<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, 1995
Commission file number: 0-15575
Exact name of registrant as specified in its
charter: T. ROWE PRICE REALTY INCOME FUND II,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED
PARTNERSHIP
State or other jurisdiction of incorporation or
organization: Delaware
IRS Employer Identification Number: 52-1470895
Address of principal executive offices: 100 East
Pratt Street, Baltimore, Maryland 21202
Registrant's telephone number: 1-800-638-5660
Securities registered pursuant to Section 12(b) of
the Act: NONE
Securities registered pursuant to Section 12(g) of
the Act: Units of Limited Partnership Interest
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has
been subject to such filing requirements for the
past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to
this Form 10-K [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Partnership dated
March 17, 1986, File Number 33-2622 filed with the
Commission pursuant to Rule 424(b) are incorporated
herein in Parts I, III, and IV by reference.
Index to Exhibits is located on page 30-32.
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T. ROWE PRICE REALTY INCOME FUND II,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED
PARTNERSHIP
INDEX
Page
PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote 15
of Security Holders
PART II.
Item 5. Market for the Partnership's 15
Limited Partnership
Interests and Related Security
Holder Matters
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and 19
Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and 24
Supplementary Data
Item 9. Changes in and Disagreements with 24
Accountants on Accounting and
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers 25
of the Partnership
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain 29
Beneficial Owners
and Management
Item 13. Certain Relationships and 30
Related Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules 30
and Reports on Form 8-K
<PAGE>3
PART I
Item 1. Business
T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited
Partnership (the "Partnership"), was formed on
January 7, 1986, under the Delaware Revised Uniform
Limited Partnership Act for the purpose of
acquiring, operating and disposing of existing
income-producing commercial and industrial real
properties, as well as equity-related investments.
On March 17, 1986, the Partnership commenced an
offering of $100,000,000 of Limited Partnership
Units ($1,000 per Unit) pursuant to a Registration
Statement on Form S-11 under the Securities Act of
1933 (Registration No. 33-2622) (the "Registration
Statement"). The Prospectus filed pursuant to Rule
424(b) under the Securities Act of 1933 (the
"Prospectus") sets forth a complete description of
the business of the Partnership in the sections
entitled "Investment Objectives" and "Fund
Policies," on pages 18-25 of the Prospectus which
pages are incorporated by reference herein. The
Gross Proceeds from the offering, combined with the
contribution of $5,000 from the original Limited
Partner (T. Rowe Price Real Estate Group, Inc.),
totaled $84,144,000. The offering terminated on
July 31, 1986, and no additional Units will be sold.
Forty-five Units have been redeemed by the
Partnership on a "hardship" basis; there were 84,099
Units outstanding as of March 16, 1996, and 13,314
Limited Partners.
In December of 1991, LaSalle Advisors Limited
Partnership ("LaSalle") entered into a contract with
the Partnership and the general partner of the
Partnership, T. Rowe Price Realty Income Fund II
Management, Inc. ("the General Partner") to perform
day-to-day management and real estate advisory
services for the Partnership under the supervision
of the General Partner and its Affiliates.
LaSalle's duties under the contract include
disposition and asset management services, including
recordkeeping, contracting with tenants and service
providers, and preparation of financial statements
and other reports for management use. The General
Partner continues to be responsible for overall
supervision and administration of the Partnership's
operations, including setting policies and making
all disposition decisions, and the General Partner
and its Affiliates continue to provide
administrative, advisory, and oversight services to
the Partnership. Compensation to LaSalle from the
Partnership consists of accountable expense
reimbursements, subject to a fixed maximum amount
per year. All other compensation to LaSalle is paid
out of compensation and distributions paid to the
General Partner by the Partnership.
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The Partnership is engaged solely in the business of
real estate investment; therefore, presentation of
information about industry segments is not
applicable. In the current period, and in 1994 and
1993, only one investment, the Partnership's
interest in the AMCC Property, produced 15% or more
of the Partnership's revenue related to real estate
activity, providing 20% of such revenue in 1995 and
1994, and 21% in 1993. Only one tenant produced 10%
or more of the Partnership's revenue related to real
estate activity in any period: Applied Micro
Circuit Corporation (the sole tenant in the AMCC
Property) so contributed in 1995, 1994 and 1993.
In June, 1995, the Partnership sold the Sullyfield
Circle property for a total sales price (exclusive
of closing costs) of $2,775,000. The net proceeds
to the Partnership were $2,622,000, all in cash.
In February, 1996, the Partnership sold the Regal
Row property for a total sales price (exclusive of
closing costs) of $3,794,000. The purchaser,
Security Capital Industrial Trust, Inc. is not an
affiliate of the Partnership, its general partner,
its investment advisor or its investment manager.
The sales price equaled less than ten percent (10%)
of the Partnership's assets. The Partnership
acquired the property in December, 1987, for a total
purchase cost of $5,583,000. Additional costs
capitalized since inception were $1,330,000. The
Partnership recorded a valuation allowance of
$1,881,000 based on its decision to dispose of the
property. The valuation allowance for this
property, which stood at $1,993,000 at December 31,
1995, was subsequently reduced by approximately
$112,000, based on the actual sales price. After
real estate brokerage commissions and closing costs,
the net proceeds to the Partnership were $3,612,000,
equal to the adjusted book value of the property.
With the exception of the Regal Row property, the
Partnership owns directly or through joint venture
partnerships the properties or interests in the
properties set forth in Schedule III to this Report,
"Real Estate and Accumulated Depreciation," which is
set forth in Exhibit 99(b) to this Report, and which
is incorporated by reference herein and contains
information as to acquisition date and total cost of
each of the properties. Additional information
regarding these properties and/or interests,
including percentage leased as of December 31, 1995
is set forth in the table, "Real Estate Holdings,"
appearing on page 5 of the Partnership's 1995 Annual
Report to Limited Partners which is hereby
incorporated by reference herein. A brief narrative
description of each investment follows.
<PAGE>5
Atlantic Business Center
This property, in which the Partnership holds a 100%
interest, consists of three warehouse/industrial
buildings with 188,000 square feet of space.
Atlantic Business Center ("Atlantic"), is located in
Gwinnett County, Georgia, 20 miles northeast of
downtown Atlanta, in the suburban area known as the
"Peachtree Corridor."
One new 7,600 square foot tenant and two renewal
tenants totaling 8,500 square feet signed long term
leases during the year. Unfortunately, this
activity was unable to offset the loss of one 14,800
square foot tenant towards the end of the year due
to credit concerns. Thus, although the property
averaged 96% over the twelve months, it ended the
year at an occupancy rate of 92% versus 96% last
year. During 1996, much of the activity will center
on expiring leases representing 73% of the property
including one with the large tenant representing 46%
of the property and 6% of the Partnership's total
real estate portfolio. The Partnership has had
discussions with this large tenant about renewing
its lease, but will only sign a lease which is
favorable to the Partnership given the improving
market conditions. The Partnership replaced the
leasing agent at this property during the fourth
quarter and thus has a new team to approach any
upcoming vacancies.
The Northeast/I-85 service and distribution
submarket in which this project competes, consists
of approximately 920 existing buildings totaling
approximately 41.2 million square feet. The vacancy
rate in the market as of the third quarter of 1995
was approximately 4%. Sixteen speculative buildings
totaling 1.6 million square feet were completed
during the year. In addition, another 31
speculative buildings are under construction. Net
absorption levels for the entire Atlanta service and
distribution submarket totaled approximately 4
million square feet through the first three quarters
of the year versus approximately 3.8 million square
feet for the same period in 1994. Absorption for
the Northeast/I-85 service and distribution
submarket represented 30% of that 1995 total. Net
effective rental rates for comparable Class B
buildings have remained at approximately the same
level as the previous year in this submarket.
Coronado
The Partnership owns a 100% interest in the Coronado
property, which consists of one 96,000 square foot
industrial building in Anaheim, California. This
building has a mezzanine area which can be used as
office or storage space and additional office space
on the ground floor.
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The building is leased to a single tenant until the
year 2003. The lease includes periodic rental rate
increases and requires this textile distributor to
be responsible for all property expenses. In May of
1994 the parent company of the tenant filed
bankruptcy. It emerged from bankruptcy during 1995.
The tenant continued to make rental payments on a
timely basis. Additionally, the tenant subleased a
portion of its space during the year.
Thus, at year-end, the building was still 100%
leased which is well above the 92% average for the
North Orange County submarket as of the second
quarter of 1995. Total competitive inventory in this
submarket is approximately 101 million square feet.
Absorption of buildings at or greater than 50,000
square feet has been strong, and gross absorption in
this submarket has risen to approximately 6.7
million square feet during the first three quarters
of 1995, versus 4.1 million during the same period
in 1994. Market rental rates remained steady during
the year, and are currently ranging from
approximately $3.00 to $3.90 per square foot per
year net of taxes, insurance and utilities. No new
speculative buildings are currently planned for this
area.
Oakbrook Corners
The Partnership owns a 100% interest in Oakbrook
Corners Business Park ("Oakbrook Corners"), which
consists of eight office/showroom buildings
containing 124,000 square feet of space. The
property is located in the Northeast/I-85 Industrial
Submarket which is in Gwinnett County, Georgia 15
miles northeast of downtown Atlanta. The Oakbrook
Corners neighborhood is primarily developed with
office/service buildings similar to the
Partnership's property.
The buildings range in size from 11,000 to 27,000
square feet. Seven of the eight buildings are
single-story; the largest building has 10,000 square
feet of space in a second floor mezzanine. Each
building has one or more loading doors of either the
roll-up or overhead type.
As expected, the Partnership lost one 20,800 square
foot tenant when the tenant s lease expired during
the year, and signed only one new 10,800 square foot
tenant. Thus, occupancy declined during the year
from 70% to 61%. Because each vacant space is an
entire building, it is especially challenging to
find suitable prospects for available space. The
Partnership changed leasing agents during the fourth
quarter in an effort to have the space
<PAGE>7
marketed more aggressively. The Partnership is
currently negotiating a lease for the 27,000 square
foot vacancy, but there is no assurance that a
mutually satisfactory agreement will be reached. No
leases are scheduled to expire in 1996.
The property is located in the Northeast/I-85
Industrial market and competes in the service
submarket; this submarket consists of approximately
290 buildings and represents approximately 13% of
the entire Northeast/I-85 industrial market, and
approximately 34% of all the service space in
Metropolitan Atlanta. With an approximate 6%
vacancy rate as of the end of the third quarter, the
submarket has improved from the previous year's
level of approximately 8%. Activity in the
submarket has been strong with net leasing
transactions totaling approximately 390,000 square
feet through the first three quarters of 1995 on a
total inventory of approximately 9.8 million square
feet. Net rental rates range from a $5.25 per
square foot to $8.00 per square foot. Speculative
construction is underway in the area, but it is
primarily for distribution buildings.
Baseline
The Baseline Business Park ("Baseline") in Tempe,
Arizona, which is 100% owned by the Partnership,
consists of eight multi-tenant service-
industrial/retail buildings, containing 100,000
square feet of space. The Baseline property is
located in a suburban area containing similar
comparable projects, together with multi-tenant
residential housing and light manufacturing
facilities. The eight one-story buildings which
comprise the Baseline property range in size from
11,000-14,000 square feet.
Activity was very brisk at this property during the
year, and leasing efforts resulted in a total of
12,400 square feet of gross leasing to seven new
tenants. Partially because the Partnership wanted
to take advantage of the improving market
conditions, it chose not to renew several short-term
tenants upon their lease expirations. Instead, the
Partnership has been attempting to sign longer term
leases and stagger the lease expiration schedule.
