<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 0-16542
Exact name of registrant as specified in its charter: T. ROWE
PRICE REALTY INCOME FUND III, AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification Number: 52-1512713
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 January 5,
1987, File Number 33-9899 filed with the Commission pursuant to
Rule 424(b) are incorporated herein in Parts I, III, and IV by
reference.
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Portions of the Annual Report to Limited Partners of the
Partnership for the fiscal year ended December 31, 1996 dated
February 15, 1996 and filed with the Commission as Exhibit 13 is
incorporated in Parts I, II and IV by reference.
Index to Exhibits is located on page 24.
<PAGE>3
T. ROWE PRICE REALTY INCOME FUND III,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED PARTNERSHIP
INDEX
Page
PART I.
Item 1. Business 4
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of 13
Security Holders
PART II.
Item 5. Market for the Partnership's Limited 13
Partnership Interests and Related
Security Holder Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis 16
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary 20
Data
Item 9. Changes in and Disagreements with 20
Accountants on Accounting and
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the 20
Partnership
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial 23
Owners and Management
Item 13. Certain Relationships and Related 24
Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules and 24
Reports on Form 8-K
<PAGE>4 PART I
Item 1. Business
T. Rowe Price Realty Income Fund III, America's Sales-Commission-Free
Real Estate Limited Partnership (the "Partnership"), was
formed on October 20, 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. On January 5, 1987, the
Partnership commenced an offering of $100,000,000 of Limited
Partnership Units ($250 per Unit) pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933
(Registration No. 33-9899) (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 totaled $63,385,000, and an
additional $25,000 was contributed by the initial limited
partner, T. Rowe Price Real Estate Group, Inc. The offering
terminated on June 30, 1987, and no additional Units will be
sold. Forty-two Units have been redeemed by the Partnership on a
"hardship" basis; there were 253,599 Units outstanding and 10,364
Limited Partners as of March 17, 1997.
In December of 1991, LaSalle Advisors Limited Partnership
("LaSalle") entered into a contract with the general partner of
the Partnership, T. Rowe Price Realty Income Fund III Management,
Inc. ("the General Partner") and the Partnership 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 1996, three of the Partnership's
properties produced 15% or more of the Partnership's revenues
<PAGE>5
from operations: River Run Shopping Center (20%), Winnetka
Industrial Park (18%), and Westbrook Commons (17%). In 1995, two
of the Partnership's properties produced 15% or more of the
Partnership's revenues from operations: Westbrook Commons (21%),
and Winnetka Industrial Park (19%). In 1994, three of the
Partnership's properties produced 15% of more of the
Partnership's revenues from operations: Westbrook Commons (20%),
Winnetka Industrial Park (19%), and Brinderson Plaza (16%). In
none of these periods did any single tenant produce more than 10%
of the Partnership's revenue.
The Partnership owned a 56% interest in a general partnership,
Fairchild 234, the other general partners of which were certain
other affiliated partnerships. Fairchild 234 owned a note
secured by a deed of trust on Fairchild Corporate Center, located
in Irvine, California. This property was acquired outright in
February, 1994 by a corporation, the stockholders of which are
the partners of Fairchild 234. In August, 1996, Fairchild 234
sold its interest in this property for a total sales price of $10
million. The purchaser, Spieker Properties, L.P., is not an
affiliate of the Partnership, its general partner, or the
Partnership's investment adviser. Net book value of the
Partnership's interest at the date of sale was $3.8 million,
which represented approximately 8.6% of the Partnership's assets.
Net proceeds to the Partnership were $5.4 million.
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
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.
The Partnership owns directly or through joint venture
partnerships the properties or interests 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 costs 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 Holdings," appearing on page
4 of the Partnership's 1996 Annual Report to Limited Partners
which is hereby incorporated by reference herein. A brief
<PAGE>6
narrative description of each property or investment therein
which the Partnership owns is as follows.
Scripps Terrace
The Partnership owns a 100% interest in this property which
consists of two one-story research and development/office/service
buildings containing 57,000 square feet of space. The property
is located in the center of the Scripps Ranch planned community
in the I-15 Corridor in suburban San Diego, California.
Activity at the property during the year consisted of three new
leases totaling 18,206 square feet, two lease expirations
covering 14,176 square feet, and two renewals totaling 14,489
square feet. Thus, the property was 90% leased at year-end 1996
versus 82% twelve months earlier. There are no leases expiring
in 1997.
Net absorption for the year in the Scripps Ranch/Scripps Mesa
market totaled approximately 19,621 square feet. The year-end
vacancy rate for the submarket decreased by one percentage point
from one year ago to approximately 7%. However, there continues
to be limited demand for space in multi-tenant properties such as
Scripps Terrace. Total inventory (leased and available) at year-end 1996
remained at approximately 1.7 million square feet.
Average net effective rents remained at roughly the same level as
the previous year - around an average of $6.00 per square foot
per year net of taxes, insurance and utilities ("NNN") for
competitive properties. There appears to be some activity in the
planning stages for new construction of industrial/R&D buildings
in the Scripps Ranch area.
During 1996, the Partnership recorded a provision for value
impairment of $1,086,000 in connection with Scripps Terrace. 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. This determination was based
upon the current market conditions and future performance
expectations for this investment.
Winnetka
The Partnership owns a 100% interest in Winnetka Industrial Park
which is located in Crystal, Minnesota, a suburb of Minneapolis.
The property consists of two multi-tenant industrial buildings
containing 188,000 square feet of space.
In 1996 a 35,000 square foot tenant, representing 19% of the
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property, renewed its lease. As a result, the property remained
100% leased at year end. There are no leases expiring in 1997.
The recent National Association of Industrial and Office Parks
("NAIOP") survey of the Twin Cities' West/Northwest Suburban
office/warehouse submarket cited an approximate vacancy rate of
3% versus 5% in 1995. The west and northwest suburban submarket
contains approximately 7.7 million square feet, with
approximately 388,000 square feet of space available. Net
absorption of approximately 106,000 square feet was recorded
during the four quarters ended June 30, 1996. Average asking
rates for comparable space increased to approximately $7.22 per
square foot per year net of taxes, insurance, and utilities
("NNN") for the office portion of industrial buildings while
asking rates rose to approximately $3.69 NNN for the warehouse
portion. Virtually no free rent is being offered as a concession
to negotiate a transaction, except when space is taken "as-is."
With the reduction in vacancy rates, speculative construction is
underway. At present, 20 new buildings are under construction in
the nearby suburb of Plymouth. These buildings are expected to
compete directly with Winnetka.
During 1996, Winnetka, together with the Riverview and Wood Dale
properties, was marketed for sale along with two similar
properties owned by T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership
("RIF II "). 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 markets 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.
South Point Plaza
The Partnership owns a 50% interest in South Point Partners, a
joint venture with its affiliate, RIF II. South Point Partners
owns a 100% interest in South Point Plaza Shopping Center ("South
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
<PAGE>8
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 68% 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 $29,000. 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 II 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
San Diego, which is part of the larger "Interstate 15" commercial
<PAGE>9
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 8.0% and 15.4% for R&D space and
office space, respectively, versus approximately 13% and 19%,
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 $832,000 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.
Wood Dale
The Partnership owns a 100% interest in two multi-tenant
industrial warehouse/manufacturing/distribution buildings in Wood
Dale, Illinois, a suburb of Chicago located immediately west of
O'Hare Airport. The buildings are located within a few blocks of
each other and contain a total of 90,000 square feet.
Although tenants totaling 32,344 square feet signed new and
renewal leases, three tenants whose leases covered a total 39,056
square feet did not renew upon lease expiration. Thus, this
suburban Chicago industrial project experienced a decline in
<PAGE>10
year-end leased status from 89% to 70%. Despite this frictional
vacancy, occupancy at Wood Dale is expected to rebound during
1997.
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
average net rental rates 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.
The property is also included in the portfolio of assets being
held for sale, which is discussed above in connection with the
Winnetka property.
Clark Avenue
The Partnership owns a 100% interest in this 40,000 square foot
office/industrial building in King of Prussia, Pennsylvania, a
northwestern suburb of Philadelphia. During the year the
partnership recorded a provision for value impairment in
connection with the Clark Avenue of $802,000. 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 Clark Avenue through future
operations over a shorter anticipated holding period and the
ultimate sale of the property. This determination was based upon
current market conditions and future performance expectations of
both the property and the King of Prussia/Valley Forge market.
There was no leasing activity at the property during 1996.
However, in February 1997 the one vacancy representing 28% of the
project was leased to a single tenant. Leases representing 8% of
the property expire in 1997.
With an inventory of approximately 10.8 million square feet, the
King of Prussia office submarket has a vacancy rate of
approximately 10.5% at the end of the third quarter of 1996; this
represents a decrease from the 12.25% level at year-end 1995.
Net absorption recorded through the third quarter of 1996 was
approximately 194,000 square feet. The full impact on office
requirements involving the largest tenant in the market, Lockheed
Martin, is still unknown, but the company has moved some workers
to other submarkets and to Maryland. At present, rental rates
for comparable Class B space have remained at a range of $8.00 to
<PAGE>11
$12.00 per square foot per year net of insurance, taxes, and
operating expenses. Fewer concessions are being offered. There
was no new construction activity in the King of Prussia/Valley
Forge market in 1996 and none is planned for 1997. Nevertheless,
conditions in the overall Philadelphia industrial market are not
strong, and the King of Prussia market is experiencing tenants
downsizing and departing for other submarkets.
Riverview
The Partnership owns a 100% interest in the Riverview property
which is located in the Riverview Industrial Park directly across
the Mississippi River from the St. Paul, Minnesota Central
Business District. The project consists of three multi-tenant
industrial warehouse/distribution/light manufacturing buildings
containing a total of 114,000 square feet of space.
Three tenants representing 25,000 square feet or 22% of the space
renewed and/or expanded their leases during 1996. Additionally,
one new 5,000 square foot tenant was signed. This positive
activity more than offset the loss of one tenant totaling 10,000
square feet which vacated upon its lease expiration. Thus, the
property increased its leased status by four percentage points
over 1995 to end the year at 100% leased. Leases representing
22% of the space in the property expire in 1997.
