<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 0-16542
Exact name of registrant as specified in its charter: T. ROWE
PRICE REALTY INCOME FUND III, AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification Number: 52-1512713
Address of principal executive offices: 100 East Pratt
Street, Baltimore, Maryland 21202
Registrant's telephone number: 1-800-638-5660
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Partnership dated January 5,
1987, File Number 33-9899 filed with the Commission pursuant
to Rule 424(b) are incorporated herein in Parts I, III, and IV
by reference.
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Portions of the Annual Report to Limited Partners of the
Partnership for the fiscal year ended December 31, 1995 dated
February 15, 1996 and filed with the Commission as Exhibit 13
is incorporated in Parts I, II and IV by reference.
Index to Exhibits is located on pages 29-31.
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T. ROWE PRICE REALTY INCOME FUND III,
AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED
PARTNERSHIP
INDEX
Page
PART I.
Item 1. Business 4
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of 15
Security Holders
PART II.
Item 5. Market for the Partnership's Limited 15
Partnership Interests and Related
Security Holder Matters
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis 18
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary 23
Data
Item 9. Changes in and Disagreements with 23
Accountants on Accounting and
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the 23
Partnership
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial 27
Owners and Management
Item 13. Certain Relationships and Related 28
Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules and 29
Reports on Form 8-K
<PAGE>4
PART I
Item 1. Business
T. Rowe Price Realty Income Fund III, America's Sales-
Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on October 20, 1986, under the
Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, operating and disposing of existing
income-producing commercial and industrial real estate
properties. On January 5, 1987, the Partnership commenced an
offering of $100,000,000 of Limited Partnership Units ($250
per Unit) pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933 (Registration No. 33-9899)
(the "Registration Statement"). The Prospectus filed pursuant
to Rule 424(b) under the Securities Act of 1933 (the
"Prospectus") sets forth a complete description of the
business of the Partnership in the sections entitled
"Investment Objectives" and "Fund Policies" on pages 18 - 25
of the Prospectus, which pages are incorporated by reference
herein. The Gross Proceeds from the offering totaled
$63,385,000, and an additional $25,000 was contributed by the
initial limited partner, T. Rowe Price Real Estate Group, Inc.
The offering terminated on June 30, 1987, and no additional
Units will be sold. Forty-two Units have been redeemed by the
Partnership on a "hardship" basis; there were 253,599 Units
outstanding, and 10,364 Limited Partners, as of March 16,
1996.
In December of 1991, LaSalle Advisors Limited Partnership
("LaSalle") entered into a contract with the general partner
of the Partnership, T. Rowe Price Realty Income Fund III
Management, Inc. ("the General Partner") and the Partnership
to perform day-to-day management and real estate advisory
services for the Partnership under the supervision of the
General Partner and its Affiliates. LaSalle's duties under
the contract include disposition and asset management
services, including recordkeeping, contracting with tenants
and service providers, and preparation of financial statements
and other reports for management use. The General Partner
continues to be responsible for overall supervision and
administration of the Partnership's operations, including
setting policies and making all disposition decisions, and the
General Partner and its Affiliates continue to provide
administrative, advisory, and oversight services to the
Partnership. Compensation to LaSalle from the Partnership
consists of accountable expense reimbursements, subject to a
fixed maximum amount per year. All other compensation to
LaSalle is paid out of compensation and distributions paid to
the General Partner by the Partnership.
<PAGE>5
The Partnership is engaged solely in the business of real
estate investment; therefore, presentation of information
about industry segments is not applicable. In 1995, two of the
Partnership's properties produced 15% or more of the
Partnership's revenues from operations: Westbrook Commons
(21%), and Winnetka Industrial Park (19%). In 1994, three of
the Partnership's properties produced 15% of more of the
Partnership's revenues from operations: Westbrook Commons
(20%), Winnetka Industrial Park (19%), and Brinderson Plaza
(16%). In 1993, two of the Partnership's properties produced
15% or more of the Partnership's revenue: Winnetka Industrial
Park (17%) and Westbrook Commons (15%). In none of these
periods did any single tenant produce more than 10% of the
Partnership's revenue.
The Partnership owns directly or through joint venture
partnerships the properties or interests set forth in Schedule
III to this Report, "Real Estate and Accumulated
Depreciation," which is set forth in Exhibit 99(b)to this
Report, and which is incorporated by reference herein and
contains information as to acquisition date and total costs of
each of the properties. Additional information regarding
these properties and/or interests, including percentage leased
as of December 31, 1995 is set forth in the table, "Real
Estate Holdings," appearing on page 6 of the Partnership's
1995 Annual Report to Limited Partners which is hereby
incorporated by reference herein. A brief narrative
description of each property or investment therein which the
Partnership has acquired is as follows.
Scripps Terrace
The Partnership owns a 100% interest in this property which
consists of two one-story research and
development/office/service buildings containing 57,000 square
feet of space. The property is located in the center of the
Scripps Ranch planned community in the I-15 Corridor in
suburban San Diego, California.
Activity at the property during the year consisted of one new
6,300 square foot lease and the loss of one 5,400 square foot
tenant after its lease expired. Thus, the property was 82%
leased at year-end 1996 versus 81% twelve months earlier.
Leases representing 35% of the property's leasable area expire
in 1996 and the Partnership is currently negotiating with the
three tenants involved.
Net absorption for the year in the Scripps Ranch/Scripps Mesa
market totaled approximately 81,000 square feet, about the
same as the previous year. The year-end vacancy rate for the
submarket decreased by four percentage points from one year
ago to approximately 8%. However, there continues
<PAGE>6
to be limited demand for space in multi-tenant properties such
as Scripps Terrace. Total inventory (leased and available) at
year-end 1995 remained at approximately 1.7 million square
feet. Average net effective rents remained at roughly the
same level as the previous year - around an average of $6.00
per square foot per year net of taxes, insurance and utilities
("NNN") for competitive properties. There appears to be no
new construction planned for industrial/R&D buildings in the
Scripps Ranch area.