Thus, the leasing gains during the year were offset
by the loss of eight tenants totaling 13,100 square
feet whose leases were not renewed upon lease
expiration as well as the loss of one 2,300 square
foot tenant due to financial difficulties. Twelve
tenants whose leases cover 23,800 square feet
renewed and/or expanded. Thus, occupancy declined
slightly to an 88% occupancy level by year end
versus 89% last year. Lease expirations over the
next 12 months represent 33% of the project's
leasable area.
<PAGE>8
The Baseline property is part of the Tempe
Industrial/Office submarket which totals
approximately 6.4 million square feet. Baseline
competes directly against eight projects totaling
819,000 square feet. They are experiencing an
approximate 4% vacancy rate versus a level of 10%
the previous year. Effective and nominal rates have
begun to increase and now range between $6.00 and
$8.40 per square foot, full service. As a result of
the improvement in market conditions, construction
of one competitive speculative industrial building
totaling 73,000 square feet has commenced.
During 1993, the Partnership recorded a provision
for value impairment of $793,000 in connection with
Baseline Business Park. The General Partner
determined that this adjustment was a prudent course
of action based upon the uncertainty of the
Partnership's ability to recover the net carrying
value of the Baseline Business Park project through
future operations or sale. This determination was
based upon then-current market conditions and future
performance expectations for this investment. No
additional provision was deemed warranted in 1994 or
1995.
Business Plaza
This property consists of two one-story office
buildings in Fort Lauderdale, Florida with 66,000
square feet of space. It is 100% owned by the
Partnership. It is located in an area known as
Cypress Creek near the Broward County Executive
Airport. This submarket competes for tenants with
three other areas: Fort Lauderdale, Boca Raton, and
Deerfield Beach.
The Partnership lost three tenants totaling 10,900
square feet when their leases expired, as well as
two tenants totaling 4,000 square feet due to credit
concerns, while one tenant contracted by 1,500
square feet. Thus, even though leases were signed
with five new tenants totaling 10,500 square feet
and four others renewed leases or expanded their
space for a total of 6,700 square feet, occupancy
declined from 93% last year to 82% at year-end 1995.
Leases covering 15% of the property are scheduled to
expire during 1996.
The Cypress Creek office market consists of
approximately
4 million square feet in 48 competitive buildings.
With recorded net absorption for the first three
quarters of the year of approximately 138,000 square
feet and an overall occupancy rate of approximately
89% at year-end versus a rate of approximately 86%
last year, this submarket remains strong. Bell
South and Waste Management are expected to vacate a
total of 65,000 square feet during 1996 which will
have a minor impact on the market vacancy. Gross
rental
<PAGE>9
rates for office/service space climbed from $7.00 -
$11.00 gross per square foot per year last year to
$8.00 - $12.00 per square foot per year by year-end
1995.
During 1993, the General Partner approved a plan
that, had it been successful, would have resulted in
the disposition of Business Plaza. Based upon the
estimated net realizable value for the property, the
Partnership recorded a valuation allowance of
$2,807,000. This determination was based upon then-
current market conditions and future performance
expectations for this investment over the
anticipated remaining holding period. This
allowance was reduced by $339,000 in 1995 and
$511,000 in 1994 to reflect improved market
conditions and additional depreciation taken on the
property. The Partnership is not currently
marketing the property, and a decision as to when
the property will actually be placed on the market
will be made after the 11% of the space vacated in
1995 has been released, at which time management
will analyze market conditions and the property's
lease expiration schedule. Because the Partnership
was not actively marketing Business Plaza at
December 31, 1995 the property's carrying value was
reassessed and, accordingly, net valuation
allowances totaling $1,957,000 were reclassified as
a permanent impairment of the property s carrying
value.
AMCC
The Partnership owns a 90% interest in this one-
story corporate headquarters/manufacturing facility
in San Diego, California (the "AMCC Property"). The
remaining 10% is owned by affiliates of the
developer of the project. It was built for Applied
Micro Circuits Corporation in conjunction with a ten
year net lease which expires in September of 1997.
The total amount of space in the AMCC Property is
100,000 square feet. The one-story manufacturing
building has a mezzanine containing 13,200 square
feet of space; the balance of the structure is a
clear span with a 24-foot clear height ceiling. The
manufacturing building is the same height as the
office building, and the two are compatible in
appearance. The mechanical plant building is
utilitarian in nature, and contains heating and
related equipment. The single tenant of this
property successfully completed a reorganization in
1990. While its financial condition continues to be
monitored closely, no collection problems were
experienced in 1995.
The single tenant at this San Diego property
continues to evaluate its future space needs.
During 1995, the Partnership and the tenant
discussed the possibility of
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revising the lease structure and extending the
expiration date beyond 1997.
However, at this time it appears unlikely that a
mutually satisfactory agreement will be reached.
The Partnership will analyze its options and begin
marketing the building - for sale or for lease - as
the expiration nears. Because the AMCC Property is
large, and is suitable for at most two occupants,
the Partnership anticipates it will take as much as
a year to procure a new tenant or tenants, if it
becomes necessary to do so.
The AMCC Property is located in the Sorrento Mesa
section of the North City area of San Diego, 10
miles north of downtown. The area includes a total
of approximately 6.9 million square feet in over 200
Class A, B, and C industrial and research and
development projects. Occupancy in this market has
improved to approximately 91% from 88% last year.
Net absorption for the year totaled approximately
157,000 square feet. Rental rates appear to have
remained at $7.80 to $11.40 per square foot for
office space versus an improvement in the industrial
space rates from $4.20 to $6.60 per square foot to
$5.40 to $7.20 per square foot. Future absorption
will continue to hinge upon the expansion of biotech
and bio-med companies. Build-to-suit activity has
begun for certain users in the market.
Bonnie Lane
The Partnership owns a 100% interest in this two-
building multi-tenant manufacturing/distribution
project in Elk Grove Village, Illinois. The
buildings have 65,000 and 55,000 square feet of
space, respectively.
A lease with a tenant representing 27,200 square
feet or 23% of this suburban Chicago property was
renewed. In return for a seven-year lease
extension, the Fund agreed to install sprinklers in
the building, and that process is underway.
Additionally, two new leases totaling 22,300 square
feet or 19% of the property were signed. However,
due to the loss of one 26,400 square foot
financially troubled tenant upon expiration of its
lease, occupancy declined from 92% at year end 1994
to 89% at year end 1995. Leases totaling 8% of the
space in the buildings are scheduled to expire
during 1996.
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 774,000 square
feet during the year. At the current pace of
<PAGE>11
absorption, there is only approximately eight months
of available space in the market. 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 $3.00 to $4.50 net per square foot per
year last year to $3.50 to $4.75 per square foot by
year end 1995.
Glenn Avenue
The Partnership holds a 100% interest in the 82,000
square foot multi-tenant warehouse, distribution and
light manufacturing project. The site is in
Wheeling, Illinois, a northwest Chicago suburb.
During the year, this industrial property remained
100% leased. However, 73% of the leases will be
expiring in 1996. Negotiations have commenced with
some of those tenants; while it is too early to
determine how successful the Partnership will be in
negotiating renewals, it is reasonably likely that
at least some of the tenants will renew their
leases.
This project also competes in the west and northwest
Chicago suburban industrial market, which is
discussed above in connection with the Bonnie Lane
property.
South Point Plaza
The Partnership owns a 50% interest in South Point
Partners, a joint venture with its affiliate, T.
Rowe Price Realty Income Fund III, America's Sales-
Commission-Free Real Estate Limited Partnership
("RIF III"). 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 42,000 square feet. The
Partnership also owns pads for two 3,000 square foot
single-tenant buildings, one of which is built-out
and currently leased as a restaurant and one of
which is vacant.
A total of two new leases totaling 2,800 square feet
and five renewal and/or expansion leases totaling
6,200 square feet were signed during the year. This
positive activity was partially offset by the loss
of one 1,200 square foot tenant who vacated upon its
lease expiration. Thus, at year-end, the property
improved its leased status to 69% versus 61% the
previous year. The Partnership has negotiated
extensively with a prospective tenant which would
lease over 30% of the center if it signs, filling a
space
<PAGE>12
which has been vacant for several years. To improve
its negotiating position, the Partnership has
obtained some zoning variances which would be
required if this prospect
leased the space. However, the Partnership is still
working with the prospective tenant to reach a
mutually satisfactory agreement. In the event a
lease is executed, the tenant would not begin paying
rent until late 1996, while the Partnership would be
required to immediately spend a significant amount
on tenant improvements. Scheduled expirations in
1996 represent 19% of the property's leasable area.
The metropolitan area Phoenix retail market remains
somewhat strong. In the Tempe submarket,
approximately 43,000 net square feet were absorbed
during the first three quarters of the year.
Although there were additions to the inventory of
retail space in the Tempe submarket, vacancy still
declined by three percentage points to 7%. This
level is better than the Metropolitan Phoenix
vacancy rate of 9%. Rates per square foot for space
in Tempe increased approximately 12% to $9.67 from
$8.65 per square foot net of taxes, insurance, and
utilities the previous year.
During 1993, the General Partner approved a plan of
disposition that had it been successful would have
resulted in the disposition of South Point Plaza.
Based upon the estimated net realizable value for
the property, the Partnership recorded a valuation
allowance of $1,757,000. This determination was
based upon current market conditions and future
performance expectations for this investment over
the anticipated remaining holding period. The
valuation allowance was reduced by $109,000 in 1995
and $72,000 in 1994 to reflect improved market
conditions and additional depreciation taken on the
property. The Partnership is not currently
marketing the property, and a decision on when to
commence actively marketing it for sale will be made
once a tenant for the large vacant space is
obtained. Because the Partnership was not actively
marketing Business Plaza at December 31, 1995 the
property's carrying value was reassessed and,
accordingly, net valuation allowances totaling
$1,576,000 were reclassified as a permanent
impairment of the property s carrying value.
Tierrasanta
The Partnership owns a 30% interest in Tierrasanta
234, a joint venture with its affiliates, RIF III
and T. Rowe Price Realty Income Fund IV, America's
Sales-Commission-Free Real Estate Limited
Partnership ("RIF IV"). Tierrasanta 234 owns a 100%
interest in Tierrasanta Research Park in San Diego,
California. The project contains four office
buildings
<PAGE>13
utilized for research and development purposes, for
a total of 104,000 square feet of space. It is
located in the Kearny Mesa market area, north of San
Diego, which is part of the larger "Interstate 15"
commercial corridor.
Although the property lost one 11,100 square foot
tenant due to credit concerns during the year, it
was able to re-lease its space in addition to the
existing vacancy to bring the leased status to 100%
by year-end. In total, three new leases totaling
31,200 square feet, and one 15,800 square foot
renewal/expansion were signed at this San Diego
research and development property. During 1996,
only one lease expires with a 40,000 square foot
tenant. Negotiations have commenced, but it is
premature to make a statement about the potential
outcome of the negotiations.
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.
While net absorption in the fourth quarter of 1995
showed a loss of approximately 300,000 square feet,
this deterioration was due primarily to the loss of
two large tenants totaling 220,000 square feet
during that quarter. Overall activity in the
submarket has been good, with approximately 789,000
of gross absorption for the year, and slightly
higher rents than year-end 1994, as discussed below.
Vacancy rates at year-end 1995 were approximately
13% and 19% for R&D space and office space,
respectively, versus approximately 13% and 21%,
respectively, for the previous year.
Rates in this submarket at year-end for Class A R&D
space and office space improved with average R&D
rates rising from approximately $6.30 per square
foot per year net of taxes, insurance and utilities
to approximately $7.50 per square foot. Average
Class A office rates rose from $13.50 full service
per square foot per year to $14.40. Rates for Class
B R&D space rose from $4.68 per square foot net of
taxes, insurance and utilities to $5.70 per square
foot. Class B office rates climbed from $9.30 per
square foot full service to $11.40 per square foot.
