors' Report - Incorporated by reference from
Exhibit 99(c) hereof.
(2) Financial Statement Schedules:
III - Consolidated Real Estate and Accumulated
Depreciation, incorporated by reference to Exhibit
99(b) hereof.
All other schedules are omitted because they are not
applicable or the required information is presented in
the financial statements and notes hereto.
(3) Exhibits
3,4. (a) Agreement of Limited Partnership of the
Partnership, dated January 1, 1986, as amended
March 10, 1986, included as Exhibit A to the
Prospectus of the Partnership, dated March 17,
1986, File Number 33-2622, filed with the
Commission pursuant to Rule 424(b) ("the
Prospectus"), incorporated by reference herein.
<PAGE>25
(b) Certificate of Limited Partnership, incorporated
by reference to Exhibit 3,4 to the Partnership's
Registration Statement, File No. 33-2622, as filed
on March 17, 1986.
(c) Amendment to the Partnership Agreement dated April
30, 1986, incorporated by reference to Exhibits
3,4(b) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1987 ("the 1987
10-K").
(d) Amendment to the Partnership Agreement dated May
30, 1986, incorporated by reference to Exhibits
3,4(c) to the 1987 10-K.
(e) Amendment to the Partnership Agreement dated June
30, 1986, incorporated by reference to Exhibits
3,4(d) to the 1987 10-K.
(f) Amendment to the Partnership Agreement dated July
31, 1986, incorporated by reference to Exhibits
3,4(e) to the 1987 10-K.
(g) Amendment to the Partnership Agreement dated
August 22, 1986, incorporated by reference to
Exhibits 3,4(f) to the 1987 10-K.
(h) Amendment to the Partnership Agreement dated
September 30, 1986, incorporated by reference to
Exhibits 3,4(g) to the 1987 10-K.
(i) Amendment to the Partnership Agreement dated
October 14, 1986, incorporated by reference to
Exhibits 3,4(h) to the 1987 10-K.
(j) Amendment to the Partnership Agreement dated March
28, 1988, incorporated by reference to Exhibits
3,4(I) to the 1987 10-K.
(k) Purchase and Sale Agreement and Joint Escrow
Instructions dated November 11, 1996 between T.
Rowe Price-Pacific as Seller and WCB Properties
Limited Partnership as Buyer, for the sale of the
AMCC property.
10. Advisory Agreement dated as of July 15, 1991 by and
between the Partnership, the General Partner, and
LaSalle Advisors Limited Partnership, incorporated by
reference to Exhibit 10 of the registrant's report on
Form 10-K for the year ended December 31, 1991.
<PAGE>26
13. Annual Report for the year ended December 31, 1996,
distributed to Limited Partners on or about March 4,
1997.
27. Financial Data Schedule
99. (a) Pages 7-12, 18-25 and 31-35 of the Prospectus of
the Partnership dated July 15, 1991, incorporated
by reference to Exhibit 99(a) of the registrant's
report on Form 10-K for the year ended December
31, 1994, File Number 0-15575.
(b) Financial Statement Schedule III - Consolidated
Real Estate and Accumulated Depreciation.
(c) Report of KPMG Peat Marwick LLP dated
January 30, 1997 regarding the financial
statements of the Partnership.
(b) Reports on Form 8-K
(1) Report on Form 8-K dated November 12, 1996 regarding
the valuation of the Partnership's Units.
(2) Report on Form 8-K dated January 9, 1997 regarding the
sale of AMCC.
(3) Report on Form 8-K dated January 17, 1997 regarding the
valuation of the Partnership's Units.
<PAGE>27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized:
Dated: March 27, 1997 T. ROWE PRICE REALTY INCOME FUND II,
AMERICA'S SALES-COMMISSION-FREE REAL
ESTATE LIMITED PARTNERSHIP
By: T. Rowe Price Realty Income
Fund II Management, Inc.,
General Partner
By: /s/James S. Riepe
James S. Riepe,
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities (with respect
to the General Partner) and on the dates indicated:
/s/James S. Riepe Date: March 27, 1997
James S. Riepe,
Director and Chairman of the
Board, President T. Rowe Price
Realty Income Fund II Management,
Inc., Principal Executive Officer
for the Partnership
/s/Henry H. Hopkins Date: March 27, 1997
Henry H. Hopkins,
Director and Vice President,
T. Rowe Price Realty Income
Fund II Management, Inc.
/s/Alvin M. Younger, Jr. Date: March 27, 1997
Alvin M. Younger, Jr.,
Director and Treasurer,
T. Rowe Price Realty Income
Fund II Management, Inc.
<PAGE>28
/s/Joseph P. Croteau Date: March 27, 1997
Joseph P. Croteau, Director and
Controller,T. Rowe Price Realty
Income Fund II Management, Inc.,
Principal Financial
Officer for the Partnership
/s/Mark S. Finn Date: March 27, 1997
Mark S. Finn
Chief Accounting Officer for
the Partnership
<PAGE>
<PAGE>29
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW
INSTRUCTIONS (this "Agreement") is entered into as of November
11, 1996, by and between T. ROWE PRICE-PACIFIC, a California
limited partnership ("Seller"), and WCB PROPERTIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Buyer").
RECITALS:
A. Seller is the owner of certain improved real property
located in San Diego, California known as 6175 and 6195 Lusk
Boulevard.
B. Buyer desires to purchase that property, and Seller
desires to sell that property, on the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, Buyer and Seller agree as
follows:
1. PURCHASE AND SALE
1.1 Agreement to Buy and Sell. Subject to all of the terms
and conditions of this Agreement, Seller hereby agrees to sell
and convey to Buyer and Buyer hereby agrees to acquire and
purchase from Seller the following (collectively, the
"Property"):
1.1.1 All of Seller's right, title and interest in and
to that certain parcel of real property commonly known as 6175
and 6195 Lusk Boulevard in San Diego, California and more
particularly described on Exhibit "A" attached hereto, together
with all of Seller's right, title and interest in and to any and
all easements, privileges and other rights appurtenant thereto,
including but not limited to development rights, air rights and
oil, gas, mineral and water rights (collectively, the "Land");
1.1.2 All of Seller's right, title and interest in and
to all improvements, structures, equipment and fixtures located
on or under the Land, including without limitation the two (2)
office buildings located thereon (collectively, the
"Improvements") (the Land and Improvements are herein
<PAGE>30
collectively called the "Project");
1.1.3 All of Seller's right, title and interest in and
to all tangible personal property, if any, located on or affixed
to the Project and used in connection with the ownership,
operation or maintenance of the Project, and all intangible
property, if any, owned or held by Seller that pertains to the
ownership, maintenance, use or operation of the Project,
including, without limitation, any"Licenses and Permits" (as
defined in Exhibit "B" attached hereto) or other rights relating
to the ownership, use or operation of the Project (collectively,
the "Personal Property");
1.1.4 All of Seller's interest in any leases or other
agreements demising space in or providing for the use or
occupancy of any portion of the Project (collectively, the
"Leases") and Seller's rights under any guarantees, letters of
credit or other instruments that secure or guarantee the
performance of the obligations of each tenant thereunder
(collectively, the "Lease Guarantees";
1.1.5 All of Seller's right, title and interest in and
to, if any, any and all service contracts, maintenance
agreements, construction contracts, architect's agreements,
leasing brokerage agreements, parking agreements, consultant
agreements, management contracts, bonds and all other contracts
and agreements relating to the Property which continue in full
force and effect beyond the "Closing" (as defined below) and
which Buyer hereafter elects in its sole and absolute discretion,
to assume in writing, together with all supplements, amendments
and modifications thereto (collectively, the "Contracts"), to the
extent the Contracts are assignable;
1.1.6 All of Seller's interest in any and all
warranties, guaranties, indemnities and claims, whether oral or
written, which relate, directly or indirectly, to all or any
portion of the Property, including, without limitation, any
warranties or guarantees with respect to any building, building
component, structure, fixture, machinery, equipment, material
situated or, or comprising a part of any building or other
improvement situated on the Land (collectively, the
"Warranties"); and
1.1.7 All of Seller's interest in the following: (i)
financial and other books and records maintained in connection
with the operation of the Property, (ii) preliminary, final and
proposed building plans and specifications (including "as-built"
floor plans and drawings) and tenant improvement plans and
specifications for the Improvements, (iii) surveys, appraisals,
budgets, structural reviews, grading plans, topographical maps,
architectural and structural drawings and engineering, soils,
seismic, geologic, environmental contamination and architectural
<PAGE>31
reports, studies, tests, analyses and certificates pertaining to
the Land, (iv) marketing information pertaining to the Property,
(v) inspection reports issues with respect to the Property by any
governmental or quasi-governmental body or agency having
jurisdiction over the Property or Seller (collectively the
"Governmental Authorities"), and (vi) other books and records
maintained by or for the benefit of Seller with respect to the
Property (collectively the "Records and Plans");
1.2 Purchase Price. The purchase price to be paid by Buyer
to Seller for the Property shall be the sum of Eight Million Two
Hundred Fifty Thousand Dollars ($8,250,000.00) (the "Purchase
Price").
1.3 Payment of Purchase Price. The Purchase Price shall be
payable as follows:
1.3.1 Concurrently with the "Opening of Escrow" (as
defined below), Buyer shall deposit into "Escrow" (as defined
below), into an interest bearing account, One Hundred Fifty
Thousand Dollars ($150,000) (such amount, together with any
interest earned thereon, is herein called the " Deposit") by
certified check or wire transfer of federal funds or in another
immediately available form. Except as otherwise provided in this
Agreement, the Deposit shall be non-refundable to Buyer after the
"Decision Date" (as defined below).
1.3.2 At least one (1) business day prior to the
"Closing Date" (as defined below), Buyer shall deposit into
Escrow the balance of the Purchase Price, subject to adjustment
by reason of any applicable prorations and the allocation of
closing costs described below. The deposit required by this
Section 1.3.2 shall be made by wire transfer of federal funds or
in another immediately available form.
2. OPENING OF ESCROW
2.1 Escrow; Escrow Holder. Within three (3) days after this
Agreement has been executed by Seller and Buyer, an escrow (the
"Escrow") shall be opened (the "Opening of Escrow") (the date of
Opening of Escrow is herein called the "Effective Date") with
Stewart Title Company of San Diego, 7676 Hazard Center Drive,
Suite No. 700, San Diego, CA 92108 ("Escrow Holder").
2.2 Escrow Instructions. The terms and conditions set forth
in this Agreement shall constitute both an agreement between
Seller and Buyer and escrow instructions for Escrow Holder.
Seller and Buyer shall promptly execute and deliver to Escrow
Holder any separate or additional escrow instructions requested
by Escrow Holder which are consistent with the terms of this
Agreement. Any separate or additional instructions shall not
<PAGE>32
modify or amend the provisions of this Agreement unless otherwise
expressly set forth by mutual consent of Buyer and Seller. As
used in this Agreement, "Closing" shall mean the recordation of
the "Deed" (as defined below) in the Official Records of San
Diego County, California.
2.3 Closing Date. Escrow shall close on or before the date
that is sixty (60) days after the Effective Date (the "Closing
Date").