During 1994, the Partnership recorded a provision for value
impairment of $917,000 in connection with Scripps Terrace.
The General Partner determined that this adjustment was a
prudent course of action based upon the uncertainty of the
Partnership's ability to recover the net carrying value of the
project through future operations 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 1995.
Winnetka
The Partnership owns a 100% interest in Winnetka Industrial
Park which is located in Crystal, Minnesota, a suburb of
Minneapolis. The property consists of two multi-tenant
industrial buildings containing 188,000 square feet of space.
Even though the Partnership lost one 12,900 square foot tenant
upon the expiration of its lease, it was able to expand a
renewing tenant into that space fairly quickly and also lease
the remaining 11,200 square foot vacancy to a new tenant, to
bring this suburban Minneapolis industrial project to 100%
leased by year-end 1995 versus 94% at year-end 1994. Leases
covering 19% of the project expire in 1996.
The recent National Association of Industrial and Office Parks
("NAIOP") survey of the Twin Cities' West/Northwest
office/warehouse submarket cited an approximate vacancy rate
of 5% versus 6% in 1994. The west and northwest suburban
submarket contains approximately 7.5 million square feet, with
approximately 390,000 square feet of space available. Net
absorption of approximately 106,000 square feet was recorded
during the most recent four quarters. Average asking rates
for comparable space increased approximately 9% to
approximately $7.20 NNN per square foot per year for the
office portion of industrial buildings while asking rates rose
approximately 4% to $3.59 NNN for the warehouse portion.
Virtually no free rent is being offered as a concession to
negotiate a transaction, except when space is taken "as-is."
With the reduction in vacancy rates,
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speculative construction is underway. At present, a 130,000
square foot multi-tenant office/warehouse building is being
built in the market. So long as present market conditions
continue, the outlook for high occupancy and favorable rents
for Winnetka Industrial Park is good.
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 II, America's Sales-Commission-Free Real Estate Limited
Partnership ("RIF II"). South Point Partners owns a 100%
interest in South Point Plaza Shopping Center ("South Point"),
in Tempe, Arizona. The property consists of two multi-tenant
buildings in a neighborhood shopping center, which is also
occupied by a supermarket. The total square footage of the
multi-tenant buildings is 42,000 square feet. The Partnership
also owns pads for two 3,000 square feet single-tenant
buildings, one of which is built-out as a restaurant.
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 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.
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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 $1,758,000.
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 $73,000 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 II and T. Rowe Price
Realty Income Fund IV, America's Sales-Commission-Free Real
Estate Limited Partnership ("RIF IV"). Tierrasanta 234 owns a
100% interest in Tierrasanta Research Park in San Diego,
California. The project contains four office buildings
utilized for research and development purposes, for a total of
104,000 square feet of space. It is located in the Kearny
Mesa market area, north of San Diego, which is part of the
larger "Interstate 15" commercial 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
<PAGE>9
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 determination
was based upon then-current market conditions and future
performance expectations for this investment. No additional
provisions were deemed warranted in 1995.
Wood Dale
The Partnership owns a 100% interest in two multi-tenant
industrial warehouse/manufacturing/distribution buildings in
Wood Dale, Illinois, a suburb of Chicago located immediately
west of O'Hare Airport. (A 22,000 square foot building was
sold in 1994.) The buildings are located within a few blocks
of each other and contain a total of 90,000 square feet.
Although two tenants totaling 16,900 square feet renewed their
leases for three or more years and one 10,400 square-foot
tenant extended its lease into 1996, one 9,500 square-foot
tenant vacated upon its lease expiration near the end of the
year. Thus, this suburban Chicago industrial project
experienced a decline in occupancy from 100% to 89% by year
end. Leases in place representing 30% of the total leasable
area are scheduled to expire in 1996. Rental rates on new
<PAGE>10
leases are anticipated to be equal to or higher than on the
leases which are expiring in 1996. So long as present market
conditions continue the outlook for high occupancy and
favorable rents for Wood Dale is good.
The western O'Hare suburban Chicago industrial market in which
the project is located consists of approximately 157.3 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 positive
absorption of approximately 774,000 square feet during the
year. At the current pace of absorption, there is only
approximately eight months of available space in the market.
Thus, speculative construction has commenced, 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.
Clark Avenue
The Partnership owns a 100% interest in this 40,000 square
foot office/industrial building in King of Prussia,
Pennsylvania, a northwestern suburb of Philadelphia.
The only activity which occurred at this King of Prussia,
Pennsylvania, office project during the year was the loss of
a tenant which represented 28% of the property one month
before its lease expiration due to financial problems. Thus,
the property ended the year at 72% leased versus 100% at year
end 1994. Although the Partnership has had interest from a
few prospective tenants, the Partnership does not believe that
a signed lease is imminent. No leases expire in 1996.
With an inventory of approximately 10.8 million square feet,
the King of Prussia office submarket has a vacancy rate of
approximately 12% as of the end of the third quarter of 1995;
this represents a decrease from the 15% level at year-end
1994. Net absorption recorded through the third quarter of
1995 was approximately 265,000 square feet. While occupancy
by existing tenants in the submarket has declined due to
relocation to other areas and consolidations of space within
the submarket, an influx of new tenants has resulted in the
increase of occupancy. The impact on office requirements of a
series of mergers involving the largest tenant in the market,
Lockheed Martin, is still unknown. It is not yet known
whether Lockheed Martin will close or downsize the division's
operations in the submarket; if it does so, there will be a
negative impact on vacancy rates
<PAGE>11
and rents. At present, rental rates for comparable Class B
space have remained at a range of $8.00 to $12.00 per square
foot per year net of insurance, taxes, and operating expenses.
