<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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
I.R.S. Employer Identification No.: 52-1470895
Address and zip code of principal executive offices: 100 East
Pratt Street, Baltimore, Maryland 21202
Registrant's Telephone Number, including area code: 1-800-638-
5660
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of T. Rowe Price Realty Income Fund
II, America's Sales-Commission-Free Real Estate Limited
Partnership ("Partnership") are set forth in Exhibit 19 hereto,
which statements are incorporated by reference herein.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources and Results of Operations
The Partnership's liquidity and capital resources and its
results of operations are discussed in the Chairman's letter to
partners on pages 1-2 of Exhibit 19 hereto, the Partnership's
Quarterly Report to Security-Holders, which letter is hereby
incorporated by reference herein.
PART II - OTHER INFORMATION
Item 5. Other Information
On July 28, 1997, the Partnership began mailing to the
Limited Partners a consent solicitation statement seeking their
consent to a sale of substantially all of the Partnership s
assets to Glenborough Realty Trust Incorporated and to complete
the liquidation of the Partnership. The solicitation will expire
on September 11, 1997, unless extended.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
19 - Quarterly Report Furnished to Security-
Holders,including Financial Statements of the
Partnership.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
All other items are omitted because they are not applicable or
the answers are none.
<PAGE>3
SIGNATURES
Pursuant to the requirements 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.
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
Date: August 14, 1997 By: /s/ Lucy B. Robins
Lucy B. Robins
Vice President
Date: August 14, 1997 By: /s/ Mark S. Finn
Mark S. Finn
Chief Accounting Officer for
the Partnership
The Quarterly Report to Limited Partners for the Quarter ended
June 30, 1997 should be inserted here.
T. ROWE PRICE
REALTY INCOME
FUND II
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
QUARTERLY REPORT
FOR THE PERIOD ENDED
JUNE 30, 1997
For information on your
Realty Income Fund account, call:
1-800-962-8300 toll free
410-625-6500 Baltimore area
For information on your
mutual fund account, call:
1-800-225-5132 toll free
410-625-6500 Baltimore area
T. Rowe Price Real Estate Group
100 East Pratt Street
Baltimore, Maryland 21202
Invest With Confidence(registered trademark)
T. Rowe Price
FELLOW PARTNERS:
By now you should have received materials requesting your
consent to sell T. Rowe Price Realty Income Fund II's interests
in its remaining eight properties to Glenborough Realty Trust
Incorporated for $30,441,000, and also to complete the
liquidation of the Fund. A majority of the Fund's outstanding
units must be voted in favor of the proposal for the transaction
to proceed.
As mentioned previously, the Fund has held the properties
for the period anticipated when the Fund was organized, and
current market conditions appear favorable for a sale. The Fund
expects to benefit substantially by selling all of the
properties in bulk instead of individually. In particular, the
costs of selling each property individually-including sales
commissions and other closing-related costs-could be materially
higher. Our experience indicates that there could be more
negative price adjustments as a result of each buyer's due
diligence activities. Also considered was the advantage of
limited partners receiving their sales proceeds immediately
rather than having them spread over the next several years.
The price offered by Glenborough should allow the Fund to
liquidate its investment for an amount that exceeds the most
recent adjusted estimated aggregate value.
Under the heading "THE TRANSACTION- Recommendations of the
General Partner" in the consent materials you received, we
discussed in detail the advantages and disadvantages of the
Glenborough transaction. After carefully weighing the facts and
circumstances associated with this transaction against
alternative courses of action, we concluded that the bulk sale
to Glenborough and subsequent liquidation of the Fund is an
outstanding opportunity to maximize value for investors.
Therefore, we recommend that you consent to the proposed
transaction by voting now and returning the consent card in the
postage-paid envelope, if you have not already done so. Your
participation is extremely important, and your response to the
solicitation will save your Fund the substantial costs
associated with a follow-up mailing. If you have not received
your materials, or if you need an additional consent card,
please call one of our real estate representatives at
1-800-962-8300.
Real Estate Investments (Dollars in Thousands)
______________________________________________________________
Average Contri-
Leased Leased bution to
Status Status Net Income
_________ _______ _______
Six Six
Gross Months Months
Properties Leasable Ended Ended
Held for Area June 30, June 30, June 30,
Sale (Sq. Ft.) 1997 1996 1997 1996 1997
_______ ________ _____ ___ ___ ___ ___
Atlantic 187,844 100% 92% 100% $ 114 $ 166
Coronado 95,732 100 100 100 91 121
Oakbrook
Corners 123,948 100 65 90 (50) 176
Baseline 100,204 95 91 93 64 156
Business
Plaza 66,342 91 71 91 34 123
Bonnie Lane 119,590 89 93 100 101 172
Glenn Avenue 82,000 100 100 100 81 166
Tierrasanta 104,236 62 100 62 72 44
________ ____ ____ ____ _____ _____
879,896 93 89 93 507 1,124
Properties Sold - - - - (1,026) 154
Fund Expenses
Less Interest
Income - - - - (110) (159)
________ ____ ____ ____ _____ _____
Total 879,896 93% 89% 93% $ (629) $1,119
Cash Distributions
Proceeds from the sale of South Point Plaza were distributed in May to
limited partners as of April 30, 1997. Pending the completion of the sale to
Glenborough, the Fund has suspended cash distributions from operations.