The most recent NAIOP survey of the St. Paul, Midway, and
Suburban submarket showed a vacancy rate for office/warehouse
space of approximately 4% on a total inventory of approximately
11.3 million square feet. Net absorption totaled 74,300 square
feet for the four quarters ending June 30, 1996. Average asking
rates for the office portion were approximately $7.50 NNN per
square foot per year while average asking rates for the warehouse
portion were $3.25 NNN.
Riverview is also included in the portfolio of assets being held
for sale, which is discussed above in connection with the
Winnetka industrial property.
Westbrook Commons
The Partnership owns a 50% interest in Penasquitos 34, a joint
venture with RIF IV. Penasquitos 34 owns a 100% interest in
Westbrook Commons Shopping Center ("Westbrook Commons"), a
neighborhood shopping center in the Village of Westchester,
Illinois, a Chicago suburb. The property contains 122,000
rentable square feet of space.
Three new, five renewal, and one expansion lease totaling 19,952
square feet were signed during the year. Despite three tenants
<PAGE>12
that did not renew their leases, including one tenant that was
lost due to credit reasons, the property's year-end occupancy
increased slightly from 96% to 98% by year-end 1996. Leases
representing only 7% of the property's leaseable area expire in
1997. Activity from prospective tenants has been good.
The Westchester market in which the project is located continues
to remain a stable and relatively healthy environment for
retailers. Grocery anchored centers such as Westbrook Commons
have proven to be the most successful for service/convenience
based retailers. While the submarket and the property have
experienced some interim fluctuations in occupancy due to poor
holiday sales, weakness of some smaller tenants, and lease
expirations, the overall situation is positive. Industry figures
place the vacancy rate for the competitive centers within a
three-mile radius of Westbrook Commons at approximately 2%. The
average rental rates in the submarket in 1996 were level to
slightly up for Class A space.
River Run
The Partnership owns a 100% interest in River Run Shopping Center
in Miramar, Florida containing 93,000 square feet of space. In
July 1995, the Partnership began consensual foreclosure on the
participating mortgage loan secured by the River Run Shopping
Center and ceased the accrual of interest income. On October 10,
1995, the Partnership purchased the property at the foreclosure
sale and, in connection therewith, reclassified the participating
mortgage loan as an investment in real estate of $7,700,000.
In 1996, this South Florida retail center signed three new leases
totaling 4,275 square feet and one 975 square foot renewal lease.
Two tenants totaling 2,050 square feet did not renew their
leases. Occupancy increased from 90% at year-end 1995 to 93% at
year-end 1996. Leases covering 4% of the project are scheduled
to expire in 1996.
The southwest Broward County non-regional mall submarket contains
approximately 4.5 million square feet of retail space. The
directly competitive market consists of four centers totaling
650,000 square feet. The vacancy rate within this smaller
submarket is approximately 4%.
Leasing activity in the area continues to improve. New housing
construction which is underway in the area should positively
impact the center with in the foreseeable future. With the
increase in activity, efforts to help reposition the property by
improving credit and tenant mix are underway. Positioning of the
asset will continue throughout 1997 and may result in declines in
lease status until a stabilized occupancy has been achieved.
Rental rates for new leases in the submarket have increased in
<PAGE>13
1996 on average $0.00 - $2.00 per square foot per year NNN.
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.
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
On March 17, 1997, there were 10,365 Limited Partners. There is
no active public 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, have made tender offers for the Units, at prices of $60
and $107 per Unit, less the amount per Unit of distributions
declared or paid during a specified period. As of February 28,
1997, sales of 647 Units to the firm making offers at $60 have
been presented for processing, and the firm making offers at $107
has stated that it has purchased 2,331 Units. The Partnership is
not obligated to redeem or repurchase Units, but it may do so in
certain defined hardship situations.
In 1987 Congress adopted certain rules concerning "publicly
<PAGE>14
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
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 $1.58
June 30, 1995 $1.58
September 30, 1995 $1.58
December 31, 1995 $6.37
March 31, 1996 $2.00
June 30, 1996 $2.00
September 30, 1996 $23.60
December 31, 1996 $2.00
All of the foregoing distributions were paid from net cash flows
from operating activities, with the exception of the distribution
for the quarter ended September 30, 1996, which included $21.60
per Unit from the proceeds of the sale of Fairchild Corporate
Center, and the distribution for the quarter ended December 31,
1995, which included $3.25 per Unit from retained cash balances
generated by operations in prior years and a return of capital of
$.75 per Unit from proceeds of the initial public offering of
Units, which had been retained as cash balances.
There are no material legal restrictions on the Partnership's
present or future ability to make distributions in accordance
<PAGE>15
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 $147 per Unit.
After distributions in February, 1997 of $2.00 per Unit the
estimated valuation is $145. 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 its holdings.
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 $33,952 $41,733 $41,885 $45,780 $48,843
at year-end
Total revenues $6,280 $6,094 $6,357 $6,211 $6,078
Net income
(loss) $906 $1,783 $579 $(109) $(1,268)
Net income
(loss)
per Unit $3.54 $6.96 $2.26 $(0.43) $(4.95)
Cash distributions
declared per
Unit $29.60 $11.11 $17.45 $11.74 $11.53
Notes:
<PAGE>16
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 above for Net income (loss) include valuation
impairments of $2,750 and gain on real estate sold of $1,630
in 1996, a loan loss provision of $202 and a valuation
recovery of $109 in 1995, provisions for value impairment of
$1,467, valuation recoveries of $82, and gain from the sale
of the Beinoris Building of $80 in 1994, valuation
allowances of $1,968 in 1993, and a valuation allowance of
$1,428 and a provision for loan loss of $1,426 in 1992.
3. The figures above for Net income (loss) per Unit include
valuation impairments of $10.74 per Unit and gain on real
estate sold of $6.36 per Unit in 1996, a loan loss provision
of $.46 per Unit and a valuation recovery of $.43 per Unit
in 1995, provisions for value impairment of $5.73 per Unit,
a valuation recovery of $.32 per Unit, and gain from sale of
Beinoris Building of $.31 per Unit in 1994, valuation
allowances of $7.68 per Unit in 1993, and $5.57 per Unit in
1992, and a provision for loan loss of $5.57 per Unit in
1992.
4. The above distributions include a return of capital from
proceeds of the initial public offering of Units, which had
been retained as cash balances, in the amount per Unit of
$.75 in 1995, and $.49 in 1992. The distribution for 1996
also includes $21.60 per Unit from the proceeds of the sale
of Fairchild Corporate Center. The distribution for 1994
includes $3.92 per Unit from the proceeds of the sale of the
Beinoris Building. The remainder of these distributions
were paid from cash from operating activities.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership sold 253,641 Units for a total of $63,410,000,
including the contribution of $25,000 from the original Limited
Partner. The offering was terminated on June 30, 1987 and no
additional units will be sold. After deduction of organizational
and offering costs of $3,805,000, the Partnership had $59,605,000
available for investment and cash reserves. Through December 31,
1996 the Partnership had declared distributions constituting
return of capital from the proceeds of this offering of
approximately $1.2 million.
The Partnership originally purchased nine properties or interests
<PAGE>17
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 two property investments: a
portion of the Wood Dale property and Fairchild Corporate Center,
in which the Partnership had a 56% interest.
As of December 31, 1996 the Partnership classified the Wood Dale,
Winnetka, Riverview and South Point Plaza properties as held for
sale, at a total carrying value of $11,786,000. Initial cost of
the Partnership's remaining real estate investments including
subsequent improvements was $28,679,000. The Partnership has
also recorded provisions for value impairments in connection with
these properties totaling $5,731,000. In recording the new
carrying basis for these properties in accordance with Statement
of Financial Accounting Standards No. 121, which was adopted in
1996, the Partnership offset these properties' accumulated
depreciation balances totaling $2,954,000 against their
historical cost. Accumulated depreciation and amortization after
this reclassification equals $1,059,000. Therefore, investment
in real estate for financial reporting purposes including
properties held for sale, after accumulated depreciation,
amortization and valuation changes, was $30,721,000 as of
December 31, 1996.
The Partnership expects to incur capital expenditures
during 1997 totaling approximately $900,000 for tenant
improvements, lease commissions, and other major repairs and
improvements. The majority of these expenditures are dependent
on the execution of leases with new and renewing tenants,
including a substantial portion for the renovation of the large
vacant space at Tierrasanta. While the percentage of leases
expiring is substantially 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
<PAGE>18
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 Fairchild Corporate
Center property, which contributed $1,672,000 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 Wood Dale, Riverview, and Winnetka
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 $2,468,000, a decrease of $968,000 from
the prior year end. This decrease resulted primarily from
additional capital improvements during the year. Net cash
provided by investing activities increased by $5,572,000 due
primarily to the Fairchild Corporate Center sale in 1996. Net
cash used in financing activities increased by $6,604,000 due
primarily to distribution of the proceeds of the Fairchild
Corporate Center sale.
Operations
1996 v. 1995
The Partnership had a loss of $724,000 from operations in 1996,
before the gain on the Fairchild Corporate Center sale, compared
with net income of $1,783,000 in 1995. This difference is
primarily due to downward property valuation adjustments at
Scripps Terrace, Tierrasanta, and Clark Avenue totaling
$2,750,000, which were partly offset by an increased contribution
to income of $327,000 from River Run. This latter property's
contributon increased as a result of the Partnership's
acquisition of the asset through foreclosure late in 1995. 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.
The sale of Fairchild Corporate Center in 1996 had a negative
effect on operating earnings amounting to $45,000 because of the
loss of the property's income for four months of the year.
However, the Partnership realized a gain of $1,630,000 on the
<PAGE>19
sale.