Fewer concessions are being offered. There was no new
construction activity in the King of Prussia/Valley Forge
market and none is planned.
Riverview
The Partnership owns a 100% interest in the Riverview property
which is located in the Riverview Industrial Park directly
across the Mississippi River from the St. Paul, Minnesota
Central Business District. The project consists of three
multi-tenant industrial warehouse/distribution/light
manufacturing buildings containing a total of 114,000 square
feet of space.
Three tenants representing 20,600 square foot or 18% of the
space renewed and/or expanded their leases during 1995.
Additionally, one new 10,100 square foot tenant was signed.
This positive activity more than offset the loss of two
tenants totaling 10,000 square feet who vacated upon their
lease expirations. Thus, the property increased its leased
status by five percentage points over last year to end the
year at 96% leased. Leases representing 22% of the property's
leasable area expire in 1996. As discussed below, conditions
in the market are improving, and the Partnership believes
there is a good possibility that a substantial amount of this
space can be leased to new or existing tenants in 1996 at
rates which are higher than or equal to those of the expiring
leases, although there is no assurance this will occur.
The most recent NAIOP survey of the St. Paul, Midway, and
Suburban submarket showed that the vacancy rate declined
approximately three percentage points to 3% on a total
inventory of approximately 5.6 million square feet. Net
absorption totaled approximately 428,000 square feet for the
four quarters ending June 30, 1995. Average asking rates for
office/warehouse space increased almost 9% for the office
portion with an average $7.00 NNN per square foot per year
while average asking rates for the warehouse portion remained
at $3.00 NNN. Concessions are disappearing, and tenants are
beginning to pay for improvements over the initial lease term.
Over 500,000 square feet of space is planned or under
construction in the submarket.
<PAGE>12
Westbrook Commons
The Partnership owns a 50% interest in Penasquitos 34, a joint
venture with RIF IV. Penasquitos 34 owns a 100% interest in
Westbrook Commons Shopping Center ("Westbrook Commons"), a
neighborhood shopping center in the Village of Westchester,
Illinois, a Chicago suburb. The property contains
approximately 122,000 rentable square feet of space.
One new 3,600 square foot tenant and six renewal leases
totaling 8,900 square feet were signed during the year at this
suburban Chicago retail center at generally higher rates than
previously paid. However, because one 1,300 square foot
tenant did not renew, and two tenants occupying a total of
3,700 square feet were lost due to credit issues, the
property's occupancy declined slightly - from 97% to 96% by
year end 1995. During the year, we initiated a strategy to
ensure that the "dated" appearance of the center did not
hinder further leasing efforts. Thus, we implemented and
completed a "face lift" which substantially improved the "curb
appeal" of the property. Leases representing 6% of the
property's total leasable area expire in 1996. Activity from
prospective tenants, as well as current tenants interested in
expanding, has been good.
The Westchester market in which the project is located
continues to remain a stable and relatively healthy
environment for retailers. As a general observation, grocery
anchored centers such as Westbrook Commons have proven to be
the most successful anchor for the service/convenience based
retailers. Somewhat insulated from an over abundance of
competition, little fluctuation has occurred in the overall
vacancy and rental rates throughout the submarket. Industry
figures place the vacancy rate for the competitive centers
within a three mile radius of Westbrook Commons at
approximately 4% versus 2% the previous year on a total
inventory of 1.1 million square feet. The average rental
rates in the submarket are currently $14.00-16.00 NNN per
square foot per year for Class A space.
Fairchild Corporate Center (formerly known as Brinderson
Plaza)
The Partnership owns a 56% interest in Fairchild 234, a joint
venture with RIF II 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
<PAGE>13
participating loan. The Partnership previously recorded a
loan loss of $4,890,000 in 1991, and valuation allowances
totalling $1,638,000 in 1992 and 1993. In conjunction with the
first quarter 1994 purchase of Fairchild Corporate Center, the
valuation allowance was reduced to $1,629,000 and then
reclassified as a reduction in 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 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.
River Run
The Partnership owns a 100% interest in River Run Shopping
Center in Miramar, Florida containing 93,000 square feet of
space. On October 10, 1995, the Partnership acquired the
<PAGE>14
property through foreclosure proceedings. The investment was
previously held as a participating loan secured by the
property. During the fourth quarter of 1993, the loan was
restructured to permit the borrower to defer mortgage interest
payments to a limited extent. Because the ability of the
borrower to repay the loan was in question, the Partnership
established a $1.4 million loan loss provision during 1992 and
provided allowances for doubtful interest receivables
totalling $692,000 at December 31, 1993.
In July 1995, the Partnership began consensual foreclosure on
the participating mortgage loan secured by the River Run
Shopping Center and ceased the accrual of interest income. At
September 30, 1995, the carrying value of the loan was reduced
from $7,840,000 to $7,700,000, the estimated fair value of the
underlying property, and additional loan losses of $118,000
were recognized. On October 10, 1995, the Partnership
purchased the property at the foreclosure sale and, in
connection therewith, reclassified the participating mortgage
loan as an investment in real estate.
This South Florida retail center signed two new leases
totaling 1,500 square feet and one 1,000 square foot renewal
lease. However, three tenants totaling 4,275 square feet did
not renew their leases and three tenants occupying 6,300
square feet defaulted on their leases and were forced to
vacate. Thus, occupancy declined from 100% at year-end 1994
to 90% at year-end 1995. As the owner, the Partnership now
has the ability to operate and lease the property according to
its objectives, as opposed to those of the former borrower,
and is beginning to reposition the property. As a result,
occupancy may further decline in the near term as the
Partnership focuses on improving both tenant credit worthiness
and tenant mix. Leases covering 1% of the project are
scheduled to expire in 1996.