Tierrasanta competes with both Class A and B
buildings, but it most frequently competes with the
latter. The average net effective rental rate rose
from around $3.60 - $4.20 per square foot to $5.40
to $7.80 per square foot, with free rent still
virtually nonexistent.
During 1994, the Partnership recorded a provision
for value impairment of $550,000 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 or sale. This
<PAGE>14
determination was based upon then-current market
conditions and future performance expectations for
this investment. No additional provisions were
deemed warranted in 1995.
Fairchild Corporate Center (formerly known as
Brinderson Plaza)
The Partnership owns a 24% interest in Fairchild
234, a joint venture with RIF III and RIF IV. On
February 1, 1994, a wholly-owned subsidiary of
Fairchild 234 acquired Fairchild Corporate Center,
an office development in Irvine, California
consisting of two three-story buildings containing
105,000 square feet of space. The Partnership's
interest in the development was previously held
under a participating loan. The Partnership
previously recorded a loan loss of $2,106,000 in
1991, and valuation allowances totaling $702,000 in
1992 and 1993. In conjunction with the first
quarter 1994 purchase of Fairchild Corporate Center
the valuation allowance was reduced to $698,000 and
then reclassified as a reduction of the carrying
value of the investment in real estate. In 1995,
the Partnership began foreclosure for tax purposes.
The process is anticipated to be completed during
the second quarter of 1996.
The leased status declined at this office property
primarily due to the loss on the last day of the
year of a tenant representing 9,800 square feet or
9% of the leasable space in the buildings.
Additionally, the Partnership lost two tenants
totaling 6,100 square feet due to credit concerns
and four other tenants totaling 17,200 square feet
upon their lease expirations. On the positive side,
the first phase of the renovations of the two
buildings was completed, the property was renamed,
and leasing activity improved significantly. Leases
with three new tenants were signed for a total of
17,100 square feet, and renewals and/or expansions
were executed with six existing tenants for another
7,900 square feet. The net result was a decline in
the leased status from year-end 1994 of twelve
percentage points to 73%. Leases representing 31%
of the leasable space expire in 1996.
The John Wayne/Orange County Airport submarket in
which the project is located had 454,000 square feet
of net absorption during the first three quarters of
the year. As a result, vacancy improved to 14% from
approximately 16% the previous year on an inventory
of approximately 29.2 million square feet. In order
to make the property more competitive in its market,
the Partnership will continue to renovate some of
the common areas in 1996 to update their appearance
and bring them into compliance with the Americans
with
<PAGE>15
Disabilities Act. The renovation of all common
areas should be completed in 1997.
Rental rates have increased from $12.60 to $15.60
per square foot last year to $15.00 to $17.40 per
square foot this year for Class B office space such
as Fairchild Corporate Center. Only two competitive
speculative buildings totaling 140,000 square feet
are anticipated to be under construction in 1996.
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
At March 16, 1996, there were 13,314 Limited
Partners. There is no public market for the Units,
and it is not anticipated that a public market for
the Units will develop. T. Rowe Price Investment
Services, Inc. ("Investment
<PAGE>16
Services"), an affiliate of the General Partner,
provides certain information to investors which may
assist Limited Partners desiring to sell their
Units, but provides only ministerial services in
connection with such transactions. Since this
arrangement does not constitute a market for the
Units, it is possible that no prospective purchaser
will be willing to pay the price specified by a
prospective seller. 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 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.
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, 1994 $ 8.00
June 30, 1994 $ 8.00
September 30, 1994 $ 8.00
December 31, 1994 $11.50
March 31, 1995 $ 8.75
June 30, 1995 $39.92
September 30, 1995 $ 8.75
December 31, 1995 $21.05
All of the foregoing distributions were paid from
net cash flows from operating activities, with the
exception of the distribution for the quarter ended
June 30, 1995, which included a distribution of
$31.17 per unit representing the sale proceeds of
Sullyfield Circle and the distribution for the
quarter ended December 31, 1995, which included
$9.62 per unit representing the balance of the 1993
sale proceeds of one of the buildings in the
Coronado property. The
<PAGE>17
distributions for the fourth quarters of 1994 and
1995 included cash flow from operating activities of
earlier quarters of those years.
There are no material legal restrictions on the
Partnership's present or future ability to make
distributions in accordance with the provisions of
the Agreement of Limited Partnership, annexed to the
prospectus as Exhibit A thereto. Reference is made
to Item 7., below for a discussion of the
Partnership's ability to continue to make future
distributions.
At the end of 1995, 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 is $519 per Unit. After distributions
in February 1996 of $9.62 per unit of sale proceeds,
and $5.38 per unit from retained cash balances
generated by operations in the first three quarters
of 1995, the estimated valuation is $504 per unit.
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)
1995 1994 1993 1992
1991
Total assets $50,529 $53,770 $54,365 $65,241
$68,708
Total revenues $6,964 $6,983 $ 6,728 $ 6,710
$6,845
Net income (loss)$2,392 $1,862 $(8,142) $(1,818)
$(1,504)
Net income (loss)
per Unit $28.16 $21.92 $(95.84) $(21.40)
$(17.70)
Cash distributions
paid to:
Limited Partners $5,796 $2,439 $2,691 $1,935
$2,691
General Partner $32 $25 $17 $20
$27
<PAGE>18
Notes:
1. The above financial data should be read in
conjunction with the financial statements and
the related notes appearing elsewhere in this
report.
2. The figures for Net income (loss) include
provisions for value impairment of $550 in
1994, $793 in 1993, and $1,785 in 1992, and a
provision for loan loss of $2,106 in 1991.
These figures also include valuation allowance
adjustments of $(682) in 1995, $(1,410) in
1994, $8,722 in 1993, and $612 in 1992, and
gain from sale of one of the Coronado buildings
in 1993 of $188.
3. The figures for Net income (loss) per Unit
include provisions for value impairment as
discussed in note 2 above of $6.47 per Unit in
1994, $9.33 per Unit in 1993, $21.01 per Unit
in 1992, and a provision for loan loss of
$24.79 per Unit in 1991. The figures for Net
income (loss) per Unit also include valuation
allowances (recoveries) of $(8.03) per Unit in
1995, $(16.60) per Unit in 1994, $102.67 per
Unit in 1993, and $7.20 per Unit in 1992, and
gain from sale of one of the Coronado buildings
in 1993 of $2.21 per Unit.
Distributions declared per unit of limited
partnership interest from fiscal 1991 through fiscal
1995 were as follows:
Year Ended Distributions per Unit
December 31, 1991 $32.00
December 31, 1992 $20.00
December 31, 1993 $32.00
December 31, 1994 $35.50
December 31, 1995 $78.47
All of the foregoing distributions were paid from
cash from operating activities with the exception of
the distributions for 1993, which included $12.00 of
proceeds from the sale of one of the Coronado
buildings, the distributions for 1995, which
included $9.62 of retained proceeds from the 1993
sale of one of the Coronado buildings, and $31.17 of
proceeds from the sale of Sullyfield Circle.
<PAGE>19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership sold 84,144 Units for a total of
$84,144,000, including the contribution of $5,000
from the original Limited Partner. The offering was
terminated on July 31, 1986 and no additional units
will be sold. After deduction of organizational and
offering costs of $4,746,000, the Partnership had
$79,398,000 available for investment and cash
reserves.
The Partnership originally purchased twelve
properties or interests therein on an all-cash
basis, and made an investment in an interest in a
participating mortgage loan, completing the initial
acquisition phase of its business plan. Through
December 31, 1995 the Partnership had sold two
property investments: a portion of the Coronado
property, and the Sullyfield Circle property, and on
February 1, 1994 acquired an ownership interest in
Fairchild Corporate Center, which was previously
classified as an in-substance foreclosed property
that originated as a participating mortgage loan.
The acquisition cost of the Partnership's real
estate investments and subsequent improvements
thereto was $67,394,000 as of December 31, 1995.
The Partnership has also recorded provisions for
loan loss, permanent value impairments, and
valuation allowances of $7,680,000. Therefore, the
net investment in real estate before deduction for
depreciation for financial reporting purposes was
$59,714,000 as of December 31, 1995.
As of December 31, 1995 the Partnership also owned
and was holding for sale the Regal Row property.
The original cost of this property was $5,583,000,
and subsequent to acquisition the Partnership
incurred $1,330,000 in additional capital costs.
The Partnership has recorded accumulated
depreciation of $1,421,000, and a valuation
allowance of $1,992,000, for a net investment at
December 31, 1995 of $3,500,000, equal to the
estimated net sales proceeds from the sale of the
property. The property was sold on February 14,
1996, and approximately $112,000 of the allowance
was reversed so that the adjusted book value of the
property equaled the net proceeds. The Partnership
anticipates that all sales proceeds will be
distributed to the partners in 1996.
The Partnership expects to incur capital
expenditures during 1996 totaling approximately
$1.6 million for tenant improvements, lease
commissions, and other major repairs and
improvements; the majority of these expenditures
<PAGE>20
are dependent on the execution of leases with new
and renewing tenants. Approximately $300,000 of
this amount is budgeted for tenant improvement work
and lease commissions in connection with the
proposed lease of the large vacant space at South
Point Plaza, as discussed in Item 1 above. The
total amount estimated is $500,000 higher than in
1995, primarily because leases representing 30% of
the portfolio s square footage expires in 1996,
versus 18% in 1995.
As discussed in Item 1, above, the Partnership is
currently negotiating with the sole tenant in the
AMCC property for a possible revision of the lease
structure and extension of the lease term. In the
event such negotiations are successful, the
Partnership anticipates an additional $1.2 million
in leasing commission and tenant improvement costs
which would be funded from retained 1996 operating
income. However, as noted in Item 1, it is unlikely
that such a transaction will occur. In the event
negotiations are finally terminated, the Partnership
may distribute such amounts as it may retain from
1996 operating income to pay these costs if they
should materialize. In the event the lease of this
property expires as scheduled in September of 1997,
the Partnership anticipates that substantial
expenditures for tenant improvement and leasing
commissions would be necessary in connection with
the releasing of the property. Depending upon the
Partnership s cash balances and projected need for
capital as the date approaches, the Partnership may
at that time retain a portion of cash from future
operations in anticipation of this event.
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 1996
will be adequate to fund the Partnership's current
investing and operating needs. Based on current
expectations, cash distributions to partners from
operating income are expected to initially be lower
than those in 1995, for several reasons. First, the
Partnership no longer owns the Sullyfield Circle and
Regal Row properties, which together contributed
$404,000 to 1995 net income. Secondly, as discussed
above, a portion of operating cash flows are
anticipated to be retained until the uncertainty
surrounding the renewal of the AMCC lease is
resolved.
As of December 31, 1995, the Partnership maintained
cash and cash equivalents aggregating $4,782,000, a
decrease of
<PAGE>21
$37,000 from the prior year end. This decrease
resulted primarily from slightly higher operating
cash distributions. Subsequent to year-end 1995,
the Partnership distributed approximately $471,000
of cash from operations that had been withheld from
earlier distributions, as part of the distribution
for the quarter ended December 31, 1995.
Net cash provided by operating activities in 1995
increased by $254,000. Net cash provided by
investing activities increased by $2,465,000 due to
the Sullyfield Circle sale in 1995; cash used for
investments in real estate increased by $157,000,
primarily due to renovations at Fairchild Corporate
Center and Bonnie Lane. Net cash used in financing
activities increased by $3,363,000 due primarily to
distribution of the proceeds of the Sullyfield
Circle sale.