Revenues from rental income and interest totaled $6,280,000 for
the year compared with $6,094,000 a year earlier. This
comparison was negatively affected by the absence of a full
year's rental income from the Fairchild Corporate Center but was
positively affected by an increased contribution to income from
River Run. Results were helped by a decline of $166,000 in
operating expenses before valuation adjustments during the year.
Leases representing 7% of the portfolio's leasable square footage
are scheduled to expire in 1997. These leases represent
approximately 11% of the portfolio's rental income for 1996.
This amount of potential lease turnover is below normal for the
types of properties in the portfolio, which typically lease to
tenants under three to five year leases. The overall portfolio
occupancy was 89% as of the end of 1996. Management anticipates
that occupancy levels will generally remain level or increase 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 flows from
sales would increase substantially.
There are no single-tenant properties in the Partnership's
portfolio, and no single tenant accounted for more than 10% of
the Partnership's revenue in 1996. The Partnership therefore
does not expect any material adverse effect on revenue on account
of the failure of any single tenant in 1997.
1995 v. 1994
While the Partnership's statements of operations appeared to show
that the Fund's performance improved significantly over 1994,
income was actually down $210,000 when the effect of value
impairments, primarily at Scripps Terrace and Tierrasanta, were
backed out of 1994's numbers. The change in River Run's status
from a loan to an owned property had the most notable impact on
the year-to-year comparison.
In the fourth quarter of 1995, the Partnership took over
ownership of River Run and began accounting for it as a property
rather than as a loan. This meant that its rental income and
property level operating expenses, rather than interest, were
included in the Partnership's results. Inclusion of its fourth
quarter rental income caused that revenue category to be up for
the full year over 1994. The benefit, however, was more than
offset by the decrease in interest income from the River Run loan
and the increase in expenses related to the property,
<PAGE>20
particularly the loan loss provisions and uncollectible interest.
The lower average leased status at Fairchild Corporate Center and
Clark Avenue drove the overall decline in rental income. The
absence of Beinoris, which was sold in 1994, also had a negative
effect on the revenue comparison.
The most noteworthy expense item which had a positive effect on
the net income comparison with 1994, other than higher valuation
impairments in 1994, was depreciation. Higher tenant improvement
charge-offs in 1994 at Wood Dale, Tierrasanta, Scripps Terrace,
Winnetka, Clark Avenue, and Riverview led to the decrease in
depreciation versus 1994.
Reconciliation of Financial and Tax Results
For 1996, the Partnership's book net income was $906,000, and its
taxable loss was $5,759,000. The loss for tax purposes on the
Fairchild Corporate Center sale was the primary reason for the
difference. For 1995, the Partnership's book net income was
$1,783,000, and its taxable income was $85,000. The provision
for loan loss in connection with River Run was the primary
difference. For 1994, the Partnership's book net income was
$579,000, and its taxable income was $2,917,000. The valuation
allowances in connection with Tierrasanta and Scripps Terrace and
the continuation of the accrual of interest on the Brinderson
loan for tax purposes were the primary differences. For a
complete reconciliation see Note 8 to the Partnership's
consolidated financial statements, which note is hereby
incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data
The consolidated 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
<PAGE>21
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 III Management, Inc. ("Fund III 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 III 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 II
Management, Inc. ("Fund II 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 is also investment
manager for 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.
The directors and executive officers of Fund III Management are
as follows:
Position with T. Rowe Price
Name Realty Income Fund III 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
Alvin M. Younger, Jr. Treasurer and Director
Kenneth J. Rutherford Vice President
Joseph P. Croteau Controller and Director, also
Principal Financial Officer for
the Partnership
Mark S. Finn Chief Accounting Officer for
the Partnership
<PAGE>22
Mr. Riepe was elected President in 1991. Ms. Robins was first
elected to her current offices in 1987, Mr. Ruhe was first
elected in 1988, and 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 first elected as a Vice President in 1994. Mr.
Hopkins was first elected a director in 1987. 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 III 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:
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 II, 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 the Investment
Manager, and Vice President of Real Estate Group 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
<PAGE>23
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
of 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.
No Forms 3, Forms 4, Forms 5, or amendments to any of them, were
furnished to the registrant for its most recent fiscal year.
Based on a review of and written representations pursuant to
Item 405(b)(2)(I) 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 32-35,
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
<PAGE>24
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,
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.
As compensation for services rendered in managing the affairs of
the Partnership, the General Partner earned a partnership
management fee of $164,000 in 1996, and received 1% of the cash
<PAGE>25
distributions, totaling $20,000 in 1996. In addition, certain
operating expenses incurred on behalf of the Partnership are
reimbursable to the General Partner. In 1996 the General Partner
was reimbursed for expenses incurred by it in the administration
of the Partnership and the operation of the Partnership's
investments, which amounted to $90,000. An affiliate of the
General Partner has earned a fee of $4,000 from the money market
mutual funds in which the Partnership made its interim cash
investments in 1996.
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:
Page
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' Capital 7
for each of the three years in the period
ended December 31, 1996
Consolidated Statements of Cash Flows for 8
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
<PAGE>26
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 October 20, 1986, as amended
and restated as of January 5, 1987, included as
Exhibit A to the Prospectus of the Partnership,
dated January 5, 1987, File Number 33-9899, as
filed with the Commission pursuant to Rule
424(b) ("the Prospectus"), incorporated by
reference herein.
(b) Certificate of Limited Partnership,
incorporated by reference to Exhibit 3,4 to the
Partnership's Registration Statement, File No.
33-9899, as filed on January 5, 1987.
(c) Amendment to the Partnership Agreement dated
April l, 1987, incorporated by reference to
Exhibit 3,4(b) to Registrant's Report on Form
10-K for the year ended December 31, 1987 ("the
1987 10-K").
(d) Amendment to the Partnership Agreement dated
May l, 1987, incorporated by reference to
Exhibit 3,4(c) to the 1987 10-K.
(e) Amendment to the Partnership Agreement dated
June l, 1987, incorporated by reference to
Exhibit 3,4(d) to the 1987 10-K.
(f) Amendment to the Partnership Agreement dated
July l, 1987, incorporated by reference to
Exhibit 3,4(e) to the 1987 10-K.
(g) Amendment to the Partnership Agreement dated
August l, 1987, incorporated by reference to
Exhibit 3,4(f) to the 1987 10-K.
(h) Amendment to the Partnership Agreement dated
September l, 1987, incorporated by reference to
Exhibit 3,4(g) to the 1987 10-K.
(i) Amendment to the Partnership Agreement dated
March 28, 1988, incorporated by reference to
Exhibit 3,4(h) to the 1987 10-K.
<PAGE>27
10. (a) Joint Venture Agreement of Fairchild 234, dated
as of May 25, 1988, incorporated by reference
to Exhibit 10(f) to Registrant's Report on Form
10-K for the fiscal year ended December 31,
1988 ("the 1988 10-K").
(b) First Amendment to Joint Venture Agreement of
Fairchild 234, dated as of July 13, 1988,
incorporated by reference to Exhibit 10(g) to
the 1988 10-K.
(c) Forbearance and Loan Modification Agreement
relating to River Run Dated November 17, 1993,
between Stiles Hunt Properties as Borrower and
the Partnership as Lender, incorporated by
reference to Exhibit 10(j) to Registrant's
Report on Form 10-K for the year ended December
31, 1994.
(d) Agreement of Purchase and Sale of Mortgage Loan
and Joint Escrow Instructions relating to
Fairchild Corporate Center dated August 2,
1996.
13. Annual Report for the year ended December 31, 1996,
distributed to limited partners on or about March 6,
1997.
27. Financial Data Schedule
99. (a) Pages 7-12, 18-25 and 32-35 of the Prospectus
of the Partnership dated January 5, 1987,
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
0-16542.
(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
The following reports on Form 8-K were filed for the
last quarter of the period covered by this report.
(1) Report on Form 8-K dated November 12, 1996
<PAGE>28
regarding the valuation of the Partnership's
Units.
(2) Report on Form 8-K dated January 17, 1997
regarding the valuation of the Partnership's
Units.
SIGNATURES
<PAGE>29
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 III,
AMERICA'S SALES-COMMISSION-FREE REAL
ESTATE LIMITED PARTNERSHIP
By: T. Rowe Price Realty Income Fund
III 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 III 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 III
Management, Inc.
<PAGE>30
/s/Alvin M. Younger, Jr. Date: March 27, 1997
Alvin M. Younger, Jr.,
Director and Treasurer,
T Rowe Price Realty Income Fund III
Management, Inc.
/s/Joseph P. Croteau Date: March 27, 1997
Joseph P. Croteau, Director and
Controller, T. Rowe Price Realty
Income Fund III 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>
AGREEMENT OF PURCHASE AND SALE OF MORTGAGE LOAN
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE OF MORTGAGE LOAN AND
JOINT ESCROW INSTRUCTIONS (this "Agreement") is entered into as
of August 2, 1996, by and between FAIRCHILD 234, a California
general partnership ("Seller"), and SPIEKER PROPERTIES, L.P., a
California limited partnership ("Buyer").
R E C I T A L S:
A. Pursuant to that certain Loan Agreement and Escrow
Instructions ("Loan Agreement"), dated as of May 24, 1988, Seller
made a loan ("Loan") to Brinderson Partners, a California Limited
Partnership ("Borrower"), in the original principal amount of
$16,500,000.00. The Loan is evidenced by a Secured Promissory
Note ("Note"), dated May 24, 1988, pursuant to which Borrower
promised to pay to Seller, or order, the principal sum of
$16,500,000.00, together with interest and certain other sums set
forth in the Note.
B. The Loan is secured by a Deed of Trust With Assignment
of Rents ("Deed of Trust"), encumbering certain real property
("Property") in the City of Irvine, County of Orange, State of
California, more particularly described in Exhibit "A" to this
Agreement. The Deed of Trust was recorded on May 25, 1988, as
Document No. 88-245250 of Official Records of Orange County,
California. The Loan is also secured by an Assignment of Leases
("Assignment of Leases") recorded as a lien against the Property
on May 25, 1988, as Document No. 88-245251 of Official Records of
Orange County, California. The Loan is evidenced by and secured
by certain other documents described in Exhibit "B" to this
Agreement (collectively, "Original Loan Documents").