3. ACTIONS PENDING CLOSING
3.1 Deliveries by Seller. On or before the fifth (5th)
business day following the Opening of Escrow, Seller shall
deliver to Buyer, or make available to Buyer for inspection at
the Property, those documents and reports listed on Exhibit "B"
attached hereto. On or before the Decision Date, Buyer may, in
its sole and absolute discretion, elect to terminate this
Agreement by delivery of written notice of termination in
accordance with Section 3.4 below, in which case Buyer shall
promptly return to Seller all items furnished to Buyer pursuant
to this Section 3.1 and Escrow Holder shall promptly return the
Deposit to Buyer. Buyer's failure to provide such notice on or
before the Decision Date shall constitute Buyer's election to
terminate this Agreement, in which case Buyer shall promptly
return to Seller all items furnished to Buyer pursuant to Section
3.1 and Escrow Holder shall promptly return the Deposit to Buyer.
3.2 Buyer's Review of Title.
3.2.1 As soon as reasonably possible after the Opening
of Escrow, Seller shall obtain, at Seller's sole cost and
expense, a preliminary title report or commitment for title
insurance issued by Stewart Title Company (the "Title Company")
showing the condition of title to the Property (the "Preliminary
Title Report") together with legible (to the extent available)
copies of all documents referred to therein (the "Title
Documents"). Upon receipt of the Preliminary Title Report,
Seller shall deliver a copy thereof to Buyer, accompanied by
legible copies (to the extent available) of all Title Documents.
3.2.2 Buyer shall have until the later of ten (10)
business days after receipt of the Preliminary Title Report and
Title Documents or the date that is thirty five (35) days after
the Effective Date (the "Title Notice Date") within which to
deliver to Seller written notice of Buyer's disapproval of any
matter shown on the Preliminary Title Report (those title matters
disapproved or deemed disapproved by Buyer are hereafter called
the "Disapproved Exceptions"); provided, however that Buyer shall
have an additional five (5) days, regardless of the Decision
Date, following Buyer's receipt of any update to the Preliminary
Title Report (or the Survey) to notify Seller of objections to
<PAGE>33
any new items shown on any such update. Buyer's failure to
provide such notice on or before such date shall constitute
Buyer's disapproval of the condition of title as shown on the
Preliminary Title Report.
3.2.3 If Buyer timely notifies Seller of its
Disapproved Exceptions on or before the Title Notice Date or if
Buyer is deemed to have disapproved the condition of title as
shown on the Preliminary Title Report, Seller shall notify Buyer
in writing within three (3) business days after receipt of
Buyer's notice of Disapproved Exceptions or, in the event that
Buyer fails to notify Seller of any Disapproved Exceptions
pursuant to Section 3.2.2, within three (3) business days after
the date that said exceptions are deemed to have been disapproved
by Buyer pursuant to this Agreement that: (a) Seller will remove
such Disapproved Exceptions from title as of or before Closing;
or (b) Seller will not remove any or certain specified
Disapproved Exceptions from title. Seller's failure to address
any Disapproved Exceptions in any notice, or failure to give a
notice as to any Disapproved Exceptions, shall constitute
Seller's statement that it will not remove such Disapproved
Exceptions from title.
3.2.4 If Seller does not provide Buyer with written
notice that Seller shall remove all Disapproved Exceptions from
title, Buyer shall have the right to terminate this Agreement by
delivery of written notice of termination in accordance with
Section 3.3 on or before the date that is forty five (45) days
after the Effective Date (the "Decision Date"), as Buyer's sole
and exclusive remedy. Buyer's failure to provide such notice of
termination on or before the Decision Date shall constitute
Buyer's election to terminate this Agreement. In the case of
Buyer's waiver of Disapproved Exceptions, Seller shall have no
obligation to remove or otherwise address such Disapproved
Exceptions from title, and such waived Disapproved Exceptions
shall be deemed approved. If, despite Seller's notice to Buyer
that Seller will remove all Disapproved Exceptions from title,
prior to the Closing Date, Seller is unable to remove or insure
over (to Buyer's satisfaction in its sole and absolute
discretion) any Disapproved Exceptions, then Buyer may elect, in
its sole and absolute discretion and upon written notice to
Seller and Escrow Holder, on or before the Closing Date to (a)
terminate this Agreement; (b) discharge any Disapproved
Exceptions which can be discharged by the payment of money and
deduct from the Purchase Price the amount necessary to do so; (c)
extend the Closing Date to allow Seller a reasonable period of
time to remove any such Disapproved Exceptions; or (d) proceed to
a timely closing whereupon such objected to exceptions or matters
shall be deemed to be "Permitted Exceptions" (as defined below).
Buyer's failure to timely make such election shall constitute
Buyer's election to terminate this Agreement. If Buyer elects
(or is deemed to have elected) to terminate this Agreement
<PAGE>34
pursuant to this Section 3.2.4, the provisions of Section 3.4
shall apply. Buyer's right to terminate this Agreement pursuant
to this Section 3.2.4 shall in no way affect Buyer's right to
terminate this Agreement pursuant to Section 3.1. Notwithstanding
anything to the contrary contained herein, Seller shall be
required to discharge and remove any and all liens affecting the
Property which secure an obligation to pay money (other than
installments of real estate taxes or assessments not delinquent
as of the Closing Date) and, even though Buyer does not expressly
disapprove such liens, such liens shall not be Permitted
Exceptions. Except for the Disapproved Exceptions Seller removes
or covenants to remove, the exceptions to title shown by the
Preliminary Title Report and any encumbrance arising from the
acts of Buyer are called the "Permitted Exceptions" in this
Agreement.
3.3 Buyer's Review of the Property; Agreements. On or
before the Decision Date, Buyer shall have prepared, obtained,
reviewed (or shall have chosen not to have prepared, obtained or
reviewed) and approved, among other things, all reports of
investigations of the Property, including, such soil, geological,
engineering and environmental tests and reports, and other
inspections of the Property as Buyer shall deem necessary in
order to determine whether the Property is suitable for Buyer's
intended use, as well as investigated (or chosen not to have
investigated) all zoning requirements, federal, state and local
laws, ordinances, rules, regulations, permits, licenses,
approvals and orders applicable to the Property. Pursuant to and
subject to the requirements of Section 3.7 of this Agreement,
Buyer may enter onto the Property for the purpose of conducting
its visual inspection (the "Inspection") of the Property;
provided, however, without first obtaining Seller's prior written
consent, Buyer shall only conduct a visual inspection, with no
right to conduct any physical testing, boring, sampling or
removal of the nature commonly referred to as "Phase II" testing
(collectively "Physical Testing") of any portion of the Property.
If Buyer wishes to conduct any Physical Testing of the Property,
Buyer shall submit a work plan to Seller prior to the Decision
Date for Seller's prior written approval, which work plan Seller
may modify, limit or disapprove in its reasonable discretion.
3.4 Buyer's Termination. If Buyer elects to terminate this
Agreement on or before the Decision Date, which Buyer may do in
its sole and absolute discretion, or on or before any applicable
later date in connection with a termination pursuant to
Sections 4.6 or 4.7, Buyer shall give Seller and Escrow Holder
written notice that Buyer elects to terminate this Agreement.
Buyer's failure to provide such termination notice pursuant to
Sections 3.1or 3.2 on or before the Decision Date, or Buyer's
failure to timely provide a termination notice pursuant to
Sections 4.6 or 4.7, shall constitute Buyer's election to
terminate this Agreement. In the event Buyer elects (or is
<PAGE>35
deemed to have elected) to terminate this Agreement pursuant to
this Section 3.4, Escrow Holder shall deliver the Deposit to
Buyer and shall return to the depositor thereof any other
materials previously placed in Escrow and remaining in Escrow;
Buyer shall deliver to Seller all information, materials and data
that Buyer and/or Buyer's Agents discover, obtain or generate in
connection with or resulting from Buyer's investigation of the
Property (including, without limitation, pursuant to Section
3.7); and neither party shall thereafter have any further rights
or obligations under this Agreement unless expressly provided
otherwise herein. In the event Buyer desires to continue this
Agreement after the Decision Date, Buyer shall, on or before the
Decision Date, deliver written notice to Seller and Escrow Holder
that Buyer shall purchase the Property pursuant to the terms
hereof; in the event such notice contains conditions on Buyer's
obligation to purchase the Property that are in addition to the
conditions set forth herein, Seller shall have the right to
terminate this Agreement by written notice thereof to Buyer, in
which case
Escrow Holder shall deliver the Deposit to Buyer and shall return
to the depositor thereof any other materials previously placed in
Escrow and remaining in Escrow; Buyer shall deliver to Seller
all information, materials and data that Buyer and/or Buyer's
Agents discover, obtain or generate in connection with or
resulting from Buyer's investigation of the Property (including,
without limitation, pursuant to Section 3.7); and neither party
shall thereafter have any further rights or obligations under
this Agreement unless expressly provided otherwise herein.
3.5 Seller's Termination. If Seller elects to terminate
this Agreement as a result of any material breach of Buyer's
obligations Seller shall give Buyer notice of such breach and, if
such breach has not been cured within five (5) business days
after the date of Seller's notification to Buyer of such material
breach, Seller shall give Buyer and Escrow Holder written notice
that Seller elects to terminate this Agreement. Seller's failure
to provide such notice by the specified deadline shall constitute
Seller's waiver of Seller's right to terminate this Agreement for
reasons for which that deadline applied, but not as to the
reasons for which a later deadline applies. In the event Seller
elects to terminate this Agreement pursuant to this Section 3.5,
Escrow Holder shall hold the Deposit until receipt of joint
instructions signed by Buyer and Seller and shall return to the
depositor thereof any materials previously placed in Escrow and
remaining in Escrow; Buyer shall deliver to Seller a duly
executed and acknowledged quitclaim deed in accordance with
Section 6.13 below; Buyer shall pay all title, survey and escrow
charges, and, subject to Section 5.6, neither party shall
thereafter have any further rights or obligations under this
Agreement unless expressly provided otherwise therein.
3.6 No Processing. Without Seller's prior written consent,
<PAGE>36
until the Closing, Buyer shall not make any application to any
governmental agency for any permit, approval, license or other
entitlement for the Property or the use or development thereof.
3.7 Access to Property.
3.7.1 Subject to the rights of existing tenants of the
Property ("Tenants"), whom Buyer hereby agrees not to interview
or question without having provided Seller and Seller's Broker
(as defined below) with at least two (2) business days prior
written notice of its intention to do so and an opportunity for
Seller's representative to accompany Buyer or its representative
during such interview, Seller hereby grants to Buyer a
nonexclusive license to enter onto the Property solely for the
purpose of conducting Buyer's Inspection. Any Inspection work
shall be at the sole cost and expense of Buyer. If Buyer or its
agents, employees, representatives or contractors (collectively,
"Buyer's Agents") conduct any activities on the Property without
Seller's prior written consent that are excluded from the
definition of "Inspection" in Section 3.3 and are included in the
definition of "Physical Inspection" in Section 3.3, that shall be
a material breach of this Agreement and Seller may terminate this
Agreement in accordance with the terms of Section 3.5. The
license created under this Section 3.7.1 shall expire on
termination of this Agreement. At least twenty-four (24) hours
prior to any entry and Inspection, Buyer shall provide Seller
with a certificate of insurance from Buyer and Buyer's Agents
that will be participating in the Inspection in form and
substance satisfactory to Seller evidencing the existence of
(i) commercial general liability insurance in an amount not less
than $1,000,000 combined limits for any injuries, deaths or
property damage sustained as a result of any one accident or
occurrence, (ii) worker's compensation insurance at statutory
limits, and (iii) employer's liability insurance in an amount not
less than $1,000,000 for each accident, disease per employee and
disease policy limit. The commercial general liability insurance
shall name Seller as an additional insured. Any Buyer's Agent
which conducts environmental inspections of the Property shall,
prior to such inspection, also provide evidence of environmental
liability insurance of not less than $1,000,000.