Operations
On January 1, 1996, the Partnership adopted
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which
changes the Partnership's current 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 operation property will
now be based on the estimated fair value of the
property 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 will no longer
be depreciated. No adjustment of the carrying
values of the Partnership's real estate property
investments was required at January 1, 1996 as a
result of adopted SFAS No. 121.
1995 v. 1994
Excluding Sullyfield, rental income from continuing
operations was flat compared to 1994, as the effect
of declines in average leased status at Oakbrook
Corners, Bonnie Lane, and Fairchild Corporate Center
was offset by the higher average leased status at
Regal Row and higher rental rates at Glenn Avenue.
Total revenues were up $98,000, however, because of
the increase in interest income. Overall expenses
for continuing portfolio properties declined by
$600,000, primarily because of improved bad debt
experience and lower charge-offs for tenant
improvements. As a result, operating income from
continuing properties increased approximately
$700,000.
<PAGE>22
The sale of Sullyfield Circle in June 1995 resulted
in less rental income than in 1994, lower operating
expenses, and a valuation adjustment compared to a
significant recovery in 1994. The net effect of
these changes on 1995 net income was a decrease of
$524,000.
Tierrasanta and Atlantic were the two largest
contributors to the decline in expenses and rise in
net income relative to 1994. At Tierrasanta, there
was a $550,000 value impairment recorded in 1994,
but none was made in 1995. Atlantic benefited from
collection of delinquent rent from a large tenant
and from lower tenant improvement write-offs in
1995. In addition, Coronado did not have as large a
charge for leasehold improvements as it did in the
prior year.
A major tenant at Bonnie Lane who was behind in its
rent has made substantial progress toward becoming
current and contributed to the decline in the
portfolio s overall property operating costs. Even
though Bonnie Lane s average leased status, and
therefore its rental income, was down, other
expenses associated with the property declined more,
so Bonnie Lane had a positive effect on net income.
Business Plaza s contribution to net income in 1995,
although positive, was $237,000 less than in 1994
when an upward property valuation adjustment of
$511,000 was made.
Leases representing 30% of the portfolio's leasable
square footage are scheduled to expire in 1996.
These leases represented approximately 36% of the
portfolio's rental income for 1995. This amount of
potential lease turnover is normal for the types of
properties in the portfolio, which typically lease
to tenants under three to five year leases. The
overall portfolio occupancy was 88% as of the end of
1995. Management anticipates that occupancy levels
will increase in 1996. In most markets, new leases
are generally expected to reflect level to higher
market rental rates in comparison to the rates of
expiring leases. To the extent that the Partnership
sells one or more properties during the year, cash
flow from operations would be expected to decline,
while cash flow from sales would increase
substantially.
The Coronado property is one of two single-tenant
properties in the Partnership's portfolio. The
parent company of the tenant had experienced
financial difficulties, but these appear to be over,
and the tenant itself (which accounted for less than
10% of the Partnership's revenues in 1995) appears
to be financially sound. In the event this tenant
did vacate the property, management believes that
under current market conditions it could either
lease or sell the property to a user on favorable
terms. The other single-
<PAGE>23
tenant property is the AMCC property. The tenant in
this property, Applied Micro Circuits Corporation,
accounted for more than 10% of the Partnership's
revenue in 1994 and 1995, accounting for $1,376,000
(20%) of revenue in 1995. No collection problems
were experienced with this tenant in 1994 or 1995,
and the Partnership therefore does not expect any
material adverse effect as a result of this lease in
1996. In the event the tenant vacates the property
at the expiration of its lease term in 1997 and a
new tenant is not immediately procured, there would
be a substantial adverse impact on the Partnership's
revenues.
1994 v. 1993
Excluding the effects of accounting adjustments on
the Partnership's 1994 performance, revenues were up
$255,000 over the prior year, property operating
expenses declined, and excluding the effects of
depreciation and valuation adjustments, income from
property operations increased $469,000 over 1993.
These improvements were primarily attributable to a
higher average leased status in 1994.
In 1993, more than $9.5 million in valuation
allowances were recorded on six properties,
resulting in a substantial net loss. In 1994, the
Partnership recorded a $550,000 permanent value
impairment for Tierrasanta, but this expense was
more than offset by positive adjustments in the
valuation allowance for five other properties, made
in order to maintain their carrying value at their
estimated net realizable value, totaling $1,410,000.
The substantial net drop in this expense category
was the primary reason for the Partnership's
improved results in 1994.
Depreciation increased by $652,000 over 1993, as the
Partnership elected to accelerate the depreciation
of the cost of tenant improvements to more closely
reflect the useful life of the improvements,
including cases where a tenant vacates its premises
prior to the expiration of its lease term and the
premises need to be remodeled prior to occupancy by
a new tenant.
The increase in rental income related to several of
the Partnership's properties. The most significant
improvement was at Coronado, which was vacant for
eight months in 1993, but was 100% leased for all of
1994, contributing $145,000 of the $187,000
increase. Leasing gains at Sullyfield Circle and
higher average occupancy and better rates on new
leases at Business Plaza also contributed to revenue
growth. The only property which experienced a
significant drop in rental income was Oakbrook,
which had a lower average
<PAGE>24
occupancy level in 1994 than in 1993. Improved
operations resulted in higher cash balances in 1994.
Combined with higher interest rates, the
partnership's interest income increased over 1993.
With the exception of depreciation and valuation
allowances, discussed above, expenses generally
remained level. The management fee to the General
Partner increased due to higher cash available for
distribution in 1994. The sale of one of the
Coronado buildings during 1993 and lower tax
assessments at Business Plaza and South Point
resulted in a decline in real estate taxes.
Reconciliation of Financial and Tax Results
For 1995, the Partnership s book net income was
$2,392,000, and its taxable net loss was $385,000.
The loss for tax purposes on the sale of Sullyfield
Circle accounted for the majority of the difference.
For 1994, the Partnership's book net income was
$1,862,000 and its taxable net income was
$1,905,000, as substantial depreciation expense was
more than offset by a negative property valuation
allowance. For 1993, the Partnership's book net loss
was $8,142,000 and its taxable income was
$1,600,000. The provisions for loan loss and value
impairments discussed above were the primary
differences. For a Complete reconciliation see Note
7 to the Partnership's financial statements, which
note is hereby incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data
The financial statements appearing on pages 7
through 14 of the Partnership s 1995 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 19, 1996, is filed as Exhibit 99(c) to this
form 10-K Annual Report and is hereby incorporated
by reference herein. Financial Statement Schedule
III, Consolidated Real Estate and Accumulated
Depreciation, is filed as Exhibit 99(b) to this Form
10-K Annual Report, and is hereby incorporated by
reference herein. All other schedules are omitted
either because the required information is not
applicable or because the information is shown in
the financial statements or notes thereto.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
<PAGE>25
PART III
Item 10. Directors and Executive Officers of the
Partnership
The General Partner of the Partnership is T. Rowe
Price Realty Income Fund II Management, Inc. ("Fund
II Management"), 100 East Pratt Street, Baltimore,
Maryland 21202. The General Partner has the primary
responsibility for overseeing the evaluation,
structuring, negotiation, management, and
liquidation of the Partnership's investments as well
as the cash management of the Partnership's liquid
assets and the administration of investor services
of the Partnership, including general
communications, periodic reports and distributions
to Limited Partners, and filings with the Securities
and Exchange Commission. Fund II Management is a
wholly-owned subsidiary of T. Rowe Price Real Estate
Group, Inc. ("Real Estate Group"), which is, in
turn, a wholly-owned subsidiary of T. Rowe Price
Associates, Inc. ("Associates"). Affiliates of the
General Partner, T. Rowe Price Realty Income Fund I
Management, Inc., ("Fund I Management"), T. Rowe
Price Realty Income Fund III Management, Inc.,
("Fund III Management"), and T. Rowe Price Realty
Income Fund IV Management, Inc., ("Fund IV
Management") are the General Partners of other real
estate limited partnerships sponsored by Associates.
Real Estate Group, which is also an affiliate, is
investment manager to T. Rowe Price Renaissance
Fund, Ltd., A Sales-Commission-Free Real Estate
Investment ("Renaissance Fund"), a real
estate investment trust sponsored by Associates.
Associates was founded in 1937 and as of December
31, 1995 managed over $75 billion of assets.
As more fully discussed in Item 1, above, LaSalle is
providing certain real estate advisory and other
services to the Partnership. Upon execution of the
formal contract between the Partnership and LaSalle,
Gary C. Younker, Senior Vice President of LaSalle
Partners Asset Management Limited, (an affiliate of
LaSalle) became the Chief Accounting Officer for the
Partnership. Born in 1948, Mr. Younker has been
associated with LaSalle since 1976, and has served
in his current position since 1988.
<PAGE>26
The directors and executive officers of Fund II
Management are as follows:
Position with T. Rowe Price Realty
Income Fund II
Name Management, Inc.
James S. Riepe Chairman of the
Board, President,
also Principal
Executive Officer
for the
Partnership
Charles E. Vieth Vice President and
Director
Douglas O. Hickman Vice President and
Director
Henry H. Hopkins Vice President and
Director
Mark E. Rayford Vice President
Lucy B. Robins Vice President and
Secretary
Mark B. Ruhe Vice President
Kenneth J. Rutherford Vice President
Alvin M. Younger, Jr. Treasurer and
Director
Joseph P. Croteau Controller, also
Principal
Financial Officer
for the
Partnership
Mr. Riepe was elected President in 1991. Ms. Robins
was first elected to her current offices in 1987,
and Mr. Ruhe was first elected in 1988. Mr. Hopkins
was first elected a director in January, 1987. Mr.
Vieth was first elected an officer and director in
1993. Mr. Croteau was first elected as Controller
in 1988, and was designated as Principal Financial
Officer for the Partnership in 1992. Mr. Rutherford
was elected as Vice President in 1994. In all
other cases these individuals have served in these
capacities since the inception of Fund II Management
in 1986. There is no family relationship among the
foregoing directors or officers.
The background and business experience of the
foregoing individuals is as follows:
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, T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited
<PAGE>27
Partnership, T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited
Partnership, and T. Rowe Price Realty Income Fund
IV, America's Sales-Commission-Free Real Estate
Limited Partnership (the "Realty Income Funds");
Chairman of four of the 41 mutual funds sponsored by
Associates on which he serves as a director or
trustee; Chairman of New Age Media Fund; Director,
Rh ne-Poulenc Rorer, Inc., a pharmaceuticals
company. Mr. Riepe joined Associates in 1982.
Charles E. Vieth (Born 1956) is a Managing
Director of Associates, and President of T. Rowe
Price Retirement Plan Services, Inc., Director, Vice
President and Manager of Real Estate Group, and
Director and Vice President of each of the general
partners of the Realty Income Funds. Mr. Vieth
joined Associates in 1982.
Douglas O. Hickman (Born 1949) is President
of T. Rowe Price Threshold Fund Associates, Inc. and
a Vice President of Associates. He is also a Vice
President and Director of each of the general
partners of the Realty Income Funds and serves as a
member of the investment committees for the T. Rowe
Price Threshold Funds. Mr. Hickman joined
Associates in 1985.
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.
Mark E. Rayford (Born 1951) is a Managing
Director of Associates and Manager of Retail
Operations. In addition, Mr. Rayford is President
of T. Rowe Price Services, Inc., and Vice President
each of the general partners of the Realty Income
Funds. Mr. Rayford joined Associates in 1982.
Lucy B. Robins (Born 1952) is Vice
President and Associate Legal Counsel of Associates
and Vice President of Real Estate Group, and each of
the general partners of the Realty Income Funds.
Ms. Robins joined Associates in 1986.