The southwest Broward County non-regional mall submarket
contains approximately 4.5 million square feet of retail space
in 25 projects. The directly competitive market consists of
four centers totaling 650,000 square feet. Vacancy rates
within this smaller market are less than 1%.
Leasing activity in the area currently consists of local
community and first-time business operators. However, new
housing construction in the area may positively impact the
center within the foreseeable future. Rental rates for new
leases have remained at an average of $10.00 to $15.00 NNN per
square foot per year.
<PAGE>15
Employees
The Partnership has no employees and, accordingly, the General
Partner, the Partnership's investment adviser, LaSalle, and
their affiliates and independent contractors perform services
on behalf of the Partnership in connection with administering
the affairs of the Partnership and operating properties for
the Partnership. The General Partner, LaSalle and their
affiliates receive compensation in connection with such
activities, as described above. Compensation to the General
Partner and its affiliates, and the terms of transactions
between the Partnership and the General Partner and its
affiliates, are set forth in Items 11. and 13. below, to which
reference is made for a description of those terms and the
transactions involved.
Item 2. Properties
The Partnership owns the properties referred to under Item 1.
above, to which reference is made for the name, location and
description of each property. All properties were acquired on
an all-cash basis.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters
On March 16, 1996, there were 10,364 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 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.
<PAGE>16
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.
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 $3.54
June 30, 1994 $3.26
September 30, 1994 $7.47
December 31, 1994 $3.18
March 31, 1995 $1.58
June 30, 1995 $1.58
September 30, 1995 $1.58
December 31, 1995 $6.37
All of the foregoing distributions were paid from net cash
flows from current period operating activities, with the
exception of the distribution for the quarter ended December
31, 1995, which included $3.25 per Unit from retained cash
balances generated by operations in prior years and a return
of capital of $.75 per Unit from proceeds of the initial
public offering of Units, which had been retained as cash
balances, and the distribution for the quarter ended September
30, 1994, which included $3.92 per Unit from the proceeds of
the sale of the Benoris Building, one of the buildings in the
Wood Dale property.
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.
<PAGE>17
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 $158 per Unit. After distributions in
February, 1996 of $4.00 per Unit which included a return of
capital of $.75 per Unit and $3.25 per Unit from retained cash
balances generated by the prior years' operations, the
estimated valuation is $154. 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 $41,733 $41,885 $45,780 48,843 $52,769
Total revenues $6,094 $6,357 $6,211 $6,078 $5,853
Net income
(loss) $1,783 $579 $(109) $(1,268) $(2,864)
Net income
(loss)
per Unit $6.96 $2.26 $(0.43) $(4.95) $(11.18)
Cash distributions
paid to:
Limited
Partners $2,009 $4,400 $2,932 $2,970 $3,459
General
Partner $20 $34 $30 $31 $35
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 above for Net income (loss) include a loan
loss provision of $118 and a valuation recovery of $109
in 1995, provisions for value impairment of $1,467,
valuation recoveries of $82, and gain from the sale of
the Benoris Building of $80 in 1994, valuation allowances
of $1,968 in 1993, a valuation allowance of $1,428 and a
provision for loan loss of $1,426 in 1992, and a $4,890
provision for loan loss in 1991.
<PAGE>18
3. The figures above for Net income (loss) per Unit include
a loan loss provision of $.46 per Unit and a valuation
recovery of $.43 per Unit in 1995, provisions for value
impairment of $5.73 per Unit, a valuation recovery of
$.32 per Unit, and gain from sale of Benoris Building of
$.31 per Unit in 1994, valuation allowances of $7.68 per
Unit in 1993, and $5.57 per Unit in 1992, a provision for
loan loss of $19.09 per Unit in 1991, and a provision for
loan loss of $5.57 per Unit in 1992.
Distributions declared per unit of limited partnership
interest for fiscal years 1991 through 1995 were as follows:
Amount of Distribution
Year Ended per Unit
December 31, 1991 $12.65
December 31, 1992 $11.53
December 31, 1993 $11.74
December 31, 1994 $17.45
December 31, 1995 $11.11
The foregoing distributions include a return of capital from
proceeds of the initial public offering of Units, which had
been retained as cash balances, in the amount per Unit of $.75
in 1995, $.49 in 1992, and $.47 in 1991, and a total of $2.92
in 1988-1990. The distribution for 1994 also includes $3.92
per Unit from the proceeds of the sale of the Benoris
Building. The remainder of these distributions were paid from
cash from operating activities.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership sold 253,641 Units for a total of $63,410,000,
including the contribution of $25,000 from the original
Limited Partner. The offering was terminated on June 30, 1987
and no additional units will be sold. After deduction of
organizational and offering costs of $3,805,000, the
Partnership had $59,605,000 available for investment and cash
reserves. Through December 31, 1995 the Partnership had
declared distributions constituting return of capital from the
proceeds of this offering of approximately $1.2 million.
The Partnership owns ten properties or interests therein
acquired on an all-cash basis (including two originally
recorded as loans). The Partnership has sold a portion of
one property, the Wood Dale property, and on February 1,
<PAGE>19
1994 and October 10, 1995, respectively, acquired an ownership
interest in Fairchild Corporate Center, and a 100% interest in
River Run Shopping Center, each of which originated as a
participating mortgage loan. The acquisition cost of the
Partnership's current real estate investments and subsequent
improvements thereto (including its interests in Fairchild
Corporate Center and River Run Shopping Center) was
$57,508,000. The Partnership has also recorded provisions for
loan loss and value impairments totaling $11,106,000, and has
sold one building (the Benoris Building) with a gross cost of
$1,082,000. Therefore, the net investment in real estate
before deduction for depreciation for financial reporting
purposes is $45,320,000 as of December 31, 1995. These
provisions and allowances are based on the General Partner's
concern that the Partnership may be unable to recover the net
carrying value of certain properties through future operations
and sale. They resulted in part from lower market rents,
higher vacancy rates, and/or lower sale prices for comparable
properties in markets where the properties are located.