3.7.2 Buyer agrees to keep the Property free from any
liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Buyer or Buyer's Agents
with respect to any Inspection or Physical Testing of the
Property. If any such lien shall at any time be filed, Buyer
shall cause the same to be discharged of record within twenty
(20) days thereafter by satisfying the same or, if Buyer in its
discretion and in good faith determines that such lien should be
contested, by recording a bond. Failure by Buyer to discharge
such lien or record a bond shall be a material breach of this
Agreement and Seller may terminate this Agreement in accordance
<PAGE>37
with Section 3.5.
3.7.3 Buyer shall, at its sole cost and expense, comply
with all applicable federal, state and local laws, statutes,
rules, regulations, ordinances and policies in conducting the
Inspection and the Physical Testing.
3.7.4 Buyer hereby agrees to hold harmless, protect,
defend and indemnify, and hereby releases, Seller and its
trustees, officers, directors, partners, employees, contractors,
agents, subsidiaries and affiliates, and its and their respective
successors and assigns (collectively, the "Indemnitees") and the
Property from and against any and all claims, demands, causes of
action, losses, liabilities, liens, encumbrances, costs or
expenses (including without limitation reasonable attorneys' fees
and litigation costs) arising out of, connected with or
incidental to: (a) any injuries to persons (including death) or
property (real or personal), or (b) any mechanics', workers' or
other liens on the Property, by reason of or relating to the work
or activities conducted on the Property by Buyer or Buyer's
Agents. Notwithstanding the foregoing, Buyer's agreement in this
Section 3.7.4 shall not apply to the following: (i) any pre-existing
defective or illegal conditions on the Property
discovered by Buyer or any consequences resulting from Buyer's or
Buyer's Agents' communication of such conditions to Seller,
and/or (ii) any defective or illegal condition caused by Seller
or its trustees, officers, directors, partners, employees,
contractors, agents, subsidiaries or affiliates. The provisions
of this Section 3.7.4 shall survive any termination of this
Agreement and shall not be limited in any way by any other terms
of this Agreement, including, but not limited to, Section 5.6 of
this Agreement.
3.7.5 In no event shall Buyer or Buyer's Agents have
the right to place any materials or equipment on the Property
(including, without limitation, signs or other advertising
material) until after the Closing has occurred, except for
materials or equipment relating to any Inspection.
3.7.6 Buyer shall, at its sole cost and expense, clean
up and repair the Property, in whatever manner necessary, after
Buyer's or Buyer's Agents' entry thereon so that the Property
shall be returned to substantially the same condition that
existed prior to Buyer's or Buyer's Agents' entry thereon;
provided, however, that the foregoing repair obligation shall not
apply to any damage to the Property that was not caused by Buyer
or Buyer's Agents..
3.7.7 All information, materials and data that Buyer
and/or Buyer's Agents discover, obtain or generate in connection
with or resulting from its Inspection and work under Section 3.3
and 3.7 hereunder (the "Information") shall be deemed
<PAGE>38
confidential, and Buyer represents, warrants and agrees that
without the prior written consent of Seller, which consent may be
withheld in Seller's sole and absolute discretion, Buyer will:
use commercially reasonable efforts to keep the Information
confidential (Buyer may disclose such Information to its
attorneys, accountants, partners, consultants, lenders and
investors), unless such Information is in the public domain or
unless Buyer may have received such Information from sources
other than Seller or as a result of its Inspection, and the
Information will not be used other than in connection with the
Buyer's investigation and evaluation of the Property ("Buyer's
Investigation"); and use its commercially reasonable efforts to
safeguard the Information from unauthorized disclosure. Buyer
shall indemnify the Indemnitees from and against any and all
claims, demands, causes of action, loss, damage or liability
resulting from, arising out of or in connection with Buyer's
breach of its obligations under this Section 3.7.7.
4. ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Seller's Representations and Warranties. Seller hereby
represents, warrants and covenants to and agrees with Buyer as
follows:
4.1.1 Seller's Authority. Seller has the power and
authority to own the Property and to consummate the transactions
contemplated by this Agreement. This Agreement and all
instruments, documents and agreements to be executed by Seller in
connection herewith (i) are, or when delivered shall be, duly
authorized, executed and delivered by Seller; (ii) are, or when
delivered shall be, valid, binding and enforceable obligations of
Seller, and (iii) do not and will not violate any provision of
any agreement or judicial order to which Seller is a party or to
which Seller or the Property is subject.
4.1.2 No Bankruptcy. Seller has not (i) made a general
assignment for the benefit of creditors, (ii) filed any voluntary
petition in bankruptcy or suffered the filing of any involuntary
petition by Seller's creditors, (iii) suffered the appointment
of a receiver to take possession of the Property or all, or
substantially all, of Seller's other assets, (iv) suffered the
attachment or other judicial seizure of the Property or all, or
substantially all, of Seller's other assets, (v) admitted in
writing its inability to pay its debts as they come due, or (vi)
made an offer of settlement, extension or composition to its
creditors generally.
4.1.3 Tax Withholding. Seller is not a "foreign
person" as defined in Section 1445 of the Internal Revenue Code
of 1986, as amended (the "Code") and any related regulations.
<PAGE>39
4.1.4 Leases and Contracts. To Seller's knowledge, the
copies of the leases, agreements, contracts and written reports
delivered or made available to Buyer by Seller are true and
accurate copies of such items.
4.1.5 Lease Matters. To Seller's knowledge, the only
tenant leases and amendments thereto in force for the Property
are as set forth in the rent roll to be delivered to Buyer
pursuant to Section 3.1 above, and, to Seller's knowledge, no
tenants are currently in default under the Leases.
4.1.6 No Litigation. To Seller's knowledge, there is
no litigation pending or threatened with respect to the Property.
4.1.7 Hazardous Materials. To Seller's knowledge, (i)
neither Seller nor any agent, employee or representative of
Seller, nor any predecessor of Seller or occupant of the Project,
has used, installed, generated, produced, stored or released on,
in, under or about the Project or transported to or from the
Project or into any groundwater (other than lawfully into
sanitary sewer systems established for such purpose) any
Hazardous Materials (as defined in Section 4.4) except in the
ordinary course of business and in compliance with all applicable
laws, ordinances, rules, requirements and regulations of any
Governmental Authority pertaining to the use, storage, handling
or disposal of Hazardous Materials, and (ii) no storage tanks
have at any time been installed, used or removed on, at or under
the Project.
4.1.8 Structural Defects. To Seller's knowledge,
Seller has not received written notice of, and to Seller's
knowledge there are not, any structural defects or inadequacies
in the Project which have not been corrected.
4.1.9 Utilities. To Seller's knowledge, all water,
sewer, gas, electric, telephone, drainage facilities and other
utilities required by law or for the normal operation of the
Project in a fully occupied condition (i) are installed to the
property lines of the Project, (ii) are adequate to service the
Project in a fully occupied condition, and (iii) have been
connected to the Improvements with valid permits.
4.1.10 Accurate Deliveries. To Seller's knowledge, all
documents, contracts agreements or any other information provided
by Seller to Buyer are genuine and complete and include any
modifications or amendments, and with respect to the materials
prepared by Seller and delivered after the execution of this
Agreement, do not contain any untrue statements of material fact
or an omission of any material fact. To Seller's knowledge, the
Operating Statements (as defined in Exhibit B) are correct in all
material respects. The Rent Roll (as defined in Exhibit B) is
complete and correct in all material respects.
<PAGE>40
4.1.11 Seller's Right to Convey. Seller is the legal
and equitable owner of the Property, with full right to convey
the same, and without limiting the generality of the foregoing,
Seller has not granted any options or rights of first refusal to
third parties to purchase or otherwise acquire any interest in
the Property which , to Seller's knowledge, may impede or remain
outstanding after the Closing Date. To Seller's knowledge, the
tenant of the Property has waived its right of first refusal to
purchase the Property. In the event that the tenant of the
Property shall assert its right to purchase the Property pursuant
to its right of first refusal and Seller shall notify Buyer that
it is unable to cause the tenant to waive such right, this
Agreement shall terminate, whereupon Seller shall reimburse
Buyer, in an amount not to exceed $50,000, for Buyer's documented
out-of-pocket costs and expenses paid to third parties in
connection with Buyer's due diligence review of the Property,
and, except as otherwise specifically herein provided, the
parties shall have no further obligations hereunder.
4.1.12 No Unrecorded Restrictions. Except for the
matters shown in the Preliminary Title Report, to Seller's
knowledge there are no covenants, conditions, restrictions or
encumbrances affecting the Property which will be binding on
Buyer after the Closing Date.
4.1.13 No Liens. To Seller's knowledge, the Records
and Plans, the Licenses and Permits and the Personal Property
have been fully paid for and will not be subject to any liens,
encumbrances or claims of any kind as of the Closing.
4.1.14 No Undisclosed Defects. To Seller's knowledge,
there are no material defects in the Project which have not been
disclosed to Buyer by the materials delivered or made available
to Buyer or which would not be disclosed by a reasonable
inspection of the Project and which would materially interfere
with Buyer's continued use of the Project for its current
purpose.
As used herein, Seller's "knowledge" means the actual (not
constructive) knowledge of Judy Alexander, which individual is
the employee of Seller's asset manager who has the day-to-day
management responsibility for the Property and the most knowledge
with respect to the Property, without undertaking, and without
any duty to undertake, any investigation or inquiry. It is the
express intention of Buyer and Seller that, in order for Buyer to
recover any damages or have any other remedies against Seller by
reason of an alleged breach of Seller's representations and/or
warranties set forth herein, Buyer shall be required to allege
and prove that at least the foregoing individual had actual
conscious knowledge of the falsity of such representation and/or
warranty when made. It is also expressly agreed and understood
that in no event shall Buyer be entitled to bring any action(s)
<PAGE>41
for damages or otherwise against the aforementioned individual.
Any action against Seller based upon an alleged breach of
Seller's representations and warranties set forth in herein must
be filed within three hundred sixty five (365) days after the
Closing Date, and failure to timely file any such action shall be
deemed Buyer's waiver and release of any such action.