Mark B. Ruhe (Born 1954) is an Asset
Manager for Real Estate Group, and Vice President of
the Investment Manager and each of the general
partners of the Realty Income Funds. Mr. Ruhe
joined Associates in 1987.
<PAGE>28
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
Assistant to the Director of Associates' Investment
Services Division, and Assistant Vice President of
each of the general partners of the Realty Income
Funds. Mr. Rutherford joined Associates in 1992.
From 1990 to 1992 he was a student at the Stanford
Graduate School of Business.
Joseph P. Croteau (Born 1954) is a Vice
President and Controller for Associates, and
Controller of each of the general partners of the
Realty Income Funds. Mr. Croteau joined Associates
in 1987.
No Forms 3, Forms 4, Forms 5, or amendments to any
of them, were furnished to the Partnership 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
31-35 respectively, which pages are incorporated
herein by reference.
For a discussion of compensation and fees to which
the General Partner is entitled, see Item 13., which
is incorporated herein by reference.
As discussed in Item 1, above, LaSalle receives
reimbursement from the Partnership for certain
expenses incurred in performance of its
responsibilities under the advisory contract. In
addition, under the contract, LaSalle receives from
the General Partner a portion of the compensation
and distributions received by the General Partner
from the Partnership. Mr. Younker is a limited
<PAGE>29
partner of LaSalle and therefore indirectly receives
compensation with respect to payments made to
LaSalle by the Partnership or the General Partner.
However, the amount of this compensation
attributable to services he performs for the
Partnership is not material.
In addition to the foregoing, certain officers and
directors of the General Partner receive
compensation from Associates and/or Its affiliates
(but not from the Partnership) for services
performed for various affiliated entities, which may
include services performed for the Partnership.
Such compensation may be based, in part, on the
performance of the Partnership. Any portion of such
compensation which may be attributable to such
performance is not material.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The Partnership is a limited partnership which
issues units of limited partnership interest. No
limited partner is known by the Partnership to own
beneficially more than 5% of the outstanding
interests of the Partnership.
The percentage of outstanding interests of the
Partnership held by all directors and officers of
the General Partner is less than 1%. Certain
officers and/or directors of the General Partner
presently own securities in Associates. As of
February 1, 1996, the directors and officers of the
General Partner, as a group, beneficially owned
5.76% of the common stock of Associates, including
options to purchase 282,870 shares exercisable
within 60 days of February 1, 1996, and shares as to
which voting power is shared with others. Of this
amount, Mr. Riepe owned 2.36% of such stock (550,939
shares, including 42,400 shares which may be
acquired by Mr. Riepe upon the exercise of stock
options, 70,000 shares held in trusts for members of
Mr. Riepe's family and 20,000 shares held by a
member of Riepe's family, as to which Mr. Riepe
disclaims beneficial ownership, and 41,000 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
1.10% (317,484 shares, including 54,000 shares which
may be acquired by Mr. Hopkins upon the exercise of
stock options). 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.
<PAGE>30
Item 13. Certain Relationships and Related
Transactions
The General Partner and its affiliates are permitted
to engage in transactions with the Partnership as
described under the captions "Compensation and
Fees," and "Conflicts of Interest" of the
Prospectus, on pages 7-12, which pages are hereby
incorporated by reference herein.
The General Partner has been reimbursed for expenses
incurred by it in the administration of the
Partnership and the operation of the Partnership's
investments, which amounted to $107,000 in 1995.
The General Partner's management fee and share of
cash distributions during 1995 totaled $377,000. An
affiliate of the General Partner received a fee of
$20,000 from the money market
mutual funds in which the Partnership made its
interim cash investments in 1995. For a discussion
of distributions to which the General Partner may be
entitled upon disposition of real estate investments
by the Partnership, see Note 1 to the Partnership's
consolidated financial statements, which note is
hereby incorporated by reference herein.
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 1995 Annual Report to Limited
Partners:
PAGES IN
ANNUAL
REPORT
Consolidated Balance Sheets at 7
December 31, 1995 and 1994
Consolidated Statements of Operations 8
for each of the three years in the
period ended December 31, 1995
Consolidated Statements of Partners' 9
Capital for each of the three years
in the period ended December 31,
1995
Consolidated Statements of Cash Flows 10
for each of the three years in the
period ended December 31, 1995
Notes to Consolidated Financial Statements
11-14
<PAGE>31
Independent Auditors' Report - Incorporated by
reference from Exhibit 99(c) hereof.
(2) Financial Statement Schedules:
III - Consolidated Real Estate and
Accumulated Depreciation, incorporated by
reference to Exhibit 99(b) hereof.
All other schedules are omitted because
they are not applicable or the required
information is presented in the financial
statements and notes hereto.
(3) Exhibits
3,4. (a) Agreement of Limited Partnership of
the Partnership, dated January 1,
1986, as amended March 10, 1986,
included as Exhibit A to the
Prospectus of the Partnership, dated
March 17, 1986, File Number 33-2622,
filed with the Commission pursuant to
Rule 424(b) ("the Prospectus"),
incorporated by reference herein.
(b) Certificate of Limited Partnership,
incorporated by reference to Exhibit
3,4 to the Partnership's Registration
Statement, File No. 33-2622, as filed
on March 17, 1986.
(c) Amendment to the Partnership
Agreement dated April 30, 1986,
incorporated by reference to Exhibits
3,4(b) to Registrant's Report on Form
10-K for the fiscal year ended
December 31, 1987 ("the 1987 10-K").
(d) Amendment to the Partnership
Agreement dated May 30, 1986,
incorporated by reference to Exhibits
3,4(c) to the 1987 10-K.
(e) Amendment to the Partnership
Agreement dated June 30, 1986,
incorporated by reference to Exhibits
3,4(d) to the 1987 10-K.
(f) Amendment to the Partnership
Agreement dated July 31, 1986,
incorporated by reference to Exhibits
3,4(e) to the 1987 10-K.
(g) Amendment to the Partnership
Agreement dated August 22, 1986,
incorporated by reference to Exhibits
3,4(f) to the 1987 10-K.
<PAGE>32
(h) Amendment to the Partnership
Agreement dated September 30, 1986,
incorporated by reference to Exhibits
3,4(g) to the 1987 10-K.
(i) Amendment to the Partnership
Agreement dated October 14, 1986,
incorporated by reference to Exhibits
3,4(h) to the 1987 10-K.
(j) Amendment to the Partnership
Agreement dated March 28, 1988,
incorporated by reference to Exhibits
3,4(i) to the 1987 10-K.
10. Advisory Agreement dated as of July 15,
1991 by and between the Partnership, the
General Partner, and LaSalle Advisors
Limited Partnership, incorporated by
reference to Exhibit 10 of the
registrant's report on Form 10-K for the
year ended December 31, 1991.
13. Annual Report for the year ended December
31, 1995, distributed to Limited Partners
on or about March 4, 1996.
27. Financial Data Schedule
99. (a) Pages 7-12, 18-25 and 31-35 of the
Prospectus of the Partnership dated
July 15, 1991, incorporated by
reference to Exhibit 99(a) of the
registrant's report on Form 10-K for
the year ended December 31, 1994,
File Number 0-15575
(b) Financial Statement Schedule III -
Consolidated Real Estate and
Accumulated Depreciation.
(c) Report of KPMG Peat Marwick LLP dated
January 19, 1996 regarding the
financial statements of the
Partnership.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the last
quarter of the period covered by this report.
<PAGE>33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized:
Dated: March 28, 1996 T. ROWE PRICE REALTY INCOME
FUND II, AMERICA'S SALES-
COMMISSION-FREE REAL ESTATE
LIMITED PARTNERSHIP
By: T. Rowe Price
Realty Income
Fund II
Management,
Inc., General
Partner
By: /s/James S. Riepe
James S. Riepe,
President
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the
Registrant and in the capacities (with respect to
the General Partner) and on the dates indicated:
/s/James S. Riepe Date: March 28, 1996
James S. Riepe,
Director and Chairman of the Board,
President T. Rowe Price Realty
Income Fund II Management, Inc.,
Principal Executive Officer
for the Partnership
/s/Henry H. Hopkins Date: March 28, 1996
Henry H. Hopkins,
Director and Vice President,
T. Rowe Price Realty Income Fund II
Management, Inc.
/s/Douglas O. Hickman Date: March 20, 1996
Douglas O. Hickman,
Director and Vice President,
T. Rowe Price Realty Income Fund II
Management, Inc.
<PAGE>34
/s/Alvin M. Younger, Jr. Date: March 28, 1996
Alvin M. Younger, Jr.,
Director and Treasurer,
T. Rowe Price Realty Income Fund II
Management, Inc.
/s/Charles E. Vieth Date: March 20, 1996
Charles E. Vieth,
Vice President and Director,
T. Rowe Price Realty Income Fund II
Management, Inc.
/s/Joseph P. Croteau Date: March 28, 1996
Joseph P. Croteau, Controller,
Principal Financial Officer for
the Partnership
The Annual Report to Limited Partners for the Year
ended December 31, 1995 should be inserted here.
ANNUAL REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1995
FELLOW PARTNERS:
Before we discuss the effects of property valuation adjustments and the June
1995 sale of Sullyfield Circle on the Fund's performance relative to 1994, we
want to summarize the operating activities at the properties currently in the
portfolio.
Rental income was flat compared with 1994, as the effect of declines in
average leased status at Oakbrook Corners, Bonnie Lane, and Fairchild was
offset by the higher average leased status at Regal Row and higher rental
rates at Glenn Avenue. Total revenues were up $98,000, however, because of the
increase in interest income. Overall expenses for the portfolio properties
declined by $600,000, primarily because of improved bad debt experience and
lower charge-offs for tenant improvements. As a result, operating income from
continuing properties increased approximately $700,000.
The sale of Sullyfield Circle in June 1995 resulted in less rental
income than in 1994, lower operating expenses, and a negative valuation
adjustment compared to a significant recovery in 1994. The net effect of these
changes on 1995 net income was a decrease of $524,000. Other valuation
adjustments will be covered in the individual property discussions.
Tierrasanta and Atlantic were the two big contributors to the decline in
expenses and rise in net income relative to 1994. At Tierrasanta, there was a
$550,000 value impairment recorded in 1994, but none was made this year.
Atlantic benefited from collection of delinquent rent from a large tenant and
from lower tenant improvement write-offs in 1995. In addition, Coronado did
not have as large a charge for leasehold improvements as it did in the prior
year.
A major tenant at Bonnie Lane who was behind in its rent has made
substantial progress toward becoming current and contributed to the decline in
the overall portfolio's property operating costs. Even though Bonnie Lane's
average leased status, and therefore its rental income, was off, other
expenses associated with the property declined more, so Bonnie Lane had a
positive effect on net income.
Business Plaza's contribution to net income in 1995, although positive,
was $237,000 less than in 1994 when an upward property valuation adjustment
was made.
The Fund's cash position declined in 1995, primarily because of the
larger cash distributions paid to you in 1995.
Cash Distributions
For the fourth quarter of 1995, you received a per-unit distribution of
$21.05, of which $11.43 was from operations and $9.62 was from previously
withheld proceeds from sale of one of the Coronado buildings. Your total
distribution for the year was $78.47 per unit and included $31.17 from the
Sullyfield sale as well as the remaining proceeds from Coronado.
For the first quarter of 1996, we plan to pay a distribution from
operations of $6.50 per unit compared to $8.75 for the prior-year period.
There are several reasons for the lower cash payout. First, we will not have
Sullyfield or Regal Row (which was sold on February 14), and these properties
contributed $404,000 to 1995 net income. Second, because of the uncertainty
surrounding renewal of the AMCC lease, a portion of operating cash flows is
being retained. As the year progresses, we will reevaluate the quarterly
distribution rate based on the AMCC situation as well as the ongoing property
operations and report on any changes which may be appropriate.