C. The Loan Agreement was modified by a First Amendment to
Loan Agreement and Escrow Instructions ("First Amendment to Loan
Agreement") between Seller and Borrower, dated as of October 1,
1992. The Note was amended by a First Amendment to Secured
Promissory Note ("First Amendment to Note") between Seller and
Borrower, dated as of October 1, 1992. The Deed of Trust was
amended by a First Amendment to Deed of Trust with Assignment of
Rents ("First Amendment to Deed of Trust") between Seller and
Borrower, dated as of October 1, 1992. The First Amendment to
Deed of Trust was recorded in the Official Records of Orange
County, California, on October 16, 1992, as Document No. 92-703250.
In connection with the First Amendment to Loan
Agreement, certain other documents were entered into between
Seller and Borrower, a schedule of which is attached to this
Agreement as Exhibit "C" (collectively, "Revised Loan
Documents").
D. In connection with the execution and delivery of the
Revised Loan Documents in 1992, fee simple title to the Property
was transferred from Borrower to Fairchild Irvine Associates, a
California general partnership including Borrower and Fairchild
Property Corporation, a California corporation ("Fairchild
Property Corporation"), as general partners. On February 9,
1994, Fairchild Irvine Associates was dissolved and fee simple
title to the Property was conveyed to Fairchild Property
Corporation on February 28, 1994. As of the date of this
Agreement, Fairchild Property Corporation remains the fee simple
owner of the Property.
E. Significant payment obligations pursuant to the Note
and the Revised Loan Documents are presently unpaid. In
connection therewith, Seller previously caused to be filed and
recorded a Notice of Default in the Official Records of Orange
County, California, on December 1, 1995, as Document No. 95-0533423.
Seller subsequently caused to be filed and recorded a
Notice of Trustee's Sale, which was recorded on April 11, 1996,
in the Official Records of Orange County, California. As of the
date of this Agreement, accrued but unpaid interest and principal
under the Note and the Revised Loan Documents in excess of
$24,400,000.00 remains due and owing to Seller.
F. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Loan in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, Buyer and Seller agree as
follows:
1. Sale and Purchase of Loan.
1.1 Purchase and Sale. On the terms and conditions of
this Agreement, Seller agrees to sell to Buyer, and Buyer agrees
to buy from Seller, the Loan.
1.2 Nonrecourse Sale. The sale of the Loan to Buyer
is without recourse to Seller, except that such sale shall be
subject to the warranties and representations of Seller contained
in this Agreement and to no other warranties or representations.
2. Purchase Price. The total purchase price (the
"Purchase Price") to be paid by Buyer to Seller for the Loan
shall be Ten Million Eighteen Thousand Dollars ($10,018,000.00).
The Purchase Price shall be paid as follows:
2.1 Concurrently with the "Opening of Escrow" (as
defined below), Buyer shall deposit into the "Escrow" (as defined
below), into an interest-bearing account, One Hundred Fifty
Thousand Dollars ($150,000.00) (such amount, together with any
interest earned thereon, is herein called the "Deposit"). The
Deposit shall be transferred into the Escrow from funds
previously deposited by Buyer into escrow no. 18974 with Escrow
Holder; the parties to such escrow, Buyer and FPC (defined
below), shall execute all appropriate documents to authorize such
transfer of the Deposit into the Escrow. Except as specifically
provided in this Agreement, the Deposit shall be non-refundable
to Buyer after the later of the "Decision Date" and the "Title
Decision Date" (as such terms are defined below).
2.2 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 2.2 shall be made by wire transfer of federal funds or in
another immediately available form.
3. Condition to Close of Escrow and Possible Return of
Deposit.
(a) The purchase and sale of the Loan by Seller to
Buyer is expressly conditioned upon the concurrent close of
escrow under that certain Purchase and Sale Agreement and Joint
Escrow Instructions ("Property Agreement"), of even date
herewith, between Fairchild Property Corporation, a California
corporation ("FPC" or "Fairchild Property Corporation"), as
seller, and Buyer, as buyer. Pursuant to the Property Agreement,
FPC and Buyer are agreeing to a deed-in-lieu of foreclosure of
the Property to be delivered by FPC to Buyer, conditioned upon
the satisfaction of certain conditions set forth in the Property
Agreement. Buyer shall not be obligated to purchase the Loan
from Seller pursuant to this Agreement in the event Buyer, by the
specific terms of the Property Agreement, is not required to
purchase the Property from FPC. Seller shall not be obligated to
sell the Loan to Buyer pursuant to this Agreement in the event
FPC, by the specific terms of the Property Agreement, is not
obligated to sell the Property to Buyer. The provisions of this
Section 3(a) and/or any other section of this Agreement
conditioning close of the Escrow upon close of the transaction
contemplated by the Property Agreement shall not be interpreted
as conditioning or excusing the wrongful or unauthorized failure
of Seller, Buyer and/or FPC to perform their respective
obligations under this Agreement and/or the Property Agreement.
Certain contingencies under the Property Agreement for the
benefit of Buyer must be satisfied or waived by the "Decision
Date" or the "Title Decision Date", as such terms are defined in
the Property Agreement and which definitions shall apply as well
to the use of such terms in this Agreement.
(b) In the event Buyer timely elects to terminate the
Property Agreement pursuant to Section 3.4 of such agreement,
Buyer shall be entitled to the return of the Deposit (together
with any interest earned thereon).
4. Closing Through Escrow.
4.1 Escrow; Escrow Instructions. The purchase and
sale of the Loan shall be consummated through an escrow
("Escrow") at Chicago Title Insurance Company, 388 Market Street,
Suite 1300, San Francisco, California 94111, Attention: Ms.
Michelle Viguie ("Escrow Holder"), which is appointed to act as
escrow holder. The parties shall deliver a fully executed
counterpart of this Agreement to Escrow Holder. Upon receipt of
a fully executed counterpart of this Agreement, Escrow Holder
shall advise Seller and Buyer in writing of the date upon which
Escrow Holder received such document, which shall be the date of
"Opening of Escrow". This Agreement shall constitute escrow
instructions to Escrow Holder as well as an agreement of the
parties. The parties shall execute such additional escrow
instructions, consistent with this Agreement, as Escrow Holder
shall reasonably deem necessary for the proper implementation of
the purchase and sale of the Loan, including Escrow Holder's
general provisions. In the event of any conflict between this
Agreement and such additional escrow instructions, the terms of
this Agreement shall govern.
4.2 Closing Date. The closing ("Closing") of the
purchase and sale of the Loan shall occur through Escrow on
August 28, 1996 (the "Closing Date").
4.3 Closing Documentation and Funds.
4.3.1 At least one (1) business day prior to
the Closing Date, Seller shall deliver to Escrow Holder the
following documents with respect to the Loan:
4.3.1.1 The original Note and First
Amendment to Note, both properly endorsed by Seller without
recourse, by allonge in the form attached to this Agreement as
Exhibit "D". If either or both of the Note and the First
Amendment to Note has been lost or destroyed, then instead of
delivering such original Note and/or First Amendment to Note,
Seller shall deliver a copy of the missing document and execute
and deliver a Lost Note Affidavit in the form of Exhibit "E"
attached to this Agreement;
4.3.1.2 The original Deed of Trust, the
original First Amendment to Deed of Trust and originals of such
other of the Original Loan Documents and the Revised Loan
Documents as can be reasonably located by Seller [or to the
extent any of such documents cannot be located, copies of the
missing documents], together with an Assignment of the Deed of
Trust and the First Amendment to Deed of Trust (the "Assignment")
in the form of Exhibit "F" attached to this Agreement;
4.3.1.3 The original or duplicate original
(or a copy, if the original or a duplicate original is not
available to Seller) of the title insurance policy issued to
Seller at the time of origination of the Loan; and
4.3.1.4 Executed UCC-2 forms, duly
completed and signed by Seller, for the purpose of transferring
the secured party's interest in all executed and unexpired UCC-1
financing statements previously filed with regard to the Loan.
4.3.2 At least one (1) business day prior to
the Closing Date, Buyer shall deposit funds in the amount of the
balance of the Purchase Price pursuant to Section 2.2 of this
Agreement plus such additional sums as shall be necessary to pay
the expenses payable by Buyer under this Agreement.
4.3.3 At least two (2) business days prior to
the Closing, Escrow Holder shall deliver to Buyer and Seller a
pro forma closing statement which sets forth, in a manner
satisfactory to Buyer and Seller, the prorations and other
credits and debits contemplated by this Agreement.
4.4 Closing Procedures.
4.4.1 Escrow Holder shall proceed to close
Escrow when each party has delivered into Escrow, or to the
appropriate party, all of the funds and documents required by
Section 4.3 and any other provisions of this Agreement, all
documents requiring approval have been so approved, and when
Escrow Holder is prepared to close concurrently the escrow
provided for in the Property Agreement.
4.4.2 When Escrow Holder is in a position to
close, Escrow Holder shall close Escrow by:
4.4.2.1 Recording or causing to be recorded
in the Orange County Recorder's Office the Assignment with
instructions that when recorded, such document shall be mailed to
Buyer.
4.4.2.2 Causing the executed UCC-2 forms
deposited by Seller into Escrow pursuant to Section 4.3.1.4 of
this Agreement to be filed with the California Secretary of
State.
4.4.2.3 Delivering the following documents
and monies to the party indicated:
Documents and Monies Party to Whom Delivered
Note, First Amendment to Note Buyer
and Allonge duly endorsed by
Seller
Lost Note Affidavit, Buyer
if applicable
Deed of Trust, First Buyer
Amendment to Deed of Trust
and other available Original
Loan Documents and Revised
Loan Documents
Assignment Buyer (after recordation)
Title Policy Buyer
Funds in amount of Seller (by wire transfer
Purchase Price of federal funds)
Escrow Closing Statement Seller and Buyer
Commission Broker
4.5 Closing Costs. Any escrow fee charged by the
Escrow Holder and all recording and filing charges shall be paid
in equal amounts by Buyer and Seller. Each party shall be
responsible for the payment of its own attorneys' fees incurred
in connection with the transaction which is the subject of this
Agreement.