4.2 Buyer's Representations and Warranties. Buyer hereby
represents, warrants and covenants to and agrees with Seller as
follows:
4.2.1 Buyer's Investigation. (a) Except as contained
in this Agreement or any of the documents executed by Seller in
connection herewith, there are no representations or warranties
of any kind whatsoever, express or implied, made by Seller in
connection with this Agreement, the purchase of the Property by
Buyer, the physical condition of the Property or whether the
Property complies with applicable laws or is appropriate for
Buyer's intended use; (b) Except as contained in this Agreement
or any of the documents executed by Seller in connection
herewith, Buyer is not relying on any statement or representation
of Seller, its agents or its representatives nor on any
information supplied by Seller, its agents or its representatives
; (c) Buyer, in entering into this Agreement and in completing
its purchase of the Property, is relying entirely on its own
investigation of the Property; (d) Buyer's decision, on or prior
to the Decision Date, of whether to purchase the Property on the
terms and conditions hereof shall be made solely and exclusively
in reliance on Buyer's own review, inspection and investigation
of the Property and of materials, documents, information and
studies relating to the Property (including, without limitation,
Buyer's Inspection or Physical Testing) and on the
representations and warranties of Seller contained in this
Agreement and in the documents executed by Seller in connection
herewith; and (e) Buyer shall purchase the Property in its "as
is" condition as of the date of Closing.
4.2.2 Authority. Buyer has the power and authority to
own the Property and to consummate the transactions contemplated
by this Agreement. This Agreement and all instruments, documents
and agreements to be executed by Buyer in connection herewith are
or when delivered shall be duly authorized, executed and
delivered by Buyer and are valid, binding and enforceable
obligations of Buyer. Each individual executing this Agreement
on behalf of Buyer represents and warrants to Seller that he or
she is duly authorized to do so.
4.2.3 Consents. Buyer is not required to obtain, or
will have obtained by the Closing, any consents or approvals
necessary to consummate the transactions contemplated in this
Agreement.
4.3 Reaffirmation. The representations and warranties of
<PAGE>42
Buyer and Seller set forth in Sections 4.1 and 4.2, respectively
are true and correct as of the date of this Agreement and shall
be true and correct as of the Closing. The Closing shall
constitute each party's reaffirmation of those representations
and warranties as of the Closing and each party shall execute and
deliver at Closing a document (a "Reaffirmation Certificate")
reaffirming such party's representations and warranties. Seller
shall be entitled to rely upon Buyer's representations and
warranties, notwithstanding any inspection or investigation of
the Property which was made or could have been made by Buyer.
In the event that either Seller or Buyer should discover prior to
the Closing Date that any representation or warranty made by
Seller is untrue or inaccurate, it shall promptly inform the
other party in writing of its discovery. In the event Seller
shall notify Buyer of an untrue or inaccurate representation
pursuant to the preceding sentence, Buyer shall be deemed to
have terminated this Agreement unless it shall notify Seller in
writing within ten (10) days after receipt of Seller's notice
that Buyer shall proceed with the Closing, or unless Buyer shall
close this transaction within said ten (10) day period. If Buyer
shall have terminated this Agreement pursuant to the preceding
sentence, this Agreement shall terminate in accordance with the
terms and provisions of Section 3.4 hereof. In the event that
Buyer closes this transaction or notifies Seller pursuant to the
second sentence of this paragraph that Buyer shall proceed with
the Closing, Buyer shall automatically be deemed to have waived
any objection to any such untrue or inaccurate warranty or
representation and no rights or remedies shall ever be available
to Buyer with respect to such untrue or inaccurate warranty or
representation except in the event that Seller had actual (not
constructive) knowledge of the untruth or inaccuracy of any
warranty or representation at the time the same was made, in
which event Buyer may close the transaction and bring suit for
breach of said warranty.
4.4 Additional Covenants of Seller In addition to the
covenants and agreements of Seller set forth elsewhere in this
Agreement, Seller covenants and agrees that between the Effective
Date and the Closing Date:
4.4.1 Title. Seller shall not directly or indirectly
sell, lease, assign or create any right, title or interest
whatsoever in or to the Property, or create or permit to exist
thereon any lien, charge or encumbrance other than the Permitted
Exceptions, or enter into any agreement to do any of the
foregoing, without the prior written consent of Buyer (which
consent may be granted or withheld in Buyer's sole and absolute
discretion.)
4.4.2 Service, Management and Employment Contracts.
Seller shall not directly or indirectly enter into, extend or
renew any new service contracts, property management or
employment contracts in respect of the Property, without the
prior written consent of Buyer (which consent may be withheld in
<PAGE>43
Buyer's sole and absolute discretion), unless the same shall be
cancelable as of or before the Closing without penalty or premium
(or, if said cancellation requires the payment of a penalty or
premium, said penalty or premium shall be paid by Seller).
4.4.3 Development Activities. Seller shall not take
any actions with respect to the development of the Property,
including, without limitation, applying for, pursuing, accepting
or obtaining any permits, approvals or other development
entitlements from any governmental or other regulatory entities
or finalizing or entering into any agreements relating thereto
without the prior written consent of Buyer (which consent may be
granted or withheld in Buyer's sole and absolute discretion).
Seller shall renew any permits relating to the use of the
Property that Seller would renew in the ordinary course of owning
the Property. Seller shall, at no cost to Seller, reasonably
cooperate with Buyer in Buyer's efforts to obtain any
governmental approvals necessary for Buyer's ownership of the
Property.
4.4.4 No Pre-paid Rent. Seller shall not accept any
rent from any tenant (or any new tenant under any new lease to
which Buyer has consented) for more than one (1) month in advance
of the payment date.
4.4.5 Notice of Change in Circumstances. Seller shall
promptly notify Buyer of any change in any condition with respect
to the Property or any portion thereof or of any event or
circumstances of which Seller becomes aware subsequent to the
Effective Date which (a) materially affects the Property or any
portion thereof, the use or operation of the Property or any
portion thereof, or the future development of the Property or any
portion thereof, (b) makes any representation or warranty of
Seller to Buyer under this Agreement untrue or misleading, or (c)
makes any covenant or agreement of Seller under this Agreement
incapable or materially less likely of being performed.
4.4.6 No Defaults; Maintenance of Property. Seller
shall not default with respect to the performance of any
obligation relating to the Property, including, without
limitation, the payment of all amounts due and the performance of
all obligations with respect to the leases, any operating
agreements, the service contracts, and any existing indebtedness
relating to the Property; provided, however, that Seller shall
have the right to contest any claim that it is in default under
any such obligation but such contest shall not excuse Seller's
obligation to perform hereunder. Seller shall operate and
maintain the Property in accordance with Seller's past practices.
4.4.7 Exclusive Negotiations. Seller shall remove the
Property from the market and cease and refrain from any and all
negotiations with any other prospective optionees or purchasers
of the Property.
4.4.8 Zoning. Except as expressly approved by Buyer in
<PAGE>44
writing, Seller shall not seek any change in the zoning of the
Real Property.
4.4.9 Insurance. Seller shall maintain insurance for
the Property in accordance with Seller's past practice.
4.4.10 Litigation. Seller shall not initiate any
litigation with respect to the Property after the Decision Date.
4.5 Hazardous Material Waiver. Buyer hereby releases
Indemnitees from and against any and all liabilities, claims,
demands, suits, judgments, causes of action (including, but not
limited to, causes of action arising under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et. seq.), losses, costs, damages, injuries,
penalties, enforcement actions, fines, taxes, remedial actions,
removal and disposal costs, investigation and remediation costs
and expenses (including, without limit, attorneys' fees,
litigation, arbitration and administrative proceeding costs,
expert and consultant fees and laboratory costs), sums paid in
settlement of claims, whether direct or indirect, known or
unknown, arising out of, related in any way to, or resulting from
or in connection with, in whole or in part, the presence or
suspected presence of Hazardous Materials (defined below) in, on,
under, or about the Property. In that connection, Buyer, on
behalf of itself and any party to which it assigns this Agreement
(and any successor assignee of this Agreement, but not to any
transferee of the Property which is not an assignee of this
Agreement), waives the benefit of California Civil Code
Section 1542, which provides as follows:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him must have materially affected
his settlement with the debtor."
"Hazardous Material(s)" means any chemical, substance, material,
controlled substance, object, condition, waste living organisms
or combination thereof which is or may be hazardous to human
health or safety or to the environment due to his radioactivity,
ignitability, corrosivity, reactivity, explosivity, toxicity,
carcinogenicity, mutagenicity, phytotoxicity, infectiousness or
other harmful or potentially harmful properties or effects,
including, without limitation, petroleum hydrocarbons and
petroleum products, lead, asbestos, radon, polychlorinated
biphenyls (PCBs) and all of those chemicals, substances,
materials, controlled substances, objects, conditions, wastes,
living organisms or combinations thereof which are now or become
in the future listed, defined or regulated in any manner by any
federal, state or local law based upon, directly or indirectly,
such properties or effects. This release and waiver shall not be
applicable with respect to any claim by Buyer based upon a breach
of a representation or warranty by Seller, but any such claim
shall be subject to the last paragraph of Section 4.1 hereof.
<PAGE>45
4.6 Condemnation. If, prior to Closing, any portion of the
Property shall be condemned or becomes the subject of any pending
or threatened condemnation action, Seller shall promptly notify
Buyer thereof. In such event, Buyer shall be entitled to
terminate this Agreement by written notice thereof to Seller with
ten (10) business days after Buyer's receipt of notice of
condemnation, whereupon the Deposit shall be returned to Buyer.
In the event that Buyer elects not to terminate this Agreement,
(i) if any condemnation award is received by Seller prior to
Closing, the amount of such award shall be applied as a credit
against the Purchase Price and (ii) at the Closing, Seller shall
assign to Buyer all of Seller's rights on account of said
condemnation action, including, without limitation, the right to
any award that may be paid in connection therewith. Any
condemnation awards received by Seller on or after Closing shall
be promptly delivered by Seller to Buyer.
4.7 Damage or Destruction. In the event of any damage to or
destruction of the Property prior to the Closing, Seller shall
promptly notify Buyer and the Closing shall nevertheless occur as
otherwise provided for in this Agreement except (i) if, in
Seller's reasonable judgment, the cost to repair such damage or
destruction is less than $100,000 and such repairs can be
completed within seventy five (75) days of the scheduled Closing
Date, Seller shall, at Seller's sole cost, promptly commence and
diligently pursue to completion the repair of such damage and
destruction, and the date of Closing shall be extended until the
date that is five (5) days after the date Seller shall have
notified Buyer in writing of the completion of such repairs (but
not later than seventy five (75) days after the originally
scheduled Closing Date), and (ii) if, in Seller's reasonable
judgment, the cost to repair such damage or destruction equals or
exceeds $100,000 or such repairs cannot be completed within
seventy five (75) days of the scheduled Closing Date, then
within ten (10) business days after Buyer's receipt of such
notice, Buyer shall deliver written notice to Seller and Escrow
Holder, electing either: (a) to proceed with this transaction
and Closing in accordance with this Agreement notwithstanding
such damage or destruction, in which case all proceeds of
insurance paid or payable to Seller by reason of such damage or
destruction shall be paid or assigned to Buyer and the Purchase
Price shall be reduced by an amount equal to the deductible under
Seller's insurance policy; or (b) to terminate this Agreement in
accordance with the terms of Section 3.4. Buyer's failure to
deliver either of such notices to Seller and Escrow Holder within
such ten (10) business day period shall constitute Buyer's
election to terminate this Agreement. If damage or destruction
occurs as contemplated in clause (i) above, Buyer shall have the
right, exercisable by written notice to Seller within ten (10)
business days after receipt of Seller's notice of such damage, to
elect to proceed to Closing without Seller performing the repairs
as contemplated in said clause (i), in which case Buyer and
Seller shall proceed with this transaction as set forth in clause
(a) above.