Unit Valuation
As we do at every year end, we employed a third-party appraiser to review and
assess the analysis and assumptions used in determining an estimated current
unit value. These interim valuations are not necessarily representative of the
value of your units when the Fund ultimately liquidates its holdings, nor
could you sell your units today at a price equal to the current estimated
value.
The estimated unit value as of December 31, 1995, was $519.00 per unit,
up $25.00 from $494.00 in 1994. The latter amount has been adjusted for the
distributions made during 1995. After adjusting the 1995 amount for the
February 1996 distribution, the estimated unit value will be $504.00.
Outlook
We completed our goal of selling one property during 1995, and another settled
February 14th of this year. In addition to existing vacancies, there are a
number of leasing challenges this year, particularly at Atlantic and Glenn
Avenue where leases covering 73% of each property's space expire in 1996.
Suffice it to say that we will be focused on renewals as well as attracting
new tenants in 1996.
As the Advisor's Report indicates, the overall real estate market
continues to show signs of improvement, and we hope that your portfolio will
follow suit.
Sincerely,
James S. Riepe
Chairman
February 15, 1996
INVESTMENT ADVISOR'S REPORT
As discussed in recent reports, the real estate market is slowly improving,
with some segments such as industrial recovering more rapidly than others such
as office properties. The absence of meaningful new construction combined with
continued net positive absorption in all segments has begun to attract not
only opportunistic capital but also some institutional capital into the real
estate sector, which is a favorable development.
The results of Russell-NCREIF Index, which measures income returns and
changes in values for real estate investments, reflect the general state of
the market. From 1991 through 1993 property values experienced average annual
declines of approximately 10%. This rate slowed as values decreased by 4% and
1% for the 12 months ended September 30, 1994 and 1995, respectively. Income
returns of 9% during each of those two years more than offset the value
declines, resulting in positive total returns for the index for the first time
since September 1990.
The index also identifies returns by product type and by geographical
region. As anticipated, because of the weak operating environment, office
buildings have not performed as well as other product types, with value
declines of approximately 3% for the 12 months ended September 30, 1995. This
is an improvement, however, over the average 14% per year drop over the last
four years. Industrial properties, on the other hand, appreciated in value by
3% for the 12 months ended September 30, 1995. In that same period, other real
estate product types, such as retail and multi-family, performed better than
they had in prior years.
Property values in geographic regions depend significantly on the local
economy. The South, where values in general depreciated less than 1% for the
12 months ended September 30, 1995, continues to outperform other regions, but
even its recovery has been prolonged due to the depressed energy business.
Value declines in the East and Midwest have moderated, and the Western region
has experienced a dramatic improvement recently. In 1994, property values in
the West were down significantly but, for the 12 months ended September 30,
1995, declined only around 1%. In analyzing this information, it is clear that
the multi-family and industrial segments are heavily influencing the results,
since the office segment in the West declined approximately 5%. We continue to
see increased leasing activity and improved economics for owners.
We are encouraged by the positive annual returns of the Russell-NCREIF
Index for the past two years. We are even more heartened, however, by the
performance of Realty Income Fund II's portfolio, which experienced an
increase in value as opposed to a decrease in the the Russell-NCREIF Index.
Property Highlights
We signed leases covering 24% of the portfolio's square footage and increased
the number of 100% leased properties from three to four by year-end.
Nevertheless, overall occupancy did not increase, as the leased status at
three properties dropped by nine or more percentage points. The biggest
improvements occurred at Tierrasanta, where occupancy was up 23 percentage
points, and at South Point and Regal Row, where occupancy climbed eight
percentage points at each. In general, occupancy and rental rates in the
markets where your properties operate are stable to rising.
Real Estate Investments
_____________________________________________________________________________
Gross % Leased
Leasable ___________________
Area Prior Current 1996 Lease
Property (Sq. Ft.) Year-End Year-End Expirations
________ ________ ________ ________ __________
Atlantic 187,800 96% 92% 73%
Coronado 95,700 100 100 0
Oakbrook Corners 123,900 70 61 0
Baseline 100,200 89 88 33
Business Plaza 66,300 93 82 15
AMCC 100,000 100 100 0
Bonnie Lane 119,600 92 89 8
Glenn Avenue 82,000 100 100 73
Regal Row 217,300 86 94 33
South Point 48,400 61 69 19
Tierrasanta 104,200 77 100 38
Fairchild Corporate
Center 104,800 85 73 31
_________ _____ _____ _____
Fund Total 1,350,200 88% 88% 30%
Atlantic: One new and two renewal tenants signed long-term leases
totaling 9% of the total space. Unfortunately, this activity did not offset
the loss of one tenant toward the end of the year due to credit problems.
Thus, although the property averaged 96% leased over the 12 months, it ended
the year lower. During 1996, our concentration will be focused on renewing the
tenant who represents 46% of the property and 6% of the portfolio's total
space. We have had renewal discussions with this tenant, but we will only
agree to terms which are favorable for the Fund given current market
conditions. Thus, we cannot yet make any statements regarding the probable
outcome of the negotiations. Overall occupancy in the Atlanta industrial
submarket where Atlantic is located has continued to improve to around 96%.
Even though 16 new speculative distribution buildings have been completed and
another 31 buildings are under construction, market rental rates have remained
somewhat level.
Coronado: The parent company of the single tenant at this Anaheim,
California, property emerged from bankruptcy during the year, and rental
payments are current.
Oakbrook Corners: As expected, we lost one tenant when its lease expired
during the year. Only one new, but smaller, tenant was acquired for one of the
vacancies. Thus, occupancy declined during 1995. This property is somewhat
unique in that each vacant space is an entire building, so it is especially
challenging to find suitable tenants. We changed leasing agents during the
fourth quarter in an effort to mount a more aggressive marketing campaign, and
we have one very strong prospect for one building's 27,000 square feet. We
also have someone interested in the other building which is vacant. We will
report to you on our success or failure regarding these potential transactions
next quarter.
Baseline: Activity was very brisk at this Tempe, Arizona, property
during the year. In total, 19 new, renewal, and/or expansion leases were
signed. These gains were offset by the loss of several tenants with short-term
leases whom we chose not to renew and one tenant who was experiencing
financial difficulties. We wanted to take advantage of improving market
conditions and have been attempting to sign longer term leases at higher rates
and stagger the expiration schedule.
Business Plaza: As anticipated we lost a tenant whose lease for 11% of
this Ft. Lauderdale property expired. Additionally, two other tenants vacated
when their leases expired, two tenants who were poor credit risks left, and
one tenant renewed for less space. Thus, even though we signed five new
tenants and renewed four others, occupancy declined significantly.
AMCC: The single tenant at this San Diego property continues to evaluate
its future space needs. During the year, they discussed options for revising
the lease and extending the expiration date beyond 1997. However, it now
appears unlikely that we will be able to reach a mutually satisfactory
agreement. Thus, we are analyzing whether your interests will best be served
by selling or re-leasing the property.
Bonnie Lane: The lease with a tenant representing 23% of this suburban
Chicago property was renewed. In return for a seven-year extension, the Fund
agreed to install sprinklers in the building, and that process is underway.
Additionally, two new leases for 19% of the property were signed. However, due
to the loss of one financially troubled tenant upon its lease expiration,
occupancy declined slightly.
Glenn Avenue: This other suburban Chicago industrial property remained
100% leased through the year. Leases representing almost three quarters of the
space will expire in 1996, so our focus will be on renewals as the year
progresses.
Regal Row: Leases covering 47% of this Dallas industrial project were
signed during 1995, bringing the leased status up by eight percentage points.
Rental rates on these leases were up modestly over the prior year's levels.
South Point: One short-term expansion, two new, and four renewal leases
for 19% of this Tempe, Arizona, shopping center more than offset the loss of
one tenant who did not renew. We continue to be optimistic about our
negotiations with a prospective tenant who would represent over 30% of the
center. To improve our negotiating position, we have received some zoning
variances but are still working with the city and potential tenant to reach a
mutually satisfactory agreement. If we are successful, the lease could be
signed during the next two to three months. The tenant, however, would not
begin paying rent until around the last quarter of 1996. Moreover, significant
tenant improvement costs would be incurred.
Tierrasanta: Although we lost one financially troubled tenant during the
year, we were able to re-lease its space, bringing the leased status to 100%
by year-end. In total, three new leases for 31,000 square feet and one
renewal/expansion were signed at this San Diego property. One lease with a
tenant who occupies 38% of the space expires in 1996, and we are actively
working with this tenant on renewal terms. It is too early to predict an
outcome of the negotiations.
Fairchild Corporate Center: The leased status declined at this Orange
County, California, office property primarily due to the loss on the last day
of the year of a tenant representing 9% of the space. Additionally, over the
course of the year, two tenants who leased a total of 6% of the property left
for financial reasons and three other tenants vacated upon their lease
expirations. On the positive side, we completed the first phase of renovating
the two buildings, renamed the property, and overall activity has picked up.
Three new tenants were signed for 16% of the site, and six existing tenants
renewed and/or expanded for another 8% of the property.
Disposition Highlights
In June 1995, the Fund completed its second disposition when Sullyfield Circle
was sold for a contract price of $2,775,000 before closing costs of $153,000.
Additionally, we have sold Regal Row, the industrial property in Dallas,
Texas, which we began marketing during the second quarter. Gross proceeds were
approximately $3.5 million; we will give you more information in next
quarter's report.
Outlook
As expected, 1995 was a turning point for the Fund. All of the markets in
which our properties compete improved, Sullyfield Circle was sold, and
operating cash flow at the existing properties rose. Looking at 1996, we have
several prospects for some of the larger vacant spaces. As a result, we are
optimistic that both market rental rates and occupancy will continue to creep
upward and be reflected ultimately in stronger operating results for the Fund
in 1996.