The balance of the proceeds of the initial offering,
approximately $1.7 million, is invested in short-term money
market interest-bearing investments. The Partnership expects
to incur capital expenditures for tenant improvements, lease
commissions, and other major repairs and improvements during
1996 totaling approximately $1.6 million. Of this amount
approximately $300,000 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, and the balance is for renovations, leasing
commissions and tenant improvements; the majority of these
latter expenditures is also dependent on the execution of
leases with new and renewing tenants.
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.
At year-end 1995 the General Partner determined that 1995
year-end cash balances and cash anticipated to be generated
from operating activities during 1996 would be more than
adequate to fund the Partnership's current investing and
operating needs. The distribution paid in February 1996 for
the fourth quarter of 1995 thus included a return of capital
of $190,000 ($.75 per Unit) from the Partnership's cash
balances. Based on current expectations, cash distributions
to partners from operating income may be higher than in 1995,
in part because the Partnership is now assured of receiving
all cash flow generated by the River Run property.
<PAGE>20
As of December 31, 1995, the Partnership maintained cash and
cash equivalents aggregating $3,436,000, down $227,000 from
the prior year end. This decrease resulted from slightly
lower cash from operations and increased cash used in
investing activities, particularly for the improvements at
Westbrook Commons and Fairchild Corporate Center. Net cash
provided by operating activities in 1995 decreased by
$281,000. Net cash used in investing activities in 1995
increased by $1,505,000, due to the sale of the Benoris
Building in 1994 and higher property improvement expenditures
in 1995. Net cash used in financing activities decreased by
$2,405,000 due primarily to lower distributions of cash from
operations, and distributions of the proceeds of the sale of
the Benoris Building in 1994.
Operations
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.
1995 v. 1994
While the Partnership's statements of operations appear to
show that the Fund's performance improved significantly over
1994, income was actually down $210,000 when the effect of
value impairments, primarily at Scripps Terrace and
Tierrasanta, are backed out of 1994's numbers. The change in
River Run's status from a loan to an owned property had the
most notable impact on the year-over-year comparison.
In the fourth quarter of 1995, the Partnership took over
ownership of River Run and began accounting for it as a
property rather than as a loan. This meant that its rental
income and property level operating expenses, rather than
interest, were included in the Partnership's results.
Inclusion of its fourth quarter rental income caused that
revenue category to be up for the full year over 1994. The
<PAGE>21
benefit, however, was more than offset by the decrease in
interest income from the River Run loan and the increase in
expenses related to the property, particularly the loan loss
provisions and uncollectible interest. The Partnership
believes that, over the long term, the Partnership's ownership
of River Run will prove to be more beneficial than these early
results indicate. This assumes no major deterioration in the
local economy and that the Partnership is successful in its
leasing efforts.
Turning to the other properties in the portfolio, the lower
average leased status at Fairchild Corporate Center and Clark
Avenue drove the overall decline in rental income. The
absence of Benoris, which was sold in 1994, also had a
negative effect on the revenue comparison. The Partnership
has initiated a renovation program at Fairchild and is seeing
more interest in the building. Uncertainty over the plans of
a major employer in Clark Avenue's market clouds the outlook
for this property, but none of its leases is scheduled to
expire in 1996.
The most noteworthy expense item which had a positive effect
on the net income comparison with 1994, other than higher
valuation impairments in 1994, was depreciation. Higher
tenant improvement charge-offs in 1994 at Wood Dale,
Tierrasanta, Scripps Terrace, Winnetka, Clark Avenue, and
Riverview led to the decrease in depreciation versus 1994.
Leases representing 21% of the portfolio's leasable square
footage are scheduled to expire in 1996. These leases
represent approximately 28% 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 90% 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.
There are no single-tenant properties in the Partnership's
portfolio, and no single tenant accounted for more than 10% of
the Partnership's revenue in 1995. The Partnership therefore
does not expect any material adverse effect on revenue on
account of the failure of any single tenant in 1996. The
Scripps Terrace property has 35% of its leases scheduled to
expire in 1996, but the property accounted for less than 10%
of 1995 revenue. At Tierrasanta, 38% of the leases expire in
1996, but the property accounted for less than 10% of 1995
revenues. At Fairchild Corporate Center, 31% of the leases
expire in 1996, but the revenues from these leases represent
less than 5% of the Partnership's
<PAGE>22
1995 revenue from operations. Thus, the Partnership does not
expect any material adverse effect as a result of the
expiration of leases at these properties in 1996, unless there
is an unanticipated economic downturn in the Southern
California area, where these properties are located.
1994 v. 1993
Revenues in 1994 were up $146,000 over the prior year, while
expenses declined $462,000. Net income was up $688,000
including an $80,000 gain on a property disposition.
In 1993, almost $2 million in loss provisions were made on two
properties, resulting in a net loss of $109,000. In 1994, the
Partnership recorded a $550,000 permanent value impairment for
Tierrasanta and a $917,000 value impairment for Scripps
Terrace. This expense was partially offset by positive
adjustments in the valuation allowance for South Point Plaza
of $73,000, made in order to maintain its carrying value at
its estimated net realizable value, resulting in a net
decrease in this expense category of $583,000 compared to the
prior year.
Depreciation increased by $434,000 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 contributors
were Westbrook Commons and Riverview. Higher rental rates at
both locations, and a higher overall occupancy level at
Riverview drove the improvement. The tenant reimbursement
component of rental revenues was also up a Westbrook Commons,
although the overall effect on net income was offset by
corresponding expenses at the property.