Assuming all properties are sold during the next few months, the General
Partner will determine the amount it believes sufficient for the payment of
Fund liabilities; the balance of the assets will then be promptly
distributed.
Results of Operations
Net income of $1,119,000 for the first six months of 1997 represented an
improvement of $1,748,000 over the $629,000 loss during the comparable 1996
period. Of the increase, $1,349,000 was attributable to the absence of a
decline in property value at AMCC, recorded in 1996. Further, there was a
decrease of $712,000 in depreciation expense resulting from stopping the
depreciation of Fund properties now Held for Sale. The loss of income from
properties sold offset the increase in net income by $169,000.
At the property level, the Fund's average leased status increased to 93%
from 89% at the end of the second quarter in 1996. Leased status at Oakbrook
Corners rose to 100% at quarter-end as a new lease for 20,800 square feet was
signed at the property. A tenant occupying 13,200 square feet vacated Bonnie
Lane, lowering leased status there by 11%. A new lease for 6% of Tierrasanta
was executed after quarter-end, and two other leases covering the rest of the
vacancy at the property are currently being negotiated. At Coronado, an
expenditure in the amount of approximately $220,000 will be made to replace
the roof. The roof replacement was already budgeted for this year, and the
Fund is proceeding with the work as part of its agreement with Glenborough.
Outlook
As the real estate market has been improving in recent years, we have taken
advantage of the opportunity to capture higher prices for portfolio
properties. We believe it is in the best interests of investors to liquidate
the Fund's portfolio while real estate values continue to strengthen, since
the Fund is nearing the end of its planned lifespan. In the normal course of
events, as the real estate cycle runs its course, rising property prices
usually lead to an increased supply of new properties, which could lead to
softer prices sometime later.
No one can forecast exactly when the real estate market will peak, but we
believe it is likely that there will be less capital available to real estate
investors in the future and that speculative construction may commence in
several markets in which the Fund owns properties. Each of these factors, if
they occur, could have a negative impact on the value of our properties.
Once again we urge you to read the consent solicitation materials and
return the card as quickly as possible so that we can proceed with the
orderly liquidation of your investment.
Thank you for your cooperation.
Sincerely,
James S. Riepe
Chairman
August 7, 1997
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
June 30, December 31,
1997 1996
___________ ____________
Assets
Real Estate Property
Investments
Land. . . . . . . . . . . . . . . $ 8,443
Buildings and
Improvements. . . . . . . . . . . 19,352
________
27,795
Less: Accumulated Depreciation
and Amortization. . . . . . . . . (6,625)
________
21,170
Held for Sale. . . . . . . . . . . . $ 27,102 14,860
________ ________
27,102 36,030
Cash and Cash Equivalents . . . . . . . 3,362 3,667
Accounts Receivable (less
allowances of $28
and $22). . . . . . . . . . . . . 142 162
Other Assets. . . . . . . . . . . . . . 13 333
________ ________
$ 30,619 $ 40,192
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents. . . . . . . . . . . . $ 357 $ 505
Accrued Real Estate Taxes . . . . . . . 484 394
Accounts Payable and Other
Accrued Expenses . . . . . . . . . . 349 307
________ ________
Total Liabilities . . . . . . . . . . . 1,190 1,206
Partners' Capital . . . . . . . . . . . 29,429 38,986
________ ________
$ 30,619 $ 40,192
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
____ ____ ____ ____
Revenues
Rental Income . . . . . . $ 1,146 $ 1,475 $ 2,464 $ 3,020
Interest Income . . . . . 75 61 175 139
________ ________ ________ ________
1,221 1,536 2,639 3,159
________ ________ ________ ________
Expenses
Property Operating
Expenses . . . . . . 213 294 454 561
Real Estate
Taxes. . . . . . . . 169 195 344 413
Depreciation and
Amortization . . . . - 484 242 954
Decline (Recovery)
of Property
Values . . . . . . . - 1,621 (30) 1,509
Management Fee
to General
Partner. . . . . . . 157 54 214 109
Partnership Management
Expenses . . . . . . 135 126 296 242
________ ________ ________ ________
674 2,774 1,520 3,788
________ ________ ________ ________
Net Income
(Loss) . . . . . . . $ 547 $ (1,238)$ 1,119 $ (629)
________ ________ ________ ________
________ ________ ________ ________
Activity per Limited Partnership Unit
Net Income
(Loss) . . . . . . . $ 6.44 $ (14.57)$ 13.17 $ (7.40)
________ ________ ________ ________
________ ________ ________ ________
Cash Distributions Declared
from Sale
Proceeds. . . . . $ 17.28 $ 110.78 $ 42.95
from
Operations. . . . - $ 6.50 - 13.00
________ ________ ________ ________
Total Distributions
Declared . . . . . . $ 17.28 $ 6.50 $ 110.78 $ 55.95
________ ________ ________ ________
________ ________ ________ ________
Units
Outstanding. . . . . 84,099 84,099 84,099 84,099
________ ________ ________ ________
________ ________ ________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, December 31,
1996 . . . . . . . . . . . . . $ (308)$ 39,294 $ 38,986
Net Income. . . . . . . . . . . . . 11 1,108 1,119
Cash Distributions. . . . . . . . . (14) (10,662 (10,676)