4.8 Estoppel Certificates. Seller shall exert diligent
efforts to provide Buyer with an estoppel certificate from each
<PAGE>46
tenant, which estoppel certificate shall be in form and substance
satisfactory to Buyer in all respects (the "Estoppel
Certificate"). Seller's failure to provide the Estoppel
Certificate shall not constitute a default under the terms of
this Agreement. In the event that Seller fails to provide Buyer
with the Estoppel Certificate on or prior to the fifth (5th) day
prior to the Closing Date, or in the event that Buyer fails to
provide Seller with written notice that Buyer approves the
Estoppel Certificate within five (5) days after delivery thereof
to Buyer, Buyer shall have the right, as its sole remedy, to
terminate this Agreement by written notice to Seller, whereupon
this Agreement shall terminate, the Deposit shall be returned to
Buyer, and except as otherwise expressly provided herein the
parties shall have no further obligations or liabilities
hereunder. Unless Buyer provides Seller with written notice of
approval of the Estoppel Certificate within four (4) days after
delivery thereof to Buyer, Buyer shall be deemed to have elected
to terminate this Agreement pursuant to the preceding sentence.
4.9 Buyer's Conditions to Close of Escrow. The following
shall be conditions to Buyer's obligation to consummate the
transaction contemplated by this Agreement (and Buyer shall be
entitled to a return of the Deposit if such conditions are not
satisfied by the Closing or waived by Buyer):
(a) All representations and warranties of Seller
contained in this Agreement shall be true and correct as of the
date made and as of the Close of Escrow.
(b) At least one (1) business day before the Closing
Date, Seller shall have delivered to Escrow Holder the documents
described in Paragraph 5.1.
(c) On the Closing Date, Seller shall not be in default
in the performance of any covenant or agreement to be performed
by Seller under this Agreement (except that any such default by
Seller that was known to Buyer shall not be a condition to
Buyer's obligations hereunder if Buyer shall not have exercised
its termination right within five (5) days of the date Buyer
acquired knowledge of such default) .
(d) Buyer shall not have terminated, or have been
deemed to have terminated, this Agreement pursuant to Section
4.8.
(e) The willingness of Title Company to issue, upon the
sole condition of payment of its regularly scheduled premium, the
"Owner's Policy" (as defined below).
<PAGE>47
(f) No material adverse change shall have occurred with
respect to the Property after the Decision Date. For purposes of
this paragraph, "material adverse change" means the occurrence of
(i) any spill, discharge or release of Hazardous Materials in, on
or under the Property in violation of applicable laws, (ii) a
monetary or other material default by the tenant of the Property
under the terms of its lease, or (iii) any other event with
respect to the condition of the Property which, in Buyer's
reasonable judgment, causes the value of the Property to decrease
by Fifty Thousand Dollars ($50,000) or more; provided, however,
that with respect to any casualties or condemnation proceedings
affecting the Property, the rights and obligations of the parties
shall be as set forth in Paragraphs 4.6 and 4.7.
5. CLOSING
5.1 Deposits Into Escrow.
5.1.1 At least one (1) business day prior to the
Closing Date, Seller shall deposit into Escrow:
(a) A grant deed conveying the Property to Buyer
(the "Deed"), subject to the Permitted Exceptions (the form of
the Deed shall be the Title Company's form or such other form as
is approved by Buyer).
(b) An affidavit or qualifying statement which
satisfies the requirements of Section 1445 of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder
(the "Non-Foreign Affidavit").
(c) A "Withholding Exemption Certificate, Form
590", pursuant to the California Revenue and Taxation Code
Sections 18805 and 26131, stating either the amount of
withholding required from Seller's proceeds or that Seller is
exempt from such withholding requirements (the "Certificate").
(d) Two originals of a bill of sale and assignment
(the "Bill of Sale"), duly executed by Seller, assigning and
conveying to Buyer all of Seller's right, title and interest in
and to the Personal Property, the Records and Plans and the
Warranties. The Bill of Sale shall be in the form of Exhibit "C"
attached hereto.
(e) Two original counterparts of an assignment and
assumption agreement (the "Assignment and Assumption Agreement")
duly executed by Seller assigning all of Seller's right, title
and interest in and to the Leases, the Lease Guarantees and the
Contracts. The Assignment and Assumption Agreement shall be in
the form of Exhibit "D" attached hereto.
(f) A notice to the tenants, and to any
contractors party to a Contract, of the sale, and Seller's
Reaffirmation Certificate.
<PAGE>48
5.1.2 At least one (1) business day prior to the
Closing Date, Buyer shall deposit into Escrow:
(a) Funds in accordance with the provisions of
Section 1.3.2;
(b) Buyer's Reaffirmation Certificate; and
(c) Two original counterparts of the Assignment
and Assumption Agreement duly executed by Buyer.
5.1.3 Seller and Buyer shall each deposit such other
instruments and funds as are reasonably required by Escrow Holder
or otherwise required to close Escrow and consummate the sale of
the Property in accordance with the terms of this Agreement,
including but not limited to documents required under
Section 5.4.1.
5.2 Prorations.
5.2.1 Rentals (including, without limitation, fixed
monthly rentals and other periodic rentals, percentage rentals,
additional rentals, operating cost pass-throughs and other sums
and charges payable by the tenants), prepaid rentals and prepaid
payments (collectively, "Rent"), revenues and other income, if
any, shall, subject to the further provisions hereof, be prorated
on the basis that Buyer shall receive a credit for all Rent which
Seller has actually received before the Closing which is
allocable to the period after the Closing and for all security
deposits held by Seller. Seller shall not receive a credit for
any Rent Seller has not received as of the Closing which is
allocable to the period prior to the Closing. If Buyer shall
collect any such Rent after the Closing, Buyer shall, after Buyer
has received all Rent currently due, promptly pay the same to
Seller. From and after the Closing, Seller shall have not right
to proceed in any manner or make any claim against a tenant for
rents that were delinquent as of the Closing Date.
5.2.2 Real estate taxes, assessments and improvement
bonds shall be prorated (unless paid directly by tenants of the
Project, in which case no such proration shall be made) as of the
Closing on the basis of the most recent assessed valuation of and
rates and multiplier applicable to the Property.
5.2.3 Water, sewer and other utilities charges, amounts
payable under any service contracts, annual permits and/or
inspection fees and any other expenses relating to the operation
and maintenance of the Property shall be prorated (unless paid
directly by tenants of the Project, in which case no such
proration shall be made) as of the Closing (with the assumption
that utility charges were uniformly incurred during the billing
period in which the Closing occurs).
5.2.4 Any prorations under this Agreement shall be
based upon the actual number of days in the applicable period. If
<PAGE>49
any prorations hereunder are based upon estimated income or
expenses, the parties shall cooperate, within ninety (90) days
after Closing, to reconcile such income or expenses and the
parties shall make any necessary adjustment after Closing by cash
payment upon demand to the party entitled thereto.
5.3 Payment of Closing Costs.
5.3.1 Closing Costs Borne by Seller. Seller shall bear
and Escrow Holder shall discharge on Seller's behalf out of the
sums payable to Seller hereunder (a) the portion of the costs
associated with the CLTA standard coverage premium for the
Owner's Policy, (b) one-half of Escrow Holder's fee, (c)
documentary transfer tax, and (d) any additional costs and
charges customarily charged to sellers in accordance with common
escrow practices in San Diego County, California.
5.3.2 Closing Costs Borne by Buyer. Buyer shall
deposit with Escrow Holder for disbursement by Escrow Holder
(a) one-half of Escrow Holder's fee, (b) all costs and expenses
of the Owner's Policy in excess of the premium to be borne by
Seller (including, without limitation, any additional premium
charged for any extended coverage policy or endorsements required
by Buyer and the cost of any survey deletion to the Owner's
Policy), (c) the recording fees (excluding documentary transfer
tax) required in connection with the transfer of the Property to
Buyer, and (d) any additional charges customarily charged to
buyers in accordance with common escrow practices in San Diego
County, California.
5.4 Closing of Escrow.
5.4.1 Pursuant to Section 6045 of the Internal Revenue
and Taxation Code, Escrow Holder shall be designated the "closing
agent" hereunder and shall be solely responsible for complying
with the tax reform act of 1986 with regard to reporting all
settlement information to the Internal Revenue Service.
5.4.2 Escrow Holder shall hold the Closing on the
Closing Date if: (i) it has received in a timely manner all the
funds and materials required to be delivered into Escrow by Buyer
and Seller; and (ii) it has received assurances satisfactory to
it that, effective as of the Closing, the Title Company will
issue to Buyer an ALTA extended coverage owner's policy of title
insurance (Form 1970b) including such endorsements as Buyer may
request, in the amount of the Purchase Price, insuring Buyer as
the owner of the Property, subject only to the Permitted
Exceptions (the "Owner's Policy"). In no event may the Owner's
Policy contain a creditor's rights exception. Buyer shall satisfy
itself as to the necessary coverage and endorsements that the
Owner's Policy shall contain prior to the Decision Date, and,
unless the Title Company refuses to issue the Owner's Policy in
the form the Title Company shall have approved prior to the
<PAGE>50
Decision Date, Buyer shall not be excused from its obligation
hereunder by reason of the coverage and endorsements in the
Owner's Policy.
5.4.3 To Close the Escrow, Escrow Holder shall:
(a) Cause the Deed to be recorded in the Official
Records of San Diego County, California and thereafter mailed to
Buyer, and deliver the Owner's Policy, Bill of Sale, Assignment
and Assumption Agreement, Seller's Reaffirmation Certificate, and
Non-Foreign Affidavit, and any funds remaining in the Escrow
after all title and escrow charges have been paid and after
Seller has received the Purchase Price, as adjusted by reason of
the prorations and allocations of closing costs provided for in
this Agreement, to Buyer; and
(b) Deliver to Seller the Buyer's Reaffirmation
Certificate, the Assignment and Assumption Agreement and by wire
transfer of federal funds, funds in the amount of the Purchase
Price, plus or less any net debit or credit to Seller by reason
of the prorations and allocations of closing costs provided for
in this Agreement.
5.5 Failure to Close; Cancellation. If the Escrow Holder is
not in a position to Close the Escrow on the Closing Date or
within three (3) days thereafter, then this Agreement shall
terminate and Escrow Holder shall hold the Deposit pending
receipt of instructions executed by Buyer and Seller. Neither
party shall have any further obligations pursuant to this
Agreement, except that no such termination shall relieve either
party of liability for any failure to comply with the terms of
this Agreement.
5.6 LIQUIDATED DAMAGES. BUYER AND SELLER AGREE
THAT IN THE EVENT OF A MATERIAL DEFAULT OR BREACH HEREUNDER
BY BUYER (INCLUDING, WITHOUT LIMITATION, ANY DEFAULT OR
BREACH BY BUYER WHICH RESULTS IN THE FAILURE OF ESCROW TO
CLOSE), THE DAMAGES TO SELLER WOULD BE EXTREMELY
DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THAT
THEREFORE THE DEPOSIT IS A REASONABLE ESTIMATE OF THE
DAMAGES TO SELLER, SUCH DAMAGES INCLUDING COSTS
OF NEGOTIATING AND DRAFTING OF THIS AGREEMENT, COSTS OF
COOPERATING IN SATISFYING CONDITIONS TO CLOSING, COSTS OF SEEKING
ANOTHER BUYER UPON BUYER'S DEFAULT, OPPORTUNITY COSTS IN, AND
CARRYING COST ASSOCIATED WITH, KEEPING THE PROPERTY OUT OF THE
MARKETPLACE, AND OTHER COSTS INCURRED IN CONNECTION HEREWITH.