The substantial increase in depreciation expense was offset to
a great extent by a decrease in bad debt expense, primarily at
River Run. The Partnership recorded sizeable loan loss
provisions in 1993 to reflect significant concerns about the
quality of this loan. In addition, improved quality of tenant
accounts at Brinderson Plaza, Riverview, Winnetka, South Point
Plaza, and Scripps Terrace also resulted in a decrease in bad
debt expense. The only other expense category which
increased in 1994 was the management fee to the General
Partner, as a result of higher cash available for
distribution.
<PAGE>23
Reconciliation of Financial and Tax Results
For 1995, The Partnership's book net income was $1,783,000,
and its taxable income was $85,000. The provision for loan
loss in connection with River Run was the primary difference.
For 1994, the Partnership's book net income was $579,000, and
its taxable income was $2,917,000. The valuation allowances
in connection with Tierrasanta and Scripps Terrace and the
continuation of the accrual of interest on the Brinderson loan
for tax purposes were the primary differences. For 1993, the
Partnership's book net loss was $109,000, and its taxable
income was $2,670,000. The valuation allowance in connection
with South Point Plaza and the continuation of the accrual of
interest on the Brinderson loan for tax purposes were the
primary differences. For a complete reconciliation see Note 9
to the Partnership's consolidated financial statements, which
note is hereby incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements appearing on pages 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 22, 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.
PART III
Item 10. Directors and Executive Officers of the Partnership
The General Partner of the Partnership is T. Rowe Price Realty
Income Fund III Management, Inc. ("Fund III Management"), 100
East Pratt Street, Baltimore, Maryland 21202. The General
Partner has the primary responsibility for overseeing the
evaluation, structuring, negotiation, management, and
liquidation of the Partnership's investments
<PAGE>24
as well as the cash management of the Partnership's liquid
assets and the administration of investor services of the
Partnership, including general communications, periodic
reports and distributions to Limited Partners, and filings
with the Securities and Exchange Commission. Fund III
Management is a wholly-owned subsidiary of T. Rowe Price Real
Estate Group, Inc. ("Real Estate Group"), which is, in turn, a
wholly-owned subsidiary of T. Rowe Price Associates, Inc.
("Associates"). Affiliates of the General Partner, T. Rowe
Price Realty Income Fund I Management, Inc. ("Fund I
Management"), T. Rowe Price Realty Income Fund II Management,
Inc. ("Fund II Management"), and T. Rowe Price Realty Income
Fund IV Management, Inc. ("Fund IV Management") are the
General Partners of other real estate limited partnerships
sponsored by Associates. Real Estate Group is also investment
manager for T. Rowe Price Renaissance Fund, Ltd., A Sales-
Commission-Free Real Estate Investment ("Renaissance Fund"), a
real estate investment trust sponsored by Associates.
Associates was founded in 1937 and as of December 31, 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.
The directors and executive officers of Fund III Management
are as follows:
Position with T. Rowe Price
Name Realty Income Fund III
Management, Inc.
James S. Riepe Chairman of the Board,
President, also Principal
Executive Officer for the
Partnership
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
Alvin M. Younger, Jr. Treasurer and Director
Kenneth J. Rutherford Vice President
<PAGE>25
Joseph P. Croteau Controller, also Principal
Financial Officer for the
Partnership
Mr. Riepe was elected President in 1991. Mr. Vieth was first
elected as an officer and as a director in 1993. Ms. Robins
was first elected to her current offices in 1987, Mr. Ruhe was
first elected in 1988, and Mr. Croteau was first elected as
Controller in 1988, and was designated as Principal Financial
Officer for the Partnership in 1992. Mr. Rutherford was
first elected as a Vice President in 1994. Mr. Hopkins was
first elected a director in 1987. In all other cases these
individuals have served in these capacities since the
inception of Fund III Management in 1986. There is no family
relationship among the foregoing directors or officers.
The background and business experience of the foregoing
individuals is as follows:
James S. Riepe (Born 1943) is Managing Director and Director,
T. Rowe Price Associates, Inc. ("Associates") and Director of
its Investment Services Division; President and Chairman of
Real Estate Group, and each of the general partners of T. Rowe
Price Realty Income Fund I, A No-Load Limited Partnership, T.
Rowe Price Realty Income Fund II, America's Sales-Commission-
Free Real Estate Limited 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.
<PAGE>26
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 the
Investment Manager, and Vice President of Real Estate Group
and each of the general partners of the Realty Income Funds.
Mr. Ruhe joined Associates in 1987.
Alvin M. Younger, Jr. (Born 1949) is Treasurer and Director
of each of the general partners of the Realty Income Funds and
a Managing Director, Secretary and Treasurer of Associates,
and Secretary and Treasurer of Real Estate Group. Mr. Younger
joined Associates in 1973.
Kenneth J. Rutherford (Born 1963) is 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 of 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 registrant during 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.
<PAGE>27
Item 11. Executive Compensation
The directors and executive officers of the General Partner
receive no current or proposed remuneration from the
Partnership.
The General Partner is entitled to receive a share of cash
distributions and a share of profits or losses as described
under the captions "Compensation and Fees," and "Income and
Losses and Cash Distributions" of the Prospectus on pages 7-8,
and 32-35, respectively, which pages are incorporated herein
by reference.
For a discussion of compensation and fees to which the General
Partner is entitled, see Item 13., which is incorporated
herein by reference.
As discussed in Item 1, above, LaSalle receives reimbursement
from the Partnership for certain expenses incurred in
performance of its responsibilities under the advisory
contract. In addition, under the contract, LaSalle receives
from the General Partner a portion of the compensation and
distributions received by the General Partner from the
Partnership. Mr. Younker is a limited 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.
<PAGE>28
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.
Item 13. Certain Relationships and Related Transactions
The General Partner and its affiliates are permitted to engage
in transactions with the Partnership as described under the
captions "Compensation and Fees," and "Conflicts of Interest"
of the Prospectus on pages 7-12, which pages are hereby
incorporated by reference herein.