5. Representations and Warranties of Seller. Seller
represents and warrants to Buyer that as of the date of this
Agreement and as of the Closing Date:
5.1 Power and Authority. Seller has full power and
authority to enter into this Agreement, and has taken all
necessary action to authorize the execution, delivery and
performance of this Agreement. Each individual executing this
Agreement on behalf of Seller represents and warrants to Buyer
that he or she is duly authorized to do so.
5.2 Ownership of Loan. Seller is the sole owner of
the Loan and has full power and authority to hold, sell, transfer
and assign the same on the terms set forth in this Agreement.
Upon the Closing, Seller will deliver ownership of the Loan to
Buyer free of any encumbrances created or suffered by Seller or
any affiliate of Seller.
5.3 No Litigation. Seller has no current actual
knowledge of any pending litigation that might materially,
detrimentally affect the ownership of the Loan or Seller's
ability to perform its obligations under this Agreement. For
purposes of this Section 5.3, "actual knowledge" of Seller means
the actual knowledge of Seller's agent, Judy Alexander of LaSalle
Advisors Limited, Sacramento, California, without any duty of
investigation, and "current" means such actual knowledge as of
the date of this Agreement or the Closing.
5.4 Consents. Seller is not required to obtain any
consents or approvals to consummate the transactions contemplated
in this Agreement.
5.5 Survival. The representations and warranties of
Seller set forth in Sections 5.1 through 5.4, inclusive, shall
survive the Closing for a period of twelve (12) months after the
Closing and any claim against Seller under one or more of such
sections must be made within such twelve (12) month period or
thereafter be barred.
6. Representations and Warranties of Buyer. Buyer repre-
sents and warrants to Seller that as of the date of this
Agreement and as of the Closing Date:
6.1 Authority. Buyer has full power and authority to
enter into this Agreement, and has taken all necessary action to
authorize the execution, delivery and performance of this
Agreement. Each individual executing this Agreement on behalf of
Buyer represents and warrants to Seller that he or she is duly
authorized to do so.
6.2 Consents. Buyer is not required to obtain any
consents or approvals to consummate the transactions contemplated
in this Agreement.
6.3 Purpose of Acquisition of Loan. Buyer's purpose
in acquiring the Loan from Seller is solely to effect the
acquisition of fee simple title to the Property from Fairchild
Property Corporation pursuant to the Property Agreement. Buyer
acknowledges that it has been informed by Seller that Fairchild
Property Corporation is not personally liable for the obligations
of the Note, the Original Loan Documents or the Revised Loan
Documents, and Buyer represents and warrants to Seller (for the
benefit of Seller and Fairchild Property Corporation) that it
will not seek to enforce or collect by any means any personal or
deficiency judgment with regard to the Loan, the Note, the
Original Loan Documents and/or the Revised Loan Documents.
7. Prior Review and Approval of Loan Files. Buyer acknow-
ledges and agrees that Buyer has made such examination, review
and investigation of the Loan, and of any and all facts and
circumstances necessary to evaluate the Loan it has deemed
necessary or appropriate. Except for the representations and
warranties expressly made by Seller herein, (i) Buyer has been
and will continue to be solely responsible for the making of
Buyer's own independent investigations as to all aspects of the
transactions contemplated hereby, including but not limited to:
(A) the authorization, execution, legality, validity,
effectiveness, genuineness, enforceability, collectibility and
sufficiency of the Loan, (B) the adequacy of collateral or
perfection of any security interests or liens held by Seller in
connection with the Loan, and (C) the physical condition of the
Property or the improvements thereon, any permits or other
entitlements with regard to the Property (or lack thereof), the
title to the Property, environmental conditions upon or in the
vicinity of the Property, zoning and other governmental or land
use regulations affecting the Property, the content and status of
all leases impacting the Property; and (ii) except as set forth
in this Agreement, Buyer has not relied upon any express or
implied, written or oral representation, warranty or other
statement by Seller concerning any of the foregoing. Buyer
agrees and acknowledges that it will make its own investigations
regarding the Property as provided in the Property Agreement.
Buyer further acknowledges and agrees that the representations,
warranties and other obligations of Fairchild Property
Corporation in the Property Agreement are solely the obligations
of Fairchild Property Corporation and not of Seller, and that
Seller shall have no liability or responsibility whatsoever with
regard to any of such representations, warranties and other
obligations, notwithstanding that Seller and Fairchild Property
Corporation are affiliates.
8. Conditions Upon Obligations.
8.1 Conditions Upon the Obligations of Buyer. The
following shall be conditions precedent to Buyer's obligations
hereunder, and in the event these conditions are not satisfied at
Closing, Buyer may terminate this Agreement or waive such
conditions and close this transaction as provided for in this
Agreement:
8.1.1 The warranties of Seller set forth in
Section 5 shall be accurate in all material respects as of the
Closing Date. If Seller is unable to make any of the warranties
set forth in Section 5 as of the Closing Date, then Buyer shall
not be obligated to purchase, but nevertheless may elect to
purchase, the Loan on the Closing Date.
8.1.2 Seller shall have performed in all
material respects all of its obligations under this Agreement
which are required to be performed at or prior to the Closing
Date.
8.1.3 The transaction contemplated by the
Property Agreement shall be in a position to close and shall in
fact close concurrently with the Escrow provided for in this
Agreement.
8.2 Conditions Upon the Obligations of Seller. The
following shall be conditions precedent to Seller's obligations
hereunder, and in the event these conditions are not satisfied at
Closing, Seller may terminate this Agreement or waive such
conditions and close this transaction as provided for in this
Agreement:
8.2.1 The warranties of Buyer set forth in
Section 6 shall be accurate in all material respects as of the
Closing Date.
8.2.2 Buyer shall have performed in all
material respects all of its obligations under this Agreement
which are required to be performed at or prior to the Closing
Date, including, but not limited to, the delivery of the balance
of the Purchase Price into Escrow in accordance with Section 2.2
of this Agreement.
8.2.3 The transaction contemplated by the
Property Agreement shall be in a position to close and shall in
fact close concurrently with the Escrow provided for in this
Agreement.
9. Hazardous Materials Waiver. Buyer, on behalf of
itself, its successors and assigns, hereby releases Seller and
its trustees, officers, directors, partners, employees,
contractors, agents, subsidiaries and affiliates, and its and
their respective successors and assigns (collectively,
"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. Sections 9601 et seq., and causes of action arising
under Sections 25100 et seq. of the California Health and Safety
Code), losses, costs, damages, injuries, penalties, enforcement
actions, fines, taxes, remedial actions, removal and disposal
costs, investigation and remediation costs and expenses
(including, without limitation, 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, its
successors, assigns and successors-in-interest and such other
persons and entities and after consultation with its counsel
regarding the legal effect of this Section 9, waives the benefit
of any statute or rule of law that limits the effectiveness of a
release if the releasor did not know of the claims being
released, including, without limitation, Section 1542 of the
California Civil Code, which reads 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 its radio-
activity, 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, ordinance, rule or regulation based
upon, directly or indirectly, such properties or effects.
10. 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 DAMAGE 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 COSTS ASSOCIATED
WITH, KEEPING THE PROPERTY OUT OF THE MARKETPLACE,
AND OTHER COSTS INCURRED IN CONNECTION HEREWITH.
ACCORDINGLY, BUYER AND SELLER AGREE THAT UNDER THE
CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS
AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR
IN THIS SECTION REPRESENT A REASONABLE ESTIMATE OF
THE DAMAGES WHICH SELLER WILL INCUR AS A RESULT OF
BUYER'S DEFAULT UNDER THIS AGREEMENT WHICH PREVENTS
THE TIMELY CLOSING OF ESCROW; PROVIDED, HOWEVER, THAT
THIS PROVISION SHALL NOT LIMIT SELLER'S RIGHTS TO RECEIVE
REIMBURSEMENT FOR ATTORNEYS' FEES RELATING TO ENFORCING
THIS SECTION 10, NOR WAIVE OR AFFECT SELLER'S RIGHTS
AND BUYER'S INDEMNITY OBLIGATIONS UNDER OTHER
SECTIONS OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT
THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL
CODE SECTION 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE
LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA
CIVIL CODE SECTIONS 1671, 1676 AND 1677, AS APPLICABLE. IN THE
EVENT OF A DEFAULT BY BUYER UNDER BOTH THIS AGREEMENT
AND THE PROPERTY AGREEMENT, SELLER AND FPC SHALL TOGETHER
BE ENTITLED TO ONE MEASURE OF LIQUIDATED DAMAGES IN THE
AMOUNT OF THE DEPOSIT PROVIDED FOR IN THIS AGREEMENT,
TOGETHER WITH THEIR ATTORNEYS' FEES AND COSTS
RELATING TO THE ENFORCEMENT OF THIS SECTION 10, AND ANY
APPORTIONMENT OF SUCH ONE MEASURE OF LIQUIDATED DAMAGES
BETWEEN SELLER AND FPC SHALL BE BY AGREEMENT BETWEEN
SELLER AND FPC. THE PARTIES HAVE SET FORTH THEIR INITIALS
BELOW TO INDICATE THEIR AGREEMENT WITH THE LIQUIDATED
DAMAGES PROVISION CONTAINED IN THIS SECTION.
Initials of Buyer: Initials of Seller:
____________________ ____________________
11. GENERAL PROVISIONS
11.1 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.
11.2 Entire Agreement. This Agreement and the Property
Agreement contain the entire integrated agreement between the
parties respecting the subject matter of this Agreement and
supersede all prior and contemporaneous understandings and
agreements, whether oral or in writing, between the parties
respecting the subject matter of this Agreement, including,
without limitation, that certain Purchase and Sale Agreement and
Joint Escrow Instructions between FPC and Buyer, that certain
Tri-Party Agreement between FPC, Buyer and Seller, both dated as
of June 25, 1996, that certain Amendment Number One to the
Purchase and Sale Agreement and Joint Escrow Instructions between
FPC and Buyer, dated as of July 26, 1996, and that certain Second
Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions between FPC and Buyer, dated as of August 2, 1996.