LaSalle Advisors
February 15, 1996
REAL ESTATE HOLDINGS
December 31, 1995
(In thousands)
Accumu- Valu-
Date lated ation Current
Property Type and Ac- Total Depre- Allow- Carrying
Name Location quired Cost* ciation ances Amount
________ ________ ______ ______ _______ _______ ______
Atlantic Industrial 10/86 $5,405 $(1,837) $0 $3,568
Gwinnett Co.,
Georgia
Coronado Industrial 11/86 4,424 (909) 0 3,515
Anaheim,
California
Oakbrook
Corners Business Park 11/86 9,545 (3,349) 0 6,196
Gwinnett Co.,
Georgia
Baseline Business Park 12/86 7,461 (2,630) 0 4,831
Tempe, Arizona
Business
Plaza Office 12/86 7,155 (3,357) 0 3,798
Ft. Lauderdale,
Florida
AMCC R&D/Office 9/87 11,284 (2,622) 0 8,662
San Diego,
California
Bonnie
Lane Industrial 11/87 4,136 (846) 0 3,290
Elk Grove,
Illinois
Glenn
Avenue Industrial 11/87 2,903 (601) 0 2,302
Wheeling,
Illinois
South
Point Retail 4/88 2,208 (842) 0 1,366
Tempe, Arizona
Tierra-
santa Business Park 4/88 3,451 (857) 0 2,594
San Diego,
California
Fairchild
Corporate Office 5/88 1,742 (199) 0 1,543
Center Irvine,
California
_______ _______ _______ _______
$59,714 $(18,049) $0 $41,665
_______ _______ _______
_______ _______ _______
Held for Sale
Regal Row Industrial 12/87 $6,913 $(1,421) $(1,992) 3,500
Dallas, Texas _______ _______ _______ _______
_______ _______ _______
$45,165
_______
_______
*Includes original purchase price, subsequent improvements, and, in the case
of Baseline, Business Plaza, South Point, Tierrasanta, and Fairchild Corporate
Center, reductions for permanent impairments.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1995 1994
____________ ____________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . . . $ 14,544 $ 14,544
Buildings and Improvements. . . . . . . 45,170 45,130
________ ________
59,714 59,674
Less: Accumulated Depreciation
and Amortization . . . . . . . . . . . . (18,049) (17,260)
________ ________
41,665 42,414
Properties Held for Sale. . . . . . . . 3,500 5,953
________ ________
45,165 48,367
Cash and Cash Equivalents. . . . . . . . . 4,782 4,819
Accounts Receivable
(less allowances of $165 and $327) . . . . 172 249
Other Assets . . . . . . . . . . . . . . . 410 335
________ ________
$ 50,529 $ 53,770
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents. . . . $ 493 $ 522
Accrued Real Estate Taxes. . . . . . . . . 502 432
Accounts Payable and Other
Accrued Expenses . . . . . . . . . . . . . 433 279
________ ________
Total Liabilities. . . . . . . . . . . . . 1,428 1,233
Partners' Capital. . . . . . . . . . . . . 49,101 52,537
________ ________
$ 50,529 $ 53,770
________ ________
________ ________
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,
1995 1994 1993
_______ _______ _______
Revenues
Rental Income. . . . . . . . . . . $ 6,717 $ 6,834 $ 6,647
Interest Income. . . . . . . . . . 247 149 81
_______ _______ _______
6,964 6,983 6,728
_______ _______ _______
Expenses
Property Operating Expenses. . . . 1,103 1,399 1,570
Real Estate Taxes. . . . . . . . . 991 877 994
Depreciation and
Amortization . . . . . . . . . . . 2,362 2,979 2,327
Decline (Recovery) of
Property Values. . . . . . . . . . (682) (860) 9,515
Management Fee to
General Partner. . . . . . . . . . 346 269 168
Partnership Management
Expenses . . . . . . . . . . . . . 452 457 484
_______ _______ _______
4,572 5,121 15,058
_______ _______ _______
Net Income (Loss) from
Operations before
Real Estate Sold. . . . . . . . 2,392 1,862 (8,330)
Gain on Real Estate Sold . . . . . - - 188
_______ _______ _______
Net Income (Loss). . . . . . . . . $ 2,392 $ 1,862 $ (8,142)
_______ _______ _______
_______ _______ _______
Activity per Limited Partnership
Unit
Net Income (Loss). . . . . . . . . $ 28.16 $ 21.92 $ (95.84)
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . . . . $ 37.68 $ 35.50 $ 20.00
from Sale Proceeds . . . . . . . 40.79 - 12.00
_______ _______ _______
Total Distributions
Declared . . . . . . . . . . . . . $ 78.47 $ 35.50 $ 32.00
_______ _______ _______
_______ _______ _______
Units Outstanding. . . . . . . . . 84,099 84,099 84,101
_______ _______ _______
_______ _______ _______
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, 1992 . . . . $ (163) $ 64,153 $ 63,990
Net Loss . . . . . . . . . . . . . (81) (8,061) (8,142)
Cash Distributions . . . . . . . . (17) (2,691) (2,708)
_______ _______ _______
Balance, December 31, 1993 . . . . (261) 53,401 53,140
Net Income . . . . . . . . . . . . 19 1,843 1,862
Redemption of Units. . . . . . . . - (1) (1)
Cash Distributions . . . . . . . . (25) (2,439) (2,464)
_______ _______ _______
Balance, December 31, 1994 . . . . (267) 52,804 52,537
Net Income . . . . . . . . . . . . 24 2,368 2,392
Cash Distributions . . . . . . . . (32) (5,796) (5,828)
_______ _______ _______
Balance, December 31, 1995 . . . . $ (275) $ 49,376 $ 49,101
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1995 1994 1993
_______ _______ _______
Cash Flows from Operating Activities
Net Income (Loss). . . . . . . . . $ 2,392 $ 1,862 $ (8,142)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities
Depreciation and
Amortization . . . . . . . . . . 2,362 2,979 2,327
Decline (Recovery) of
Property Values. . . . . . . . . (682) (860) 9,515
Gain on Real Estate Sold. . . . - - (188)
Other Changes in Assets
and Liabilities. . . . . . . . . 59 104 165
_______ _______ _______
Net Cash Provided by
Operating Activities . . . . . . . 4,131 3,877 3,677
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from
Property Disposition . . . . . . . 2,622 - 1,818
Investments in Real Estate . . . . (962) (805) (1,469)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . . . 1,660 (805) 349
_______ _______ _______
Cash Flows from Financing Activities
Cash Distributions . . . . . . . . (5,828) (2,464) (2,708)
Redemption of Units. . . . . . . . - (1) -
_______ _______ _______
Net Cash Used in
Financing Activities . . . . . . . (5,828) (2,465) (2,708)
_______ _______ _______
Cash and Cash Equivalents
Net Increase (Decrease)
during Year. . . . . . . . . . . . (37) 607 1,318
At Beginning of Year . . . . . . . 4,819 4,212 2,894
_______ _______ _______
At End of Year . . . . . . . . . . $ 4,782 $ 4,819 $ 4,212
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund II, America's Sales-Commission-Free Real
Estate Limited Partnership (the "Partnership"), was formed on January 7, 1986,
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring, operating, and disposing of existing income-producing commercial
and industrial real estate properties. T. Rowe Price Realty Income Fund II
Management, Inc., is the sole General Partner. The initial offering resulted
in the sale of 84,144 limited partnership units at $1,000 per unit.
In accordance with provisions of the partnership agreement, income from
operations is allocated and related cash distributions are generally paid to
the General and Limited Partners at the rates of 1% and 99%, respectively.
Sale or refinancing proceeds are generally allocated first to the Limited
Partners in an amount equal to their capital contributions, next to the
Limited Partners to provide specified returns on their adjusted capital
contributions, next 3% to the General Partner, with any remaining proceeds
allocated 85% to the Limited Partners and 15% to the General Partner. Gain on
property sold is generally allocated first between the General Partner and
Limited Partners in an amount equal to the depreciation previously allocated
from the property and then in the same ratio as the distribution of sale
proceeds. Cash distributions, if any, are made quarterly based upon cash
available for distribution, as defined in the partnership agreement. Cash
available for distribution will fluctuate as changes in cash flows and
adequacy of cash balances warrant.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of estimates
and assumptions by the General Partner. Certain 1993 and 1994 amounts have
been reclassified to conform with the 1995 presentation.
The accompanying consolidated financial statements include the accounts
of the Partnership and its pro-rata share of the accounts of T. Rowe
Price-Pacific (AMCC), a California limited partnership, South Point Partners,
Tierrasanta 234, and Fairchild 234, which are California general partnerships,
in which the Partnership has 90%, 50%, 30%, and 24% interests, respectively.
The other partners in these ventures, except for T. Rowe Price-Pacific, are
affiliates of the Partnership. All intercompany accounts and transactions have
been eliminated in consolidation.
Depreciation is calculated primarily on the straight-line method over
the estimated useful lives of buildings and improvements, which range from
five to 40 years. Lease commissions and tenant improvements are capitalized
and amortized over the life of the lease using the straight-line method.
Cash equivalents consist of money market mutual funds, the cost of which
approximates fair value.
The Partnership uses the allowance method of accounting for doubtful
accounts. Provisions for (recoveries of) uncollectible tenant receivables in
the amounts of ($101,000), $162,000, and $144,000 were recorded in 1995, 1994,
and 1993, 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 by the Partnership 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 $300,000 and $287,000 at December 31,
1995 and 1994, 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 AND OTHER ENTITIES
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 $346,000, $269,000, and $168,000 in 1995, 1994, and 1993,
respectively. In addition, the General Partner's share of cash available for
distribution from operations, as discussed in Note 1, totaled $31,000,
$28,000, and $17,000 in 1995, 1994, and 1993, 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 $107,000, $108,000, and $117,000 for communications
and administrative services performed on behalf of the Partnership during
1995, 1994, and 1993, respectively.
An affiliate of the General Partner earned a normal and customary fee of
$20,000, $16,000, and $12,000 from the money market mutual funds in which the
Partnership made its interim cash investments during 1995, 1994, and 1993,
respectively.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting, and other related services to the Partnership. LaSalle's
reimbursement for such expenses during each of the last three years totaled
$150,000.
An affiliate of LaSalle earned $121,000, $125,000, and $122,000 in 1995,
1994, and 1993, respectively, as property manager for several of the
Partnership's properties.
NOTE 4 - FAIRCHILD CORPORATE CENTER
Fairchild Corporate Center, formerly known as Brinderson Plaza, was acquired
outright on February 1, 1994 by a corporation, the stockholders of which are
the Partnership and certain other affiliated partnerships. The previously
established valuation allowance for this property was reduced $4,000 and the
remaining allowance of $698,000 (including $90,000 arising in 1993) was
reclassified as a reduction in the carrying value of the property. Prior to
February 1, 1994, the Partnership's underlying investment in Fairchild, in the
form of a mortgage loan and minority equity interest, was accounted for as an
in-substance foreclosed property in the Partnership's financial statements.
NOTE 5 - PROPERTY VALUATIONS AND DISPOSITIONS
During the first quarter of 1993, the Partnership sold the smaller of the two
buildings at the Coronado Industrial property and received net proceeds of
$1,818,000. The net book value of this property at the time of disposition was
$1,630,000.
On June 29, 1995, the Partnership sold Sullyfield Circle and received
net proceeds of $2,622,000. Because the carrying value of this property had
been written down to approximate its market value, no gain or loss was
recognized on this property disposition.
The General Partner has an agreement to sell Regal Row, the carrying
amount of which is classified as held for sale in the accompanying balance
sheets. If there is a successful conclusion to the due diligence process
undertaken by the prospective buyer, the transaction could close in early
1996. The carrying value of this property at December 31, 1995 is $3,500,000,
which approximates the estimated net proceeds from the pending disposition.
Because properties held for sale also continue operating until the time
of sale, the Partnership has historically continued to recognize depreciation
expense. Reductions in valuation allowances in 1995 and 1994 have arisen, in
large part, because of the depreciation expense recognized on the properties
held for sale. Results of operations for the Coronado building, Sullyfield
Circle and Regal Row are included in the accompanying financial statements for
the past three years as summarized below:
1995 1994 1993
________ ________ __________
Recovery (Decline) of
Property Values. . . . . . $234,000 $823,000 $(4,068,000)
Other Components of
Operating Income . . . . . 170,000 158,000 238,000
________ ________ __________
Results of (Loss from)
Operations . . . . . . . . $404,000 $981,000 $(3,830,000)
________ ________ __________
________ ________ __________
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 other operating
properties may not be fully recoverable from future operations and
disposition. Charges recognized for impairments of property carrying values
were $550,000 for Tierrasanta in 1994 and $793,000 for Baseline in 1993.
Because the Business Plaza and South Point properties were not being
actively marketed for sale, the carrying values of these properties were
assessed and, accordingly, valuation allowances totalling $3,533,000 at
December 31, 1995 were reclassified as permanent impairments of the
properties' carrying values. Valuation allowances (recoveries) for these
properties were ($448,000) in 1995, ($583,000) in 1994 and $4,564,000 in 1993.
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 changes
the Partnership's current method of accounting for its real estate property
investments when circumstances indicate that the carrying amount of a property
may not be recoverable. Measurement of an impairment loss on an operating
property will now be based on the estimated fair value of the property 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
will no longer be depreciated. No adjustment of the carrying values of the
Partnership's real estate property investments was required at January 1, 1996
as a result of adopting SFAS No. 121.