ACCORDINGLY, BUYER AND SELLER AGREE THAT, EXCEPT FOR ANY DAMAGES,
COSTS AND EXPENSES INCURRED IN CONNECTION WITH OR RESULTING FROM
BUYER'S DEFAULT OR BREACH OF ITS OBLIGATIONS UNDER SECTIONS 3.7,
4.2, 6.13 AND 6.16 (WHICH DAMAGES, COSTS AND EXPENSES SHALL
SURVIVE ANY CLOSING OR TERMINATION OF THIS AGREEMENT AND ARE NOT
LIMITED BY THIS SECTION 5.6), RECEIPT AND RETENTION OF THE
DEPOSIT SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SELLER IN THE
EVENT OF ANY BREACH OR DEFAULT BY BUYER HEREUNDER.
Initials of Buyer: Initials of Seller:
<PAGE>51
5.7 Possession. Subject to any tenant leases, possession
of the Property (including, without limitation, all keys to the
Property in Seller's possession, and the originals (or copies, if
Seller does not have the originals) of all Leases, Contracts,
Licenses and Permits and Records and Plans shall be delivered to
Buyer upon Closing.
5.8 Seller's Default. In the event of Seller's default
hereunder, Buyer shall be entitled to pursue its remedies at law
or equity, including without limitation specific performance.
6. GENERAL PROVISIONS
6.1 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which, taken together, shall constitute one and the same
instrument.
6.2 Entire Agreement. This Agreement contains the entire
integrated agreement between the parties respecting the subject
matter of this Agreement and supersedes all prior and
contemporaneous understandings and agreements, whether oral or in
writing, between the parties respecting the subject matter of
this Agreement. There are no representations, agreements,
arrangements or understandings, oral or in writing, between or
among the parties to this Agreement relating to the subject
matter of this Agreement which are not fully expressed in this
Agreement (or the exhibits hereto). The terms of this Agreement
are intended by the parties as a final expression of their
agreement with respect to those terms and they may not be
contradicted by evidence of any prior agreement or of any
contemporaneous agreement. The parties further intend that this
Agreement constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced
in any judicial proceeding involving this Agreement.
6.3 Legal Advice; Neutral Interpretation; Headings. Each
party has received independent legal advice from its attorneys
with respect to the advisability of executing this Agreement and
the meaning of the provisions hereof. The provisions of this
Agreement shall be construed as to their fair meaning, and not
for or against any party based upon any attribution to such party
as the source of the language in question. Headings used in this
Agreement are for convenience of reference only and shall not be
used in construing this Agreement.
6.4 Choice of Law. This Agreement shall be governed by the
laws of the State of California without regard to the conflicts
of law principles of said State.
6.5 Severability. If any term, covenant, condition or
provision of this Agreement, or the application thereof to any
person or circumstance, shall to any extent be held by a court of
<PAGE>52
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, covenants, conditions or provisions of
this Agreement, or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in
no way be affected, impaired or invalidated thereby.
6.6 Waiver of Covenants, Conditions or Remedies. The
waiver by one party of the performance of any covenant, condition
or promise under this Agreement shall not invalidate this
Agreement nor shall it be considered a waiver by it of any other
covenant, condition or promise under this Agreement. The waiver
by either or both parties of the time for performing any act
under this Agreement shall not constitute a waiver of the time
for performing any other act or an identical act required to be
performed at a later time. The exercise of any remedy provided
in this Agreement shall not be a waiver of any consistent remedy
provided by law, and the provision in this Agreement for any
remedy shall not exclude other consistent remedies unless they
are expressly excluded.
6.7 Exhibits. All exhibits to which reference is made in
this Agreement are deemed incorporated in this Agreement, whether
or not actually attached.
6.8 Amendment. This Agreement may be amended at any time
by the written agreement of Buyer and Seller.
6.9 Relationship of Parties. The parties agree that their
relationship is that of seller and buyer, and that nothing
contained herein shall constitute either party the agent or legal
representative of the other for any purpose whatsoever, nor shall
this Agreement be deemed to create any form of business
organization between the parties hereto, nor is either party
granted any right or authority to assume or create any
obligation or responsibility on behalf of the other party, nor
shall either party be in any way liable for any debt of the
other.
6.10 No Third Party Benefit. This Agreement is intended to
benefit only the parties hereto and, subject to Section 6.14, no
other person or entity has or shall acquire any rights hereunder.
6.11 Time of the Essence. Time shall be of the essence as
to all dates and times of performance, whether contained herein
or contained in any escrow instructions to be executed pursuant
to this Agreement, and all escrow instructions shall contain a
provision to this effect.
6.12 Further Acts. Each party agrees to perform any
further acts and to execute, acknowledge and deliver any
documents which may be reasonably necessary to carry out the
provisions of this Agreement.
6.13 Recordation. Buyer shall not record this Agreement,
any memorandum of this Agreement or any assignment of this
<PAGE>53
Agreement or any other document which would cause a cloud on the
title to the Property (this shall not limit Buyer's right to
record a lis pendens in the event of Buyer's commencement of an
action for specific performance).
6.14 Assignment. Buyer shall be permitted to assign
Buyer's rights hereunder to an entity affiliated with Buyer upon
written notice to Seller and delivery to Seller of an instrument
reasonably satisfactory to Seller wherein such assignee shall
assume Buyer's obligations hereunder, but no such assignment
shall delay the Closing or relieve Buyer of any liability
hereunder prior to the Closing (after the Closing, Seller shall
look only to such assignee with respect to any liability of Buyer
hereunder). Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the successors and
assigns of the parties to this Agreement.
6.15 Attorneys' Fees. In the event of any litigation
involving the parties to this Agreement to enforce any provision
of this Agreement, to enforce any remedy available upon default
under this Agreement, or seeking a declaration of the rights of
either party under this Agreement, the prevailing party shall be
entitled to recover from the other such attorneys' fees, costs,
charges and disbursements as may be reasonably incurred,
including the costs of reasonable investigation, preparation and
professional or expert consultation incurred by reason of such
litigation. All other attorneys' fees, costs, charges and
disbursements relating to this Agreement and the transactions
contemplated hereby shall be borne by the party incurring the
same.
6.16 Brokers. Seller shall pay Voit Commercial Brokerage
("Seller's Broker"), pursuant to a separate written agreement, a
commission for its services as broker in this transaction if, as
and when the Closing occurs. Buyer and Seller each represent and
warrant to the other that, except as stated in the preceding
sentence, (a) they have not dealt with any brokers or finders in
connection with the purchase and sale of the Property, and
(b) insofar as such party knows, no broker or other person is
entitled to any commission or finder's fee in connection with the
purchase and sale of the Property. Seller and Buyer each agree
to indemnify, defend and hold harmless the other against any
loss, liability, damage, cost, claim or expense incurred by
reason of any brokerage fee, commission or finder's fee which is
payable or alleged to be payable to any broker or finder because
of any agreement, act, omission or statement of the indemnifying
party. The provisions of this Section 6.16 shall not be limited
in any way by any terms of this Agreement including, but not
limited to, Section 5.6 of this Agreement.
6.17 Manner of Giving Notice. All notices and demands
which either party is required or desires to give to the other
shall be given in writing by personal delivery, express courier
service or by telecopy followed by next day delivery of a hard
copy to the address or telecopy number set forth below for the
<PAGE>54
respective party, provided that if any party gives notice of a
change of name, address or telecopy number, notices to that party
shall thereafter be given as demanded in that notice. All
notices and demands so given shall be effective upon receipt by
the
party to whom notice or a demand is being given.
To Buyer:
WCB Properties Limited Partnership
450 Newport Center Drive, Suite 304
Newport Beach, CA 92660
Attn: Brad E. Baker and Robert V. Neary
Telephone: (714) 640-6900
Telecopy: (714) 640-8399
With a copy to:
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
Attn: Edward C. Hagerott, Jr., Esq.
Telephone: (213) 683-9279
Telecopy: (213) 687-3702
To Seller:
T. Rowe Price-Pacific
c/o LaSalle Advisors Limited
1601 Response Road
Sacramento, California 95815
Attn: Michael D. Westfall
Telephone: (916) 920-4051
Telecopy: (916) 920-0205
With a copy to:
David W. Greenman, Esq.
Bainbridge Group
18301 Von Karman Avenue, Suite 410
Irvine, California 92612
Telephone: (714) 442-6605
Telecopy: (714) 442-6609
6.18 Survival. Only the provisions of Sections 3.7 (Access
to Property), 4.1 (Seller's Representations and Warranties),
4.2 (Buyer's Representations and Warranties), 4.3
(Reaffirmation), 4.4 (Hazardous Material Waiver),
4.6 (Condemnation), 4.7 (Damage or Destruction), 5.2
(Prorations), 5.3 (Payment of Closing Costs), 5.6 (LIQUIDATED
DAMAGES), 5.7 (Possession) and Article 6 (General Provisions)
shall survive the Closing and the consummation of the
transactions contemplated by this Agreement or the termination of
this Agreement for any reason without the conveyance of the
Property to Buyer.
6.19 Dates. If any date specified herein shall fall on a
Saturday, Sunday or public holiday, such date shall automatically
be revised to be the next business day.
<PAGE>55
6.20 Nonsolicitation of Tenants. Seller hereby agrees that
from and after the execution of this Agreement, (a) neither
Seller nor any affiliate of Seller shall solicit, initiate
negotiations with or initially induce, either directly or through
an agent or employee, any tenant during the term of the
application lease and for a period of one (1) year after the
expiration of the applicable lease (including all extensions and
renewals), in order to cause such tenant to relocate from the
Property to any other property (i) owned in whole or in part by
Seller or any affiliate of Seller, (ii) owned in whole or in part
by any entity owned in whole or in part by Seller or any
affiliate or Seller, or (iii) managed by Seller, any affiliate of
Seller or any entity owned in whole or in part by Seller or any
affiliate of Seller (collectively the "Seller's Other Property");
(b) Seller shall give Buyer immediate written notice whenever any
tenant initiates negotiations with or contacts Seller with either
the actual or apparent purpose of relocating or expanding to
Seller's Other Property, which notice shall set forth the
materials terms of any lease proposed by Seller or Seller's
affiliates or agents; and (c) Seller shall not induce any tenant
who has initiated such negotiations to breach its lease.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
SELLER: T. ROWE PRICE-PACIFIC,
a California limited partnership
By: T. Rowe Price Realty Income
Fund II,
Americas's Sales-Commission-Free
Real Estate
Limited Partnership, its general
partner
By:
Michael D. Westfall,
its authorized agent
BUYER: WCB PROPERTIES LIMITED PARTNERSHIP,
a Delaware limited partnership
By:
Name:
Title:
<PAGE>56
Exhibit "A"
Property Description
LOT 15 OF PACIFIC CORPORATE CENTER UNIT NO. 2, IN THE CITY OF SAN
DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP
THEREOF NO. 11561, FILED IN THE OFFICE OF THE COUNTY RECORDER OF
SAN DIEGO COUNTY, JULY 9, 1986.