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 and the
Property Agreement. The terms of this Agreement and the Property
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 other
contemporaneous agreement. The parties further intend that this
Agreement and the Property Agreement constitute the complete and
exclusive statement of their terms and that no extrinsic evidence
whatsoever may be introduced in any judicial proceeding involving
this Agreement and/or the Property Agreement.
11.3 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.
11.4 Choice of Law. This Agreement shall be governed
by the laws of the State of California.
11.5 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
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.
11.6 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.
11.7 Exhibits. All exhibits to which reference is made
in this Agreement are deemed incorporated in this Agreement,
whether or not actually attached.
11.8 Amendment. This Agreement may be amended at any
time by the written agreement of Buyer and Seller. All
amendments, changes, revisions and discharges of this Agreement,
in whole or in part, and from time to time, shall be binding upon
the parties despite any lack of legal consideration, so long as
the same shall be in writing and executed by the parties hereto.
11.9 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 organiza-
tion 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.
11.10 No Third-Party Benefit. This Agreement is
intended to benefit only the parties hereto and Fairchild
Property Corporation and no other person or entity has or shall
acquire any rights hereunder.
11.11 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.
11.12 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.
11.13 Recordation. Buyer shall not record this
Agreement, any memorandum of this Agreement, any assignment of
this Agreement or any other document which would cause a cloud on
the title to the Property.
11.14 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. 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.
11.15 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
and costs 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 and costs relating to this Agreement and the
transactions contemplated hereby shall be borne by the party
incurring the same.
11.16 Brokers. Seller shall pay The Galbreath
Company ("Broker") through Escrow a commission in the amount of
$175,000.00 for its services as broker in this transaction if, as
and when the Closing occurs. Only one such commission in the
total amount of $175,000.00 ("Commission") shall be payable with
regard to this Agreement, the Property Agreement and/or any other
agreement pursuant to which Seller, Buyer and/or Fairchild
Property Corporation may owe or be alleged to owe a commission or
other payment to Broker with regard to the Loan, the Property or
any related matter. 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 Loan and/or 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 Loan and/or the Property. Seller and
Buyer each agree to indemnify 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 11.16 shall not be limited
in any way by any terms of this Agreement including, but not
limited to, Section 10 of this Agreement.
11.17 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 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:
Spieker Properties, L.P.
Suite 165
17320 Redhill Avenue
Irvine, California 92714
Attn: John Davenport
Telephone: (714) 250-8188
Telecopy: (714) 250-7079
With copies to:
Philip J. Levine, Esq.
Morrison & Foerster, LLP
755 Page Mill Road
Palo Alto, California 94304-1018
Telephone: (415) 813-5613
Telecopy: (415) 494-0792
To Seller:
Fairchild 234
c/o LaSalle Advisors Limited
1601 Response Road
Sacramento, California 95815
Attn: Michael D. Westfall
Telephone: (916) 920-4051
Telecopy: (916) 920-0205
With copies to:
Dennis W. Ghan, Esq.
Palmieri, Tyler, Wiener, Wilhelm & Waldron
2603 Main Street, Suite 1300
Irvine, California 92714
Telephone: (714) 851-9400
Telecopy: (714) 851-1554
11.18 Survival. All covenants of Buyer or Seller
which are intended hereunder to be performed in whole or in part
after the Closing, and all representations, warranties and
indemnities by either party to the other, shall survive the
Closing and be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and
permitted assigns.
11.19 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.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
SELLER: FAIRCHILD 234,
a California general partnership
By: LASALLE ADVISORS LIMITED,
a Delaware limited
partnership,
authorized agent
By:___________________________
Michael D. Westfall,
Vice President
BUYER: SPIEKER PROPERTIES, L.P.,
a California limited partnership
By: SPIEKER PROPERTIES, INC.,
a Maryland corporation,
general partner
By:___________________________
John G. Davenport,
Regional Senior Vice President
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
PARCEL A:
PARCELS 1 AND 2 IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF
CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 85-346 FILED IN BOOK 206,
PAGES 8, 9, 10 AND 11 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY.
EXCEPT ALL OIL, OIL RIGHTS, MINERAL RIGHTS, NATURAL GAS, NATURAL
GAS RIGHTS AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN THAT
MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED,
TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING
AND OPERATING THEREFOR AND REMOVING THE SAME FROM SAID LAND OR
ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY
DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED,
OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE
SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH
WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS
UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF,
SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH
WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS
UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO
REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE
ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL,
MINE, EXPLORE AND OPERATE THROUGH THE SURFACE OF THE UPPER 500
FEET OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY THE IRVINE
INDUSTRIAL COMPLEX, A CORPORATION, IN AN INSTRUMENT RECORDED
NOVEMBER 7, 1972, IN BOOK 10414, PAGE 187 OFFICIAL RECORDS.
ALSO EXCEPTING FROM A PORTION OF SAID LAND ALL OIL, OIL RIGHTS,
MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS AND OTHER
HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL STEAM OR
OTHER
RESOURCES, AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING,
THAT MAY BE WITHIN OR UNDER THE LAND, TOGETHER WITH THE PERPETUAL
RIGHT OF DRILLING, MINING, OR EXPLORING AND OPERATING THEREFOR
AND STORING IN AND REMOVING THE SAME FROM THE LAND OR ANY OTHER
LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND
MINE FROM LANDS OTHER THAN THOSE CONVEYED HEREBY, OIL OR GAS
WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE
OF THE LAND, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY
DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE
EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP,
MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES,
WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND
OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE
SUBSURFACE OF THE LAND, AS RESERVED BY THE IRVINE
COMPANY, IN AN INSTRUMENT RECORDED JULY 5, 1985 AS
INSTRUMENT/FILE NO. 85-247702 OF OFFICIAL RECORDS.
ALSO EXCEPT THEREFROM ALL WATER, RIGHTS OR INTERESTS THEREIN, NO
MATTER HOW ACQUIRED BY GRANTOR, AND OWNED OR USED BY GRANTOR IN
CONNECTION WITH OR WITH RESPECT TO THE LAND, TOGETHER WITH THE
RIGHT AND POWER TO EXPLORE, DRILL, REDRILL, REMOVE, AND STORE THE
SAME FROM THE LAND OR TO DIVERT OR OTHERWISE UTILIZE SUCH WATER,
RIGHTS OR INTERESTS ON ANY OTHER PROPERTY OWNED OR LEASED BY
GRANTOR, WHETHER SUCH WATER RIGHTS SHALL BE RIPARIAN, OVERLAYING,
APPROPRIATIVE, LITTORAL, PERCOLATING, PRESCRIPTIVE, ADJUDICATED,
STATUTORY OR CONTRACTUAL, BUT WITHOUT, HOWEVER, ANY RIGHT TO
ENTER UPON THE SURFACE OF THE LAND OR THE UPPER FIFTY (50) FEET
IN THE EXERCISE OF SUCH RIGHTS, OR ABOVE THE UPPER 500 FEET IN
ANY MANNER WHICH MATERIALLY IMPAIRS THE SUBJACENT SUPPORT TO THE
LAND OR ANY IMPROVEMENTS THEREON FROM TIME TO TIME, AS RESERVED
BY THE IRVINE COMPANY, IN AN INSTRUMENT RECORDED JULY 5, 1985 AS
INSTRUMENT/FILE NO. 85-247702 OF OFFICIAL RECORDS.
PARCEL B:
NON-EXCLUSIVE, RECIPROCAL EASEMENTS AND APPURTENANT RIGHTS AND
INTERESTS INCLUDING EASEMENTS FOR INGRESS, EGRESS, PARKING,
SUPPORT, SETTLEMENT, ENCROACHMENT, AND UTILITIES, OVER PARCELS 3,
4 AND 5, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF
CALIFORNIA, AS SHOWN ON A MAP FILED IN BOOK 206, PAGES 8, 9, 10
AND 11 OF PARCEL MAPS, AS DESCRIBED IN THAT CERTAIN DECLARATION
OF COVENANTS, CONDITIONS AND RESTRICTIONS AND EASEMENT AGREEMENT
- - BRINDERSON PLAZA/THE TOWERS, RECORDED DECEMBER 16, 1985 AS
INSTRUMENT NO. 85-503333 OF OFFICIAL RECORDS OF ORANGE COUNTY,
CALIFORNIA, AS AMENDED AND RESTATED BY THAT CERTAIN FIRST AMENDED
AND RESTATED DECLARATION OF COVENANTS, CONDITIONS AND
RESTRICTIONS AND EASEMENT AGREEMENT, RECORDED JULY 15, 1988, AS
INSTRUMENT NO. 88-342793 OF OFFICIAL RECORDS OF ORANGE COUNTY,
CALIFORNIA.
<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. 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 $147. After adjusting for our February distribution of $2,
the estimated value per unit is $145. Total appreciation for the
year, including net appreciation on the property sold, is 8.4%.
As you may recall, we mailed this information to you in a
letter dated January 22, 1997, in response to 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
The three industrial properties that are held for sale -
Winnetka, Wood Dale, and Riverview - have been marketed with two
similar holdings in Realty Income Fund II. We signed a letter of
intent with a potential buyer for the entire package 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 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 $2 per unit, bringing the total distributions from operations
for the year to $8. Additionally, $21.60 per unit was paid out to
you during the year from sales proceeds for the Fund's 56% share
of Fairchild, resulting in total distributions of $29.60 per unit
for 1996. Future distributions will be determined each quarter
based on cash flow, anticipated capital requirements, and the
status of property dispositions.