_______ _______ _______
Balance, June 30, 1997. . . . . . . $ (311) $ 29,740 $ 29,429
_______ _______ _______
_______ _______ _______
See the accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Six Months Ended
June 30,
1997 1996
_________ _________
Cash Flows from Operating
Activities
Net Income (Loss) . . . . . . . . . . . . $ 1,119 $ (629)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation and
Amortization. . . . . . . . 242 954
Decline (Recovery) of
Property Values . . . . . . (30) 1,509
Decrease in Accounts
Receivable, Net of
Allowances. . . . . . . . . 20 12
Change in Other
Assets. . . . . . . . . . . 52 (30)
Decrease in Security
Deposits and Prepaid
Rents . . . . . . . . . . . (148) (77)
Increase in Accrued Real
Estate Taxes. . . . . . . . 90 28
Change in Accounts
Payable and Other
Accrued Expenses. . . . . . 42 (199)
________ ________
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . 1,387 1,568
________ ________
Cash Flows from Investing Activities
Proceeds from Property
Disposition. . . . . . . . . . . . . 9,316 3,612
Investments in Real Estate. . . . . . . . (332) (618)
________ ________
Net Cash Provided by Investing
Activities . . . . . . . . . . . . . 8,984 2,994
________ ________
Cash Flows Used in Financing
Activities
Cash Distributions. . . . . . . . . . . . (10,676) (5,944)
________ ________
Cash and Cash Equivalents
Net Decrease during Period. . . . . . . . (305) (1,382)
At Beginning of Year. . . . . . . . . . . 3,667 4,782
________ ________
At End of Period. . . . . . . . . . . . . $ 3,362 $ 3,400
________ ________
________ ________
See the accompanying notes to condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated financial
statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of
a normal, recurring nature.
The unaudited interim financial information contained in
the accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements contained in the 1996 Annual Report to Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs
of the Partnership, the General Partner earns a partnership
management fee equal to 9% of net operating proceeds. The
General Partner earned a partnership management fee of
$214,000 during the first six months of 1997.
In accordance with the partnership agreement, certain
operating expenses are reimbursable to the General Partner.
The General Partner's reimbursement of such expenses totaled
$78,000 for communications and administrative services
performed on behalf of the Partnership during the first six
months of 1997.
An affiliate of the General Partner earned a normal and
customary fee of $9,000 from the money market mutual funds in
which the Partnership made its interim cash investments during
the first six months of 1997.
LaSalle Advisors Limited Partnership ("LaSalle") is the
Partnership's advisor and is compensated for its advisory
services directly by the General Partner. LaSalle is
reimbursed by the Partnership for certain operating expenses
pursuant to its contract with the Partnership to provide real
estate advisory, accounting and other related services to the
Partnership. LaSalle's reimbursement for such expenses during
the first six months of 1997 totaled $75,000.
An affiliate of LaSalle earned $59,000 in the first six
months of 1997 for property management fees and leasing
commissions on tenant renewals and extensions for several of
the Partnership's properties.
NOTE 2 - PROPERTY DISPOSITIONS
On January 23, 1997, the AMCC property was sold and the
Partnership received net proceeds of $7,863,000. The net book
value of the Partnership's interest in this property at the
date of disposition was also $7,863,000, after accumulated
depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was
recognized on the property sale.
On April 8, 1997, South Point Plaza, a shopping center in
which the Partnership had a 50% interest, was sold and the
Partnership received net proceeds of $1,453,000. The net book
value of the Partnership's interest in this property at the
date of disposition was also $1,453,000 after accumulated
depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was
recognized on the property sale.
NOTE 3 - PROPERTIES HELD FOR SALE
On April 11, 1997, the Partnership and its consolidated
venture entered into contracts with a buyer for the sale of
all of its real estate property investments at a price of
$30,441,000 before selling expenses. The transactions are
subject to approval of the Limited Partners. If the
transactions close, the Partnership will have sold all of its
real estate properties and will begin liquidation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the unaudited condensed consolidated financial statements of
T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership
included in the accompanying Form 10-Q for the period ended June
30, 1997 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,362,000
<SECURITIES> 0
<RECEIVABLES> 170,000
<ALLOWANCES> 28,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 27,102,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,619,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,429,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 30,619,000
<SALES> 0
<TOTAL-REVENUES> 2,639,000
<CGS> 0
<TOTAL-COSTS> 1,520,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,119,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,119,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,119,000
<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
$13.17.
</FN>