As compensation for services rendered in managing the affairs
of the Partnership, the General Partner earned a partnership
management fee of $282,000 in 1995, and received 1% of the
cash distributions, totaling $28,000 in 1995. In addition,
certain operating expenses incurred on behalf of the
Partnership are reimbursable to the General Partner. In 1995
the General Partner was reimbursed for expenses incurred by it
in the administration of the Partnership and the operation of
the Partnership's investments, which amounted to $77,000. An
affiliate of the General Partner has earned a fee of $12,000
from the money market mutual funds in which the Partnership
made its interim cash investments in 1995.
<PAGE>29
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:
Page
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' Capital 9
for each of the three years in the period
ended December 31, 1995
Consolidated Statements of Cash Flows for 10
each of the three years in the period
ended December 31, 1995
Notes to Consolidated Financial Statements 11-14
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 October 20, 1986, as
amended and restated as of January 5, 1987,
included as Exhibit A to the Prospectus of
the Partnership, dated January 5, 1987, File
Number 33-9899, as filed with the Commission
pursuant to Rule 424(b) ("the Prospectus"),
incorporated by reference herein.
<PAGE>30
(b) Certificate of Limited Partnership,
incorporated by reference to Exhibit 3,4 to
the Partnership's Registration Statement,
File No. 33-9899, as filed on January 5,
1987.
(c) Amendment to the Partnership Agreement dated
April l, 1987, incorporated by reference to
Exhibit 3,4(b) to Registrant's Report on Form
10-K for the year ended December 31, 1987
("the 1987 10-K").
(d) Amendment to the Partnership Agreement dated
May l, 1987, incorporated by reference to
Exhibit 3,4(c) to the 1987 10-K.
(e) Amendment to the Partnership Agreement dated
June l, 1987, incorporated by reference to
Exhibit 3,4(d) to the 1987 10-K.
(f) Amendment to the Partnership Agreement dated
July l, 1987, incorporated by reference to
Exhibit 3,4(e) to the 1987 10-K.
(g) Amendment to the Partnership Agreement dated
August l, 1987, incorporated by reference to
Exhibit 3,4(f) to the 1987 10-K.
(h) Amendment to the Partnership Agreement dated
September l, 1987, incorporated by reference
to Exhibit 3,4(g) to the 1987 10-K.
(i) Amendment to the Partnership Agreement dated
March 28, 1988, incorporated by reference to
Exhibit 3,4(h) to the 1987 10-K.
10. (a) Joint Venture Agreement of Fairchild 234,
dated as of May 25, 1988, incorporated by
reference to Exhibit 10(f) to Registrant's
Report on Form 10-K for the fiscal year ended
December 31, 1988 ("the 1988 10-K").
<PAGE>31
(b) First Amendment to Joint Venture Agreement of
Fairchild 234, dated as of July 13, 1988,
incorporated by reference to Exhibit 10(g) to
the 1988 10-K.
(c) Forbearance and Loan Modification Agreement
relating to River Run Dated November 17,
1993, between Stiles Hunt Properties as
Borrower and the Partnership as Lender,
incorporated by reference to Exhibit 10(j) to
Registrant's Report on Form 10-K for the year
ended December 31, 1994.
13. Annual Report for the year ended December 31,
1995, distributed to limited partners on or about
March 6, 1996.
27. Financial Data Schedule
99. (a) Pages 7-12, 18-25 and 32-35 of the Prospectus
of the Partnership dated January 5, 1987,
incorporated by reference to Exhibit 99(a) of
the registrant's report on Form 10-K for the
year ended December 31, 1994, File Number
0-16542.
(b) Financial Statement Schedule III -
Consolidated Real Estate and Accumulated
Depreciation.
(c) Report of KPMG Peat Marwick LLP dated
January 22, 1996 regarding the financial
statements of the Partnership.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for
the last quarter of the period covered by this
report - None.
<PAGE>32
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 III,
AMERICA'S SALES-COMMISSION-FREE REAL
ESTATE LIMITED PARTNERSHIP
By: T. Rowe Price Realty Income Fund
III Management,
Inc., General Partner
By:/s/James S. Riepe
James S. Riepe,
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
(with respect to the General Partner) and on the dates
indicated:
/s/James S. Riepe Date: March 28, 1996
James S. Riepe,
Director and Chairman of the
Board, President
T. Rowe Price Realty Income Fund III
Management, Inc., Principal Executive Officer
for the Partnership
/s/Henry H. Hopkins Date: March 28, 1996
Henry H. Hopkins,
Director and Vice President,
T. Rowe Price Realty Income Fund III
Management, Inc.
/s/Douglas O. Hickman Date: March 20, 1996
Douglas O. Hickman,
Director and Vice President,
T. Rowe Price Realty Income Fund III
Management, Inc.
<PAGE>33
/s/Alvin M. Younger, Jr. Date: March 28, 1996
Alvin M. Younger, Jr.,
Director and Treasurer,
T Rowe Price Realty Income Fund III
Management, Inc.
/s/Charles E. Vieth Date: March 20, 1996
Charles E. Vieth,
Vice President and Director,
T. Rowe Price Realty Income Fund III
Management, Inc.
/s/Joseph P. Croteau Date: March 28, 1995
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 her.
ANNUAL REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1995
FELLOW PARTNERS:
While it appears from the statements of operations on page 8 that the Fund's
performance improved significantly over 1994, income was actually down
$210,000 when the effect of value impairments, primarily at Scripps Terrace
and Tierrasanta, are backed out of last year's numbers. Before discussing
operations at the properties owned by the Fund for the full 12 months of 1994
and 1995, we want to point out that the change in River Run's portfolio status
had the most notable impact on the year-over-year comparison.