Results of Operations
The Fund had a loss of $724,000 from operations in 1996, before
the gain on the Fairchild sale, compared with net income of
$1,783,000 in 1995. This difference is primarily due to downward
property valuation adjustments at Scripps Terrace, Tierrasanta,
and Clark Avenue totaling $2,750,000, which were partly offset by
an increased contribution to income of $327,000 from River Run.
This property's contribution increased as a result of the Fund's
acquisition of the asset through foreclosure late in 1995. 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.
The sale of Fairchild in 1996 had a negative effect on
earnings amounting to $45,000 because of the loss of the
property's income for four months of the year. However, the Fund
realized a gain of $1,630,000 on the sale.
Revenues from rental income and interest totaled $6,280,000
for the year compared with $6,094,000 a year earlier. This
comparison was negatively affected by the absence of a full
year's rental income from Fairchild but was positively affected
by an increased contribution to income from River Run. Results
were helped by a decline of $166,000 in operating expenses before
valuation adjustments during the year.
At the property level, the year-end leased status of Fund
properties increased by three percentage points. This change was
driven by increases in occupancy at Scripps Terrace and South
Point from the end of the previous year. At the former property,
located in the San Diego market, two substantial leases were
completed in the fourth quarter and a total of five throughout
the year, including three new and two renewal leases.
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
_________ __________ __________ _____ _____ _____ _____
Scripps
Terrace 56,796 90% 82% 76% $ 120 $
(959 )
Tierrasanta 104,236 62 75 87 80 (732)
Clark Avenue 40,000 72 79 72 114 (715)
Westbrook
Commons 121,558 98 98 96 459 398
River Run 92,787 93 - 93 307 634
________ ____ ____ __________ ______
415,377 84 85 88 1,080
(1,374)
Held for Sale
Winnetka 188,260 100 96 100 364 491
South Point
Plaza 50,497 90 67 74 84 (50)
Wood Dale 89,718 70 99 86 223 155
Riverview 113,700 100 93 99 212 294
________ ____ ____ ____ ______ ______
857,552 89 90 91 1,963 (484)
Properties Sold - - - - 87 1,672
Fund Expenses
Less Interest
Income - - - - (267) (282)
________ ____ ____ __________ ______
Total 857,552 89% 90% 91% $ 1,783$
906
We reported previously that a tenant who occupied 38% of
Tierrasanta did not renew upon expiration of the lease at the end
of August. There is interest in the property and the market is
tightening; however, several competitive properties have
comparable space available, and we cannot be sure when this space
will be re-leased.
Occupancy increased to 93% at River Run, due to the signing
of three new and one renewal lease representing 6% of the total
space. This more than offset the loss of one tenant whose lease
expired and another whose lease was terminated prior to
expiration, in exchange for an early termination payment.
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
_______________ _______________ _________ ________
Scripps Terrace Business Park 2/88 $2,185
San Diego,
California
Tierrasanta Business Park 4/88 1,727
San Diego,
California
Clark Avenue R&D/Office 10/88 2,597
King of Prussia,
Pennsylvania
River Run Retail 6/89 7,515
Miramar,
Florida
Westbrook Commons Retail 12/90 4,911
Westchester,
Illinois
_______
18,935
Held for Sale
Wood Dale Industrial 9/88 2,969
Wood Dale,
Illinois
Winnetka Industrial 3/88 4,082
Crystal,
Minnesota
Riverview Industrial 12/88 3,220
St. Paul,
Minnesota
South Point Retail 4/88 1,515
Tempe, Arizona _______
$30,721
_______
_______
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,December 31,
1996 1995
_______________________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . $ 6,882 $
12,181
Buildings and Improvements. . . . . 13,112 33,139
________ ________
19,994 45,320
Less: Accumulated Depreciation and
Amortization . . . . . . . . . . (1,059) (7,831)
________ ________
18,935 37,489
Held for Sale . . . . . . . . . . . 11,786 -
________ ________
30,721 37,489
Cash and Cash Equivalents. . . . . . 2,468 3,436
Accounts Receivable (less allowances of
$131 and $230). . . . . . . . . . . 445 529
Other Assets . . . . . . . . . . . . 318 279
________ ________
$33,952 $ 41,733
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents. $ 439 $ 391
Accrued Real Estate Taxes. . . . . . 450 433
Accounts Payable and Other
Accrued Expenses. . . . . . . . . . 217 335
________ ________
Total Liabilities. . . . . . . . . . 1,106 1,159
Partners' Capital. . . . . . . . . . 32,846 40,574
________ ________
$33,952 $ 41,733
________ ________
________ ________
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. . . . . . . . $ 6,091 $ 5,502 $ 5,369
Interest Income from
Participating Mortgage
Loan . . . . . . . . . . . - 429 858
Other Interest Income. . . . 189 163 130
_______ _______ _______
6,280 6,094 6,357
_______ _______ _______
Expenses
Property Operating Expenses. 1,329 1,284 1,249
Real Estate Taxes. . . . . . 1,083 1,002 936
Depreciation and
Amortization . . . . . . . 1,268 1,266 1,572
Decline (Recovery) of Property
Values . . . . . . . . . . 2,750 (109) 1,385
Provision for Loan Loss. . . - 202 -
Management Fee to General
Partner. . . . . . . . . . 164 282 342
Partnership Management
Expenses . . . . . . . . . 410 384 374
_______ _______ _______
7,004 4,311 5,858
_______ _______ _______
Income (Loss) from Operations
before Real Estate
Sold . . . . . . . . . . . (724) 1,783 499
Gain on Real Estate Sold . . 1,630 - 80
_______ _______ _______
Net Income . . . . . . . . . $ 906 $ 1,783 $ 579
_______ _______ _______
_______ _______ _______
Activity per Limited
Partnership Unit
Net Income . . . . . . . . . $ 3.54 $ 6.96 $ 2.26
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . $ 8.00 $ 11.11 $ 13.53
from Sale Proceeds . . . . 21.60 - 3.92
_______ _______ _______
Total Distributions Declared $ 29.60 $ 11.11 $ 17.45
_______ _______ _______
_______ _______ _______
Units Outstanding. . . . . . 253,599 253,599 253,605
_______ _______ _______
_______ _______ _______
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 . $ (158) $44,835 $44,677
Net Income . . . . . . . . . 6 573 579
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (34) (4,400) (4,434)
_______ _______ _______
Balance, December 31, 1994 . (186) 41,007 40,821
Net Income . . . . . . . . . 18 1,765 1,783
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (20) (2,009) (2,029)
_______ _______ _______
Balance, December 31, 1995 . (188) 40,762 40,574
Net Income . . . . . . . . . 9 897 906
Cash Distributions . . . . . (19) (8,615) (8,634)
_______ _______ _______
Balance, December 31, 1996 . $ (198) $33,044 $32,846
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) . . . . . $ 906 $ 1,783 $ 579
Adjustments to Reconcile Net
Income to Net CasH Provided
by Operating Activities
Depreciation and
Amortization . . . . . . 1,268 1,266 1,572
Decline (Recovery) of
Property Values. . . . . 2,750 (109) 1,385
Change in Loan Loss
Provision. . . . . . . . - 202 -
Gain on Real Estate Sold . (1,630) - (80)
Change in Accounts
Receivable, Net of
Allowances . . . . . . . 77 (95) (95)
Increase in Other Assets . (48) (101) (62)
Change in Accounts Payable and
Other Accrued
Expenses . . . . . . . . (118) 35 (52)
Other Changes in Assets
and Liabilities. . . . . 65 (2) 13
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . 3,270 2,979 3,260
_______ _______ _______
Cash Flows from Investing
Activities
Proceeds from Property
Dispositions . . . . . . . 5,477 - 994
Investments in Real Estate . (1,081) (1,176) (665)
_______ _______ _______
Net Cash Provided by
(Used in)
Investing Activities . . . 4,396 (1,176) 329
_______ _______ _______
Cash Flows Used in Financing
Activities
Cash Distributions . . . . . (8,634) (2,029) (4,434)
Redemption of Units. . . . . - (1) (1)
_______ _______ _______
Net Cash Used in Financing
Activities . . . . . . . . (8,634) (2,030) (4,435)
_______ _______ _______
Cash and Cash Equivalents
Net Decrease during
Year . . . . . . . . . . . (968) (227) (846)
At Beginning of Year . . . . 3,436 3,663 4,509
_______ _______ _______
At End of Year . . . . . . . $ 2,468 $ 3,436 $ 3,663
_______ _______ _______
_______ _______ _______
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 III, America's
Sales-Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on October 20, 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 III Management, Inc., is the sole General
Partner. The initial offering resulted in the sale of 253,641
limited partnership units at $250 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 South Point Partners, Tierrasanta 234, and Penasquitos 34
(Westbrook Commons), all of which are California general
partnerships, in which the Partnership has 50%, 30%, and 50%
interests, respectively. They also include the Partnership's
pro-rata share of the accounts of Fairchild 234, a California
general partnership in which the Partnership had a 56% interest
prior to disposition of the property on August 28, 1996. The other
partners in these ventures 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 uncollectible tenant receivables
in the amounts of $143,000, $192,000, and $89,000 were recorded in
1996, 1995, and 1994, respectively. Bad debt expense is included in
Property Operating Expenses.
The Partnership will review its real estate property
investments for impairment whenever events or changes in
circumstances indicate that the property carrying amounts may not
be recoverable. Such a review results in the Partnership recording
a provision for impairment of the carrying value of its real estate
property investments whenever the estimated future cash flows from
a property's operations and projected sale are less than the
property's net carrying value. The General Partner believes that
the estimates and assumptions used in evaluating the carrying value
of the Partnership's properties are appropriate; however, changes
in market conditions and circumstances could occur in the near term
which would cause these estimates to change.
Rental income is recognized on a straight-line basis over the
term of each lease. Rental income accrued, but not yet billed, is
included in Other Assets and aggregates $262,000 and $205,000 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 $164,000, $282,000, and
$342,000 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 $20,000, $28,000, and
$34,000 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 $90,000,
$77,000, and $74,000 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 $4,000, $12,000, and $15,000 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 $120,000.