<PAGE>
The Annual Report to Limited Partners for the Year ended December
31, 1996 should be inserted here.
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 an
update on property dispositions as well as 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.
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
_________ __________ __________ _____ _____ _____ _____
Atlantic 187,844 100% 97% 93% $240 $ 214
Coronado 95,732 100 100 100 193 189
Oakbrook
Corners 123,948 94 68 75 (96) (985)
Baseline 100,204 96 88 90 86 (636)
Business
Plaza 66,342 89 85 79 355 33
Tierrasanta 104,236 62 75 87 80 (734)
________ ____ ____ ____ _____ _____
678,306 91 86 88 858 (1,919)
Held for Sale
AMCC 99,950 100 100 100 903 263
South Point
Plaza 49,163 90 67 74 84 (47)
Bonnie Lane 119,590 100 78 96 161 239
Glenn Avenue 82,000 100 100 100 172 178
________ ____ ____ ____ ____ ____
1,029,009 94 87 90 2,178 (1,286)
Properties Sold - - - - 442 858
Fund Expenses
Less Interest
Income - - - - (228) (292)
________ ____ ____ ____ _____ _____
Total 1,029,009 94% 87% 90% $2,392 $ (720)
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 $487. After adjusting for our February distribution of $16,
the estimated value per unit is $471. Total appreciation for the
year, including net appreciation on properties sold, is 7.5%.
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.
Disposition Update
On November 20, 1996, we executed a purchase and sale agreement
for AMCC and closed on January 23, 1997, after the end of the
reporting period. Net sales proceeds of $7.7 million, or
approximately $91 per limited partnership unit, will be
distributed to you in May.
We mentioned in our last report that two properties were
added to the held for sale category - Bonnie Lane and Glenn
Avenue, two industrial buildings in the Chicago area that have
been marketed with three similar holdings in Realty Income Fund
III. We signed a letter of intent with a potential buyer for the
entire group of properties in January and hope to complete the
transaction in April, although there is no assurance the sale
will be consummated.
In addition, we signed a listing agreement to sell South
Point Plaza, in which the Fund has a 50% interest. The property,
a shopping center in Tempe, Arizona, is currently being actively
marketed by the listing broker. We will update you on all these
properties held for sale in our next quarterly report.
Cash Distributions
The Fund declared a fourth quarter distribution from operations
of $16 per unit, bringing the total operating distributions for
the year to $35.50. Additionally, $27.91 per unit was paid out to
you during the year from sales proceeds for the Fund's 24% share
of Fairchild, resulting in total distributions of $63.41 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 net loss of $720,000 in 1996 compared with net
income of $2,392,000 in 1995. The change in property valuation
adjustments of $3,850,000 accounted for much of the difference,
which was partly offset by a $699,000 gain on the sale of
Fairchild. Income before the gain on the property sale declined
$3,811,000, due largely to downward valuation adjustments for
Oakbrook Corners, Baseline, Tierrasanta, and AMCC. While
conditions in the markets where these properties are located are
generally improving, the shortened anticipated holding period due
to our disposition plans caused us to adjust the carrying values
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.
Income from operations before the valuation adjustments was
up $39,000 over the year before. Revenues from rental income and
interest income resulted in total gross revenues of $6,189,000
for the year compared with $6,964,000 a year earlier. However,
this comparison was affected by the absence of a full year's
rental income from Regal Row and Fairchild, the two properties
sold in 1996. Results were helped by a decline of $814,000 in
operating expenses, before valuation adjustments, primarily due
to the property sales.
At the property level, we reported previously that a tenant
who occupied 38% of the total space at Tierrasanta did not renew
upon expiration in 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. At Baseline, 39% of the leases will expire
between now and the end of 1997, and our strategy here will be to
find replacement tenants with better credit than those who do not
renew while focusing on longer-term leases.
During the year, we signed leases totaling approximately 35%
of Fund properties, resulting in an increase in year-end leased
status of five percentage points over the year before. Increased
leasing activity at Atlantic, Oakbrook Corners, Baseline,
Business Plaza, Bonnie Lane, and South Point Plaza more than
offset the decrease at Tierrasanta.
Outlook
We continue to make progress toward the disposition of the Fund's
properties during the next two years. 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
_______________ _____________ _________ ________
Atlantic Industrial 10/86 $ 3,416
Gwinnett Co.,
Georgia
Coronado Industrial 11/86 3,407
Anaheim,
California
Oakbrook Corners Business Park 11/86 5,098
Gwinnett Co.,
Georgia
Baseline Business Park 12/86 3,884
Tempe, Arizona
Business Plaza Office 12/86 3,638
Ft. Lauderdale,
Florida
Tierrasanta Business Park 4/88 1,727
San Diego,
California
_______
21,170
Held for Sale
AMCC R&D/Office 9/87 7,772
San Diego,
California
Bonnie Lane Industrial 11/87 3,316
Elk Grove,
Illinois
Glenn Avenue Industrial 11/87 2,257
Wheeling,
Illinois
South Point Retail 4/88 1,515
Tempe, Arizona _______
$ 36,030
_______
_______
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,December 31,
1996 1995
_________ _________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . $ 8,443 $14,544
Buildings and Improvements. . . . . 19,352 45,170
________ ________
27,795 59,714
Less: Accumulated Depreciation
and Amortization . . . . . . . . (6,625) (18,049)
________ ________
21,170 41,665
Held for Sale . . . . . . . . . . . 14,860 3,500
________ ________
36,030 45,165
Cash and Cash Equivalents. . . . . . 3,667 4,782
Accounts Receivable (less allowances of
$22 and $165) . . . . . . . . . . . 162 172
Other Assets . . . . . . . . . . . . 333 410
________ ________
$ 40,192 $50,529
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents $ 505 $ 493
Accrued Real Estate Taxes . . . . . 394 502
Accounts Payable and Other Accrued
Expenses . . . . . . . . . . . . 307 433
________ ________
Total Liabilities. . . . . . . . . . 1,206 1,428
Partners' Capital. . . . . . . . . . 38,986 49,101
________ ________
$ 40,192 $50,529
________ ________
________ ________
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. . . . . . . . $ 5,944 $ 6,717 $ 6,834
Interest Income. . . . . . . 245 247 149
_______ _______ _______
6,189 6,964 6,983
_______ _______ _______
Expenses
Property Operating Expenses. 1,113 1,103 1,399
Real Estate Taxes. . . . . . 747 991 877
Depreciation and
Amortization . . . . . . . 1,781 2,362 2,979
Decline (Recovery) of Property
Values . . . . . . . . . . 3,168 (682) (860)
Management Fee to General
Partner. . . . . . . . . . 298 346 269
Partnership Management
Expenses . . . . . . . . . 501 452 457
_______ _______ _______
7,608 4,572 5,121
_______ _______ _______
Income (Loss) from Operations before
Real Estate Sold . . . . . (1,419) 2,392 1,862
Gain on Real Estate Sold . . 699 - -
_______ _______ _______
Net Income (Loss). . . . . . $ (720) $ 2,392 $ 1,862
_______ _______ _______
_______ _______ _______
Activity per Limited Partnership
Unit
Net Income (Loss). . . . . . $ (8.48) $ 28.16 $ 21.92
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . $ 35.50 $ 37.68 $ 35.50
from Sale Proceeds . . . . 70.86 40.79 -
_______ _______ _______
Total Distributions
Declared . . . . . . . . . $106.36 $ 78.47 $ 35.50
_______ _______ _______
_______ _______ _______
Units Outstanding . . . . . 84,099 84,099 84,099
_______ _______ _______
_______ _______ _______
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 . $ (261) $53,401 $53,140
Net Income . . . . . . . . . 19 1,843 1,862
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (25) (2,439) (2,464)
_______ _______ _______
Balance, December 31, 1994 . (267) 52,804 52,537
Net Income . . . . . . . . . 24 2,368 2,392
Cash Distributions . . . . . (32) (5,796) (5,828)
_______ _______ _______
Balance, December 31, 1995 . (275) 49,376 49,101
Net Loss . . . . . . . . . . (7) (713) (720)
Cash Distributions . . . . . (26) (9,369) (9,395)
_______ _______ _______
Balance, December 31, 1996 . $ (308) $39,294 $38,986
_______ _______ _______
_______ _______ _______
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 (Loss) . . . . . . . $ (720) $ 2,392 $ 1,862
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by Operating
Activities
Depreciation and
Amortization . . . . . . . 1,781 2,362 2,979
Decline (Recovery) of
Property Values. . . . . . 3,168 (682) (860)
Gain on Real Estate
Sold . . . . . . . . . . . (699) - -
Change in Accounts Receivable,
Net of Allowances. . . . . 6 (11) 68
Change in Other Assets . . . 72 (125) (180)
Change in Security Deposits and
Prepaid Rents. . . . . . . 12 (29) 50
Change in Accrued Real Estate
Taxes. . . . . . . . . . . (108) 70 (47)
Change in Accounts Payable and
Other Accrued
Expenses . . . . . . . . . (126) 154 5
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . . . 3,386 4,131 3,877
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property
Dispositions . . . . . . . . . 5,959 2,622 -
Investments in Real Estate . . . (1,065) (962) (805)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . 4,894 1,660 (805)
_______ _______ _______
Cash Flows Used in Financing
Activities
Cash Distributions . . . . . . . (9,395) (5,828) (2,464)
Redemption of Units. . . . . . . - - (1)
_______ _______ _______
Net Cash Used in Financing
Activities . . . . . . . . . . (9,395) (5,828) (2,465)
_______ _______ _______
Cash and Cash Equivalents
Net Change during Year . . . . . (1,115) (37) 607
At Beginning of Year . . . . . . 4,782 4,819 4,212
_______ _______ _______
At End of Year . . . . . . . . . $ 3,667 $ 4,782 $ 4,819
_______ _______ _______
_______ _______ _______
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 II, America's
Sales-Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on January 7, 1986, 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 II Management, Inc., is the sole General
Partner. The initial offering resulted in the sale of 84,144
limited partnership units at $1,000 per unit.
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 T. Rowe Price-Pacific (AMCC), a California limited
partnership, South Point Partners, and Tierrasanta 234, which are
California general partnerships, in which the Partnership has
90%, 50%, and 30% 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 24%
interest prior to disposition of the property on August 28, 1996.
The other partners in these ventures, except for T. Rowe
Price-Pacific, are affiliates of the Partnership. 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 (recoveries of) uncollectible
tenant receivables in the amounts of $29,000, ($101,000), and
$162,000 were recorded in 1996, 1995, and 1994, respectively. Bad
debt expense (recoveries) 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 $280,000 and
$300,000 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 $298,000, $346,000,
and $269,000 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 $30,000,
$31,000, and $28,000 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
$117,000, $107,000, and $108,000 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 $10,000, $20,000, and $16,000 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 $150,000.