NOTE 6 - LEASES
Future minimum rentals to be received by the Partnership under noncancelable
operating leases in effect as of December 31, 1995, are:
Fiscal Year (in thousands)
__________
1996 $ 4,325
1997 3,136
1998 1,629
1999 957
2000 539
Thereafter 1,163
_______
Total $ 11,749
_______
_______
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not provided for an income tax
liability; however, certain timing differences exist between amounts reported
for financial reporting and federal income tax purposes. These differences are
summarized below for years ended December 31:
1995 1994 1993
________ ________ ________
(in thousands)
Book net income (loss) . . . . . $ 2,392 $ 1,862 $ (8,142)
Allowances for:
Uncollectible accounts
receivable . . . . . . . . . (161) 182 36
Property valuations. . . . . . (682) (860) 9,515
Normalized and
prepaid rents . . . . . . . . (81) (182) 15
Interest income. . . . . . . . . 301 302 247
Depreciation . . . . . . . . . . 18 609 (58)
Accrued expenses . . . . . . . . (11) (8) 14
Loss on property sale. . . . . . (2,111) - -
Difference in recognition
of net income of
properties held
through investment
partnerships . . . . . . . . . (50) - (27)
________ ________ ________
Taxable income (loss). . . . . . $ (385) $ 1,905 $ 1,600
________ ________ ________
________ ________ ________
NOTE 8 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $21.05 per unit to
Limited Partners of the Partnership as of the close of business on December
31, 1995. The distribution totals $1,780,000 and represents $11.43 per unit of
cash available for distribution from operations for the period October 1, 1995
through December 31, 1995 and $9.62 per unit from previously retained proceeds
from the sale of the smaller of the two buildings at the Coronado Industrial
property. The Limited Partners will receive $1,770,000, and the General
Partner will receive $10,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets of T. Rowe Price
Realty Income Fund II, America's Sales-Commission-Free Real Estate Limited
Partnership and its consolidated ventures as of December 31, 1995 and 1994,
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,
1995. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of T. Rowe
Price Realty Income Fund II, America's Sales-Commission-Free Real Estate
Limited Partnership and its consolidated ventures as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the
consolidated financial statements of T. Rowe Price
Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited
Partnership included in the
accompanying Form 10-K for the year ended December
31, 1995 and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000787493
<NAME> T. ROWE PRICE REALTY INCOME FUND II,
AMERICA'S SALES-COMMISS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END>
DEC-31-1995
<PERIOD-START>
JAN-01-1995
<PERIOD-END>
DEC-31-1995
<CASH>
4,782,000
<SECURITIES>
0
<RECEIVABLES>
337,000
<ALLOWANCES>
165,000
<INVENTORY>
0
<CURRENT-ASSETS>
0<F1>
<PP&E>
63,214,000
<DEPRECIATION>
18,049,000
<TOTAL-ASSETS>
50,529,000
<CURRENT-LIABILITIES>
0<F1>
<BONDS>
0
<COMMON>
0
0
0
<OTHER-SE>
49,101,000<F2>
<TOTAL-LIABILITY-AND-EQUITY>
50,529,000
<SALES>
0
<TOTAL-REVENUES>
6,964,000
<CGS>
0
<TOTAL-COSTS>
4,673,000
<OTHER-EXPENSES>
0
<LOSS-PROVISION>
(101,000)
<INTEREST-EXPENSE>
0
<INCOME-PRETAX>
2,392,000
<INCOME-TAX>
0
<INCOME-CONTINUING>
2,392,000
<DISCONTINUED>
0
<EXTRAORDINARY>
0
<CHANGES>
0
<NET-INCOME> 2,392,000
<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 $28.16.
</FN>
<PAGE> 1
Schedule III
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership
Consolidated Real Estate and Accumulated Depreciation
December 31, 1995
(Dollars in thousands)
Description Type Encumbrances
Real Estate
Property Investments
Atlantic Industrial $0
Gwinnett Co., GA
Coronado Industrial 0
Anaheim, CA
Oakbrook Corners Business Park 0
Gwinnett Co., GA
Baseline Business Park 0
Tempe, AZ
Business Plaza Office 0
Ft. Lauderdale, FL
AMCC R & D/Office 0
San Diego, CA
Bonnie Lane Industrial 0
Elk Grove, IL
Glenn Avenue Industrial 0
Wheeling, IL
South Point Retail 0
Tempe, AZ
Tierrasanta Business Park 0
San Diego, CA
Fairchild Corporate
Center Office 0
Irvine, CA __
Totals $0
==
<PAGE>2
Properties Held for Sale
Regal Row
Dallas, TX Industrial $0
==
<PAGE> 3
Costs
Initial Cost to Partnership Capitalized
Subsequent
Buildings and to
Description Land Improvements Acquisition
Real Estate
Property Investments
Atlantic $820 $ 4,181 $ 404
Gwinnett Co., GA
Coronado 1,186 2,899 339
Anaheim, CA
Oakbrook Corners 1,885 7,362 298
Gwinnett Co., GA
Baseline 2,095 5,306 60
Tempe, AZ
Business Plaza 2,000 6,260 (1,105)
Ft. Lauderdale, FL
AMCC 2,727 8,557 0
San Diego, CA
Bonnie Lane 755 2,957 424
Elk Grove, IL
Glenn Avenue 565 1,920 418
Wheeling, IL
South Point 1,275 2,331 (1,398)
Tempe, AZ
Tierrasanta 1,350 2,407 (306)
San Diego, CA
Fairchild Corporate
Center 1,056 1,056 (370)
Irvine, CA _______ _______ _______
Totals $15,714 $45,236 $(1,236)
======= ======= ========
Properties Held for Sale
Regal Row $ 1,723 $ 3,860 $ 1,330
Dallas, TX ======= ======= =======
<PAGE> 4
Gross Amounts at which Carried at Close of Period
Buildings and
Description Land Improvements Total
Real Estate
Property Investment
Atlantic $820 $4,585 $5,405
Gwinnett Co., GA
Coronado 2,034 2,390 4,424
Anaheim, CA
Oakbrook
Corners 1,885 7,660 9,545
Gwinnett Co., GA
Baseline 1,889 5,572 7,461
Tempe, AZ
Business Plaza 1,473 5,682 7,155
Ft. Lauderdale, FL
AMCC 2,727 8,557 11,284
San Diego, CA
Bonnie Lane 755 3,381 4,136
Elk Grove, IL
Glenn Avenue 565 2,338 2,903
Wheeling, IL
South Point 539 1,669 2,208
Tempe, AZ
Tierrasanta 1,157 2,294 3,451
San Diego, CA
Fairchild
Corporate Center 700 1,042 1,742
Irvine, CA _______ _______ _______
Totals $14,544 $45,170 $59,714
======= ======= =======
Properties Held for Sale
Regal Row $ 1,723 $ 5,190 6,913
Dallas, TX ======= ======= -----
Portfolio Totals $66,627
=======
<PAGE> 5
Accumulated Date of Date
Description Depreciation Construction Acquired
Real Estate Property Investments
Atlantic $ 1,837 1974 10/86
Gwinnett Co., GA
Coronado 909 1975 11/86
Anaheim, CA
Oakbrook Corners 3,349 1984 11/86
Gwinnett Co., GA
Baseline 2,630 1984 12/86
Tempe, AZ
Business Plaza 3,357 1984 12/86
Ft. Lauderdale, FL
AMCC 2,622 1987 09/87
San Diego, CA
Bonnie Lane 846 1981 11/87
Elk Grove, IL
Glenn Avenue 601 1980 11/87
Wheeling, IL
South Point 842 1987 04/88
Tempe, AZ
Tierrasanta 857 1984 04/88
San Diego, CA
Fairchild Corporate Center 199 1979 05/88
Irvine, CA _______
Totals $18,049
Properties Held for Sale
Regal Row $ 1,421 1971 12/87
Dallas, TX -------
Portfolio Totals $19,470
=======
<PAGE> 6
Life on which
Depreciation
in Latest
Statement of
Operations is
Description Computed
Real Estate Property Investments
Atlantic 5 - 40 years
Gwinnett Co., GA
Coronado 5 - 40 years
Anaheim, CA
Oakbrook Corners 5 - 40 years
Gwinnett Co., GA
Baseline 5 - 40 years
Tempe, AZ
Business Plaza 5 - 40 years
Ft. Lauderdale, FL
AMCC 5 - 40 years
San Diego, CA
Bonnie Lane 5 - 40 years
Elk Grove, IL
Glenn Avenue 5 - 40 years
Wheeling, IL
South Point 5 - 40 years
Tempe, AZ
Tierrasanta 5 - 40 years
San Diego, CA
Fairchild Corporate Center 5 - 40 years
Irvine, CA
Properties Held for Sale
Regal Row 5 - 40 years
Dallas, TX
<PAGE> 7
Notes:
(1) The Partnership recorded provisions for value impairment in
connection with Tierrasanta for $550 in 1994 and Baseline
for $793 in 1993. See note 5 of Notes to Consolidated
Financial Statements.
(2) Because the Business Plaza and South Point properties were
not being actively marketed for sale, the valuation
allowances totalling $3,533 at December 31, 1995 were
reclassified as permanent impairments of the properties'
carrying values. Valuation allowances (recoveries) for these
properties were ($448) in 1995, ($583) in 1994 and $4,564 in
1993. See note 5 of Notes to Consolidated Financial
Statements.
(3) In conjunction with the Partnership acquiring Fairchild
Corporate Center in 1994, the Partnership reduced the
previously recorded valuation allowance for the property,
formerly known as Brinderson Plaza, by $4 and the remaining
allowance of $698 (including $90 in 1993) was reclassified as
a reduction in the carrying value of the property. See note
4 of Notes to Consolidated Financial Statements.
(4) As of December 31, 1995, the Partnership had an agreement to
sell Regal Row and was carrying the property at its estimated
net sale proceeds of $3,500. Valuation allowances
(recoveries) for the property were ($329), ($385), and $2,706
in 1995, 1994, and 1993; respectively. See note 5 of Notes
to Consolidated Financial Statements.
(5) The Partnership sold Sullyfield Circle in June of 1995. See
note 5 of Notes to Consolidated Financial Statements.
(6) Reconciliation of real estate owned:
1995 1994 1993
Balance at beginning of
period $75,631 $76,074 $77,277
Additions during period 962 805 1,469
Property dispositions during
period (5,170) -- (1,879)
Reductions during period (1,263) -- --
Provision for value impairment (3,533) (1,248) (793)
-------- -------- --------
Balance at end of period $66,627 $75,631 $76,074
======== ======== ========
<PAGE>8
(7) Reconciliation of accumulated depreciation:
1995 1994 1993
Balance at beginning of
period $20,038 $17,059 $14,981
Depreciation expense 2,362 2,979 2,327
Property dispositions during
period (1,667) -- (249)
Reductions during period (1,263) -- --
-------- ------- --------
Balance at end of period $19,470 $20,038 $17,059
======== ======= ========
Reductions in depreciation during 1995 reflect the write-off
of tenant improvements relating to tenants who have vacated
the property.
(8) Aggregate cost of real estate owned at December 31, 1995 for
Federal income tax purposes was approximately $68,989.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the consolidated financial statements of T. Rowe
Price Realty Income Fund II, America's Sales-Commission-Free Real
Estate Limited Partnership and its consolidated ventures as
listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial
statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of T. Rowe Price Realty Income Fund II, America's Sales-
Commission-Free Real Estate Limited Partnership and its
consolidated ventures as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
January 19, 1996