An affiliate of LaSalle earned $87,000, $61,000, and $37,000
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
In September 1994, the Partnership sold the smallest of the three
Wood Dale industrial buildings, the Beinoris Building, and received
net proceeds of $994,000. The net book value of this property at
the time of disposition was $914,000, after accumulated
depreciation expense. Accordingly, the Partnership recognized a
gain of $80,000.
On August 28, 1996, Fairchild Corporate Center, an office
property in which the Partnership had a 56% interest was sold. The
Partnership received net proceeds of $5,477,000. The net book
value of the Partnership's interest at the date of sale was
$3,847,000, after deduction of accumulated depreciation, and
previously recorded impairments. Accordingly, the Partnership
recognized a $1,630,000 gain on the sale of this property.
The Partnership began actively marketing its three midwest
industrial properties, Wood Dale, Winnetka, and Riverview, 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 four properties as held for sale in the
accompanying December 31, 1996, balance sheet. 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 $(29,000) $ 109,000 $ 82,000
Other Components of
Operating Income 961,000 967,000 729,000
_________ _________ ________
Results of Operations $ 932,000 $1,076,000 $ 811,000
NOTE 5 - FORECLOSURE OF MORTGAGE LOAN
In July 1995, the Partnership began consensual foreclosure on the
participating mortgage loan secured by the River Run Shopping
Center and ceased the accrual of interest income. At September 30,
1995, the carrying value of the loan was reduced to $7,700,000, the
estimated fair value of the property. On October 10, 1995, the
Partnership purchased the property and, in connection therewith,
reclassified the participating mortgage loan as an investment in
real estate.
NOTE 6 - PROPERTY VALUATIONS
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which changed the Partnership's method of accounting for its real
estate property investments when circumstances indicate that the
carrying amount of a property may not be recoverable. Measurement
of an impairment loss on an operating property is now based on the
estimated fair value of the property, which becomes the property's
new cost basis, rather than the sum of expected future cash flows.
Properties held for sale 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 $2,721,000 in 1996 and $1,467,000 in 1994.
NOTE 7 - LEASES
Future minimum rentals (in thousands) to be received by the
Partnership under noncancelable operating leases in effect at
December 31, 1996, are:
1997 $ 3,729
1998 3,349
1999 2,447
2000 1,709
2001 1,041
Thereafter 8,464
_______
Total $20,739
_______
_______
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not provided for an
income tax liability; however, certain timing differences exist
between amounts reported for financial reporting and federal income
tax purposes. These differences are summarized below for the last
three years:
1996 1995 1994
___________________ ________
(in thousands)
Book net income
(loss) . . . . . . . . . . $ 906 $ 1,783 $ 579
Allowance for
doubtful accounts. . . . . (97) (4) 71
Property valuation
allowance and losses
on dispositions. . . . . . (6,540) (109) 1,385
Normalized and
prepaid rents. . . . . . . 7 (23) (103)
Interest income. . . . . . . - 661 633
Depreciation . . . . . . . . (23) (283) 353
Provisions for
loan loss. . . . . . . . . - (1,956) -
Other items. . . . . . . . . (12) 16 (1)
________ ________ ________
Taxable income (loss). . . . ($5,759) $ 85 $ 2,917
NOTE 9 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $2.00 per
unit to Limited Partners of the Partnership as of the close of
business on December 31, 1996. The Limited Partners will receive
$507,000, and the General Partner will receive $5,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets of T.
Rowe Price Realty Income Fund III, 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 III, 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 III, 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> 0000805298
<NAME> T. ROWE PRICE REALTY INCOME FUND III, AMERICA'S
SALES-COMMIS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,468,000
<SECURITIES> 0
<RECEIVABLES> 576,000
<ALLOWANCES> 131,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 31,780,000
<DEPRECIATION> 1,059,000
<TOTAL-ASSETS> 33,952,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,846,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 33,952,000
<SALES> 0
<TOTAL-REVENUES> 6,280,000
<CGS> 0
<TOTAL-COSTS> 7,004,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 906,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 906,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 906,000
<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
$3.54.
</FN>
<PAGE>
T. Rowe Price Realty Income Fund III
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
Scripps Terrace Business Park $0
San Diego, California
Tierrasanta Business Park 0
San Diego, California
Clark Avenue Office 0
King of Prussia, PA
Westbrook Commons Retail 0
Westchester, Illinois
River Run Retail 0
Miramar, Florida
_________
Totals $0
Properties Held for Sale
Winnetka Industrial $0
Crystal, Minnesota
Wood Dale Industrial 0
Wood Dale, Illinois
Riverview Industrial 0
St. Paul, Minnesota
South Point Plaza Retail 0
Tempe, Arizona
__________
Totals $0
<PAGE>
Initial Cost
Costs
Capitalized
Buildings and Subsequent to
Description Land Improvements Acquisition (8)
Properties Held for Real
Estate Investment
Scripps Terrace (1) $ 2,500 $ 2,397 ($ 2,712)
San Diego, California
Tierrasanta (1) 1,350 2,411 (2,034)
San Diego, California
Clark Avenue (1) 1,100 2,709 (1,212)
King of Prussia, PA
Westbrook Commons 1,700 3,431 629
Westchester, Illinois
River Run 1,850 5,850 25
Miramar, Florida
_______ _______ ________
Totals $ 8,500 $16,798 $(5,304)
Properties Held for Sale
Winnetka $ 685 $ 4,662 $ 539
Crystal, Minnesota
Wood Dale 819 2,389 486
Wood Dale, Illinois
Riverview 633 2,867 711
St. Paul, Minnesota
South Point Plaza 1,275 2,335 (1,190)
Tempe, Arizona
_______ _______ _________
Totals $ 3,412 $12,253 $ 546
<PAGE>
Gross Amounts at which Carried at Close
of Period
Buildings and
Description Land Improvements Total (2)
Properties Held for Real
Estate Investment
Scripps Terrace $ 1,706 $ 479 $ 2,185
San Diego, California
Tierrasanta 775 952 1,727
San Diego, California
Clark Avenue 851 1,746 2,597
King of Prussia, PA
Westbrook Commons 1,700 4,060 5,760
Westchester, Illinois
River Run 1,850 5,875 7,725
Miramar, Florida
_______ _______ ________
Totals $ 6,882 $13,112 $19,994
Properties Held for Sale
Winnetka $ 685 $ 5,201 $ 5,886
Crystal, Minnesota
Wood Dale 819 2,875 3,694
Wood Dale, Illinois
Riverview 633 3,578 4,211
St. Paul, Minnesota
South Point Plaza 539 1,881 2,420
Tempe, Arizona
_______ ________ _______
Totals $2,676 $13,535 $16,211
<PAGE>
Accumulated Date of Date
Description Depreciation (3) Construction Acquired
Properties Held for Real
Estate Investment
Scripps Terrace (1) $ 0 1985 02/88
San Diego, Calfornia
Tierrasanta (1) 0 1984 04/88
San Diego, California
Clark Avenue (1) 0 1980 10/88
King of Prussia, PA
Westbrook Commons 849 1982 12/90
Westchester, Illinois
River Run 210 1988 10/95
Miramar, Florida
_______
Totals $ 1,059
Properties Held for Sale
Winnetka $ 1,804 1982 03/88
Crystal, Minnesota
Wood Dale 725 1980 09/88
Wood Dale, Illinois
Riverview 991 1972 12/88
St. Paul, Minnesota
South Point Plaza 905 1987 04/88
Tempe, Arizona
________
Totals $ 4,425
<PAGE>
Life on which
Depreciation
in Latest
Statement of
Operations is
Description Computed
Properties Held for Real Estate Investment
Scripps Terrace (1) 5 - 40 years
San Diego, California
Tierrasanta (1) 5 - 40 years
San Diego, California
Clark Avenue (1) 5 - 40 years
King of Prussia, PA
Westbrook Commons 5 - 40 years
Westchester, Illinois
River Run 5 - 40 years
Miramar, Florida
Properties Held for Sale
Winnetka 5 - 40 years
Crystal, Minnesota
Wood Dale 5 - 40 years
Wood Dale, Illinois
Riverview 5 - 40 years
St.Paul, Minnesota
South Point Plaza 5 - 40 years
Tempe, Arizona
<PAGE>
Notes:
(1) The Partnership recorded provisions for value impairments for these
properties in 1996 and offset the related accumulated depreciation
against the historical cost in setting a new carrying value for these
properties.
(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 $45,320 $38,492 $42,005
Property Investments/Acquisitons
during period (6) -- 7,700 --
Capital additions during period 1,081 1,176 665
Property dispositions during
period ( 4,492) -- (1,082)
Reductions during period (4) (19,165) (472) --
Decline of Property Values ( 2,750) (1,576) (3,096)
________ ________ ________
Balance at end of period $19,994 $45,320 $38,492
(3) Reconciliation of accumulated depreciation for Real Estate Property
Investments:
1996 1995 1994
Balance at beginning of period $7,831 $7,037 $5,633
Property dispositions during
period ( 661) -- --
Reductions during period (4) (7,379) ( 472) (168)
Depreciation and amortization
expense 1,268 1,266 1,572
______ ______ ______
Balance at end of period $1,059 $7,831 $7,037
(4) Reductions during 1996 reflect the offset of accumulated
depreciation against the cost basis for properties with value
impairments recorded during the year of $2,954, and the transfer of
real estate owned for investment to Properties Held for Sale at a
gross cost of $16,211 and accumulated depreciation of $4,425.
(5) Not used.
(6) During 1995, the Partnership foreclosed on River Run's
participating mortgage loan and assumed ownership of the property and
recorded the investment in real estate at $7,700. See Note 5 of Notes
to Financial Statements.
(7) Aggregate cost of real estate owned at December 31, 1996 for
Federal income tax purposes was approximatley $44,384.
(8) Includes the effect of recording property valuation allowances
and impairments.<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the consolidated balance sheets of T. Rowe Price Realty
Income Fund III, 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 III, 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, present fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
January 30, 1997<PAGE>