An affiliate of LaSalle earned $131,000, $129,000, and
$145,000 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 - PROPERTIES HELD FOR SALE AND DISPOSITIONS
On June 29, 1995, the Partnership sold Sullyfield Circle and
received net proceeds of $2,622,000. Because the carrying value
of this property had been written down to approximate its market
value, no gain or loss was recognized on this property
disposition.
On February 14, 1996, the Partnership sold Regal Row and
received net proceeds of $3,612,000. The net book value of this
property at the date of disposition was also $3,612,000, after
accumulated depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was recognized
on the property sale.
On August 28, 1996, Fairchild Corporate Center, an office
property in which the Partnership had a 24% interest was sold.
The Partnership received net proceeds of $2,347,000. The net
book value of the Partnership's interest at the date of sale was
$1,648,000, after deduction of accumulated depreciation and
previously recorded impairments. Accordingly, the Partnership
recognized a $699,000 gain on the sale of this property.
The Partnership began actively marketing its two midwest
industrial properties, Bonnie Lane and Glenn Avenue in late 1996,
and has subsequently signed a letter of intent with a prospective
buyer. In late 1996, the Partnership also began marketing South
Point Plaza, a shopping center in which the Partnership has a 50%
interest. The Partnership has classified the carrying amounts of
these three properties as held for sale in the accompanying
December 31, 1996 balance sheet.
The Partnership began actively marketing the AMCC property
in June 1996, and classifies it as held for sale in the
accompanying December 31, 1996 balance sheet at an amount equal
to its estimated net sales proceeds. The disposition of AMCC was
completed in early 1997.
Results of operations for properties held for sale at
December 31, 1996, and properties sold during the past three
years, are summarized below:
1996 1995 1994
_________ __________ ________
Recovery (Decline) of $(679,000) $ 343,000 $ 899,000
Property Values
Other Components of 1,471,000 1,417,000 1,386,000
Operating Income
__________ __________ _________
Results of Operations $ 792,000 $1,760,000 $2,285,000
__________ __________ _________
__________ __________ _________
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 will now be 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 will 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
property, the General Partner has determined that the net
carrying value of certain Partnership properties held for
operations may not be fully recoverable. Charges recognized for
such impairments aggregated $2,489,000 in 1996 and $550,000 in
1994.
Because the Business Plaza property was not then being
actively marketed for sale, its carrying value was assessed and,
accordingly, a net valuation allowance of $1,957,000 at December
31, 1995 was reclassified as a permanent impairment of the
property's carrying value. Valuation recoveries for this
property were $339,000 in 1995 and $511,000 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 $ 4,493
1998 2,777
1999 1,655
2000 1,051
2001 730
Thereafter 1,089
_______
Total $11,795
_______
_______
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 (in
thousands) 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
___________________ ________
Book net income (loss) . . . $ (720) $ 2,392 $ 1,862
Allowance for
doubtful accounts. . . . . (142) (161) 182
Property valuation
allowance and losses
on dispositions. . . . . . (2,732) (2,793) (860)
Normalized and
prepaid rents. . . . . . . 78 (81) (182)
Interest income. . . . . . . - 301 302
Depreciation . . . . . . . . (214) 18 609
Other items. . . . . . . . . (8) (61) (8)
________ ________ ________
Taxable income (loss). . . . $(3,738) $ (385) $ 1,905
________ ________ ________
________ ________ ________
NOTE 8 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $16.00
per unit to Limited Partners of the Partnership as of the close
of business on December 31, 1996. The Limited Partners will
receive $1,346,000, and the General Partner will receive $14,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets
of T. Rowe Price Realty Income Fund II, 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 II,
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 30, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the unaudited condensed consolidated financial statements of
T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership included in
the accompanying Form 10-K for the year ended December 31, 1996
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000787493
<NAME> T. ROWE PRICE REALTY INCOME FUND II, AMERICA'S SALES
COMMISS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,667,000
<SECURITIES> 0
<RECEIVABLES> 184,000
<ALLOWANCES> 22,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 42,655,000
<DEPRECIATION> 6,625,000
<TOTAL-ASSETS> 40,192,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,986,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 40,192,000
<SALES> 0
<TOTAL-REVENUES> 6,189,000
<CGS> 0
<TOTAL-COSTS> 7,608,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (720,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (720,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (720,000)
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0
<FN>
<F1>Not contained in registrant's unclassified balance sheet.
<F2>Partners' capital.
<F3>Not applicable. Net income per limited partnership unit is
($8.48).
</FN>
</FN>
<PAGE>
T. Rowe Price Realty Income Fund II
America's Sales-Commission Free Real Estate Limited Partnership
Consolidated Real Estate and Accumulated Depreciation
December 31, 1996
Dollars in Thousands (000's)
Description Type Encumbrance
Properties Held for Real
Estate Investment
Atlantic Industrial $0
Gwinnett Co., Georgia
Coronado Industrial 0
Anaheim, California
Oakbrook Corners Business Park 0
Gwinnett Co., Georgia
Baseline Business Park 0
Tempe, Arizona
Business Plaza Office 0
Ft. Lauderdale, Florida
Tierrasanta Business Park 0
San Diego, California
_________
Totals $ 0
Properties Held for Sale
AMCC R & D/Office $ 0
San Diego, California
Bonnie Lane Industrial 0
Elk Grove, Illinois
Glenn Avenue Industrial 0
Wheeling, Illinois
South Point Retail 0
Tempe, Arizona
__________
Totals $ 0
<PAGE>
Initial Cost
Costs
Capitalized
Land Buildings and Subsequent to Description
Improvements Acquisition (7)
Properties Held for Real
Estate Investment
Atlantic $ 820 $ 4,181 $ 469
Gwinnett Co., Georgia
Coronado 2,034 2,051 341
Anaheim, California
Oakbrook Corners (1) 1,885 7,362 (4,149)
Gwinnett Co., Georgia
Baseline (1) 2,095 5,306 (3,517)
Tempe, Arizona
Business Plaza 2,000 6,260 (1,070)
Ft. Lauderdale, Florida
Tierrasanta (1) 1,350 2,407 (2,030)
San Diego, California
_______ _______ _________
Totals $10,184 $27,567 $(9,956)
Properties Held for Sale
AMCC (1) $ 2,727 $ 8,557 $ (760)
San Diego, California
Bonnie Lane 755 2,957 561
Elk Grove, Illinois
Glenn Avenue 565 1,920 442
Wheeling, Illinois
South Point (1) 1,275 2,331 (1,187)
Tempe, Arizona
_______ _______ ________
Totals $ 5,322 $15,765 $ (944)
<PAGE>
Gross Amounts at which Carried at
Close of Period
Buildings and
Description Land Improvements Total (2)
Properties Held for Real
Estate Investment
Atlantic $ 820 $ 4,650 $ 5,470
Gwinnett Co., Georgia
Coronado 2,034 2,392 4,426
Anaheim, California
Oakbrook Corners 1,687 3,411 5,098
Gwinnett Co., Georgia
Baseline 1,653 2,231 3,884
Tempe, Arizona
Business Plaza 1,473 5,717 7,190
Ft. Lauderdale, Florida
Tierrasanta 776 951 1,727
San Diego, California
_______ _______ ________
Totals $ 8,443 $19,352 $27,795
Properties Held for Sale
AMCC $ 2,727 $ 7,797 $10,524
San Diego, California
Bonnie Lane 755 3,518 4,273
Elk Grove, Illinois
Glenn Avenue 565 2,362 2,927
Wheeling, Illinois
South Point 539 1,880 2,419
Tempe, Arizona
_______ _______ _______
Totals $ 4,586 $15,557 $20,143
<PAGE>
Accumulated Date of Date
Description Depreciation (3,4) Construction Acquired
Properties Held for Real
Estate Investment
Atlantic $ 2,054 1974 10/86
Gwinnett Co., Georgia
Coronado 1,019 1975 11/86
Anaheim, California
Oakbrook Corners (1) 0 1984 11/86
Gwinnett Co., Georgia
Baseline (1) 0 1984 12/86
Tempe, Arizona
Business Plaza 3,552 1984 12/86
Ft. Lauderdale, Florida
Tierrasanta (1) 0 1984 04/88
San Diego, California
_______
Totals $ 6,625
Properties Held for Sale
AMCC (1) $ 2,752 1987 09/87
San Diego, California
Bonnie Lane 957 1981 11/87
Elk Grove, Illinois
Glenn Avenue 670 1980 11/87
Wheeling, Illinois
South Point (1) 904 1987 04/88
Tempe, Arizona
_______
Totals $ 5,283
<PAGE>
Life on which
Depreciation
in Latest
Statement of
Operations is
Description Computed
Properties Held for Real Estate Investment
Atlanta 5 - 40 years
Gwinnett Co., Georgia
Coronado 5 - 40 years
Anaheim, California
Oakbrook Corners 5 - 40 years
Gwinnett Co., Georgia
Baseline 5 - 40 years
Tempe, Arizona
Business Plaza 5 - 40 years
Ft. Lauderdale, Florida
Tierrasanta 5 - 40 years
San Diego, California
Properties Held for Sale
AMCC 5 - 40 years
San Diego, California
Bonnie Lane 5 - 40 years
Elk Grove, Illinois
Glenn Avenue
Wheeling, Illinois 5 - 40 years
South Point 5 - 40 years
Tempe, Arizona
<PAGE>
Notes:(1)The Partnership recorded provisions for value impairments for
these properties in 1996 and closed the related accumulated
depreciation against the historical cost in setting a new carrying
amount for these properties. For those properties held for sale, a
valuation allowance was recorded.
(2) Reconciliation of real estate owned for Real Estate Property
Investments, excluding properties held for sale, which are shown net
of accumulated depreciation in the financial statements:
1996 1995 1994
Balance at beginning of period $59,714 $75,631 $76,074
Additions during period 1,065 962 805
Property dispositions during
period ( 1,985) (5,170) --
Reductions during period (4) (27,719) (8,176) --
Decline of property values(5) ( 3,280) (3,533) ( 1,248)
________ ________ ________
Balance at end of period $27,795 $59,714 $75,631
(3) Reconciliation of accumulated depreciation for Real Estate
Property Investments:
1996 1995 1994
Balance at beginning of period $18,049 $20,038 $17,059
Depreciation and amortization 1,781 2,362 2,979
expense
Property dispositions during
period (342) (1,667) --
Reductions during period (4) (12,863) (2,684) --
________ ________ ________
Balance at end of period $ 6,625 $18,049 $20,038
(4) Reductions during 1996 reflect the write-off of accumulated
depreciation against the cost basis for properties with value
impairments recorded in 1996 ($7,580) and transfers from real estate
held for investment reflecting the change in classification to
properties held for sale ($20,143 cost and $5,283 accumulated
depreciation).
(5) 1996 amount excludes a recovery of $112,000 prior to the sale
of Regal Row in 1996. At December 31, 1995, this property was held
for sale.
(6) Aggregate cost of real estate owned at December 31, 1996 for
Federal income tax purposes was approximately $63,253.
(7) Includes the effect of recording property valuation allowances
and impairments. <PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the consolidated balance sheets of T. Rowe Price Realty
Income Fund II, 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. In connection with our audits of the
consolidated financial statements, we also have audited the related
financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedule 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 of 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 II, 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. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
January 30, 1997
<PAGE>