In the fourth quarter of 1995, we took over ownership of River Run and
began accounting for it as a property rather than as a loan. This meant that
its rental income and property level operating expenses, rather than interest,
were included in the Fund's results. Inclusion of its fourth quarter rental
income caused that revenue category to be up for the full year over 1994. The
benefit, however, was more than offset by the decrease in interest income from
the River Run loan and the increase in expenses related to the property,
particularly the loan loss provision and uncollectible interest, related to
River Run. We believe that, over the long term, the Fund's ownership of River
Run will prove to be more beneficial than these early results indicate. This
assumes, of course, no major deterioration in the local economy and that we
are successful in our leasing efforts.
Turning to the other properties in the portfolio, the lower average
leased status at Fairchild and Clark Avenue drove the overall decline in
rental income. The absence of Beinoris, which was sold last year, also had a
negative effect on the revenue comparison. We have initiated a renovation
program at Fairchild and are seeing more interest in the building, which we
hope will translate into signed leases. Uncertainty over the plans of a major
employer in Clark Avenue's market clouds the outlook for this property, but we
find some comfort in the fact that none of its leases is scheduled to expire
this year.
The most noteworthy expense item which had a positive effect on the net
income comparison with last year, other than higher valuation impairments in
1994, was depreciation. Higher tenant improvement charge-offs in 1994 at Wood
Dale, Tierrasanta, Scripps Terrace, Winnetka, Clark Avenue, and Riverview led
to the decrease in depreciation versus 1994.
Slightly lower cash from operations and increased cash used in investing
activities (particularly for the improvements at Westbrook Commons and
Fairchild Corporate Center) led to the decrease in the Fund's cash position
during 1995.
Distributions
Your distribution for the fourth quarter of 1995 was $6.37 per unit, bringing
the total for the year to $11.11. Of the fourth quarter amount, $2.37 was from
1995 operations and $4.00 was distributed from prior-year operations. The
initial uncertainty surrounding the ability of the River Run owner to continue
the loan payments and the potential costs of foreclosure caused us to maintain
a relatively high cash position. Now that we own the property, we no longer
need to retain as much cash.
Unit Valuation
As we do at each 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 at year-end 1995 was $158.00, unchanged from
the 1994 amount. The $158.00 included the $4.00 just distributed from prior
years' operations, so, as of February 14, the estimated value per unit was
reduced by that amount and is now $154.00.
The first quarter 1996 distribution has been set at $2.00 per unit.
Assuming no unexpected developments or property dispositions, we expect to pay
the same amount for the second and third quarters as well. In the fourth
quarter, we will adjust the distribution based on the Fund's operations and
cash needs.
Outlook
As the Advisor's Report indicates, we hope that a number of initiatives taken
in 1995 will bear fruit in 1996. The modernization at Westbrook Commons and
renovations at Fairchild were undertaken to enhance the attractiveness of
these properties to existing as well as prospective tenants. Barring local
market deterioration, we expect these efforts will begin to be rewarded in
1996.
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 III's portfolio, whose value remained stable
as opposed to a decrease in the Russell-NCREIF Index.
Property Highlights
Activity during 1995 for new, renewal, and expansion leases totaled 21% of the
Fund's square footage. However, the gains were offset, primarily by the loss
of three fairly sizable tenants at two properties, so occupancy was unchanged
from the prior-year level. 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
_________________ ________ _______ ________ __________
Scripps Terrace 56,800 81% 82% 35%
Winnetka 188,300 94 100 19
South Point 48,400 61 69 19
Tierrasanta 104,200 77 100 38
Wood Dale 89,700 100 89 30
Clark Avenue 40,000 100 72 0
Riverview 113,700 91 96 22
Westbrook Commons 121,600 97 96 6
Fairchild Corporate
Center 104,800 85 73 31
River Run 92,800 100 90 1
_________ _____ _____ _____
Fund Total 960,300 90% 90% 21%
Scripps Terrace: One new 6,300 square-foot lease more than offset the
loss of a tenant when its lease expired at this San Diego, California, office
project. We are actively negotiating with the three tenants whose leases
covering 35% of the total space expire this year.
Winnetka: Even though one sizable tenant vacated upon its lease
expiration, a renewal was quickly negotiated with an existing tenant who
expanded into the space. We also leased the remaining unoccupied space,
bringing this suburban Minneapolis industrial project to 100% leased by
year-end.
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.
Wood Dale: Two tenants renewed their leases for three or more years and
one extended its lease into 1996 for a total of 27,400 square feet. One
tenant, however, who occupied 9,500 square feet, vacated upon its lease
expiration near the end of the year. Thus, this suburban Chicago industrial
property experienced a decline in occupancy during the fourth quarter and from
the December 1994 level.
Clark Avenue: The only activity which occurred at this King of Prussia,
Pennsylvania, office property during the year was the loss of a financially
troubled tenant who occupied 28% of the property one month before its lease
expired. Although we have had interest from a couple of prospective tenants,
we do not believe that a signed lease is imminent. Market occupancy improved
slightly, but the future of local Lockheed Martin operations, which dominate
the office market, is still uncertain, and rental rates remain flat despite
the lower vacancies.
Riverview: This St. Paul, Minnesota, industrial project had an eventful
year. Three tenants representing 18% of the space renewed and/or expanded
their leases, and one new tenant was signed. This activity more than offset
the loss of two tenants who vacated when their leases expired, and the
property's leased status increased by five percentage points over last year.
Westbrook Commons: One new and six renewal leases were signed during the
year, generally at higher rates than on the prior leases, at this suburban
Chicago retail center. However, one tenant did not renew, and two tenants left
because of credit issues, causing occupancy to decline slightly. During the
year, we initiated a strategy to update the appearance of the center in order
to make it more attractive to prospective tenants. The property's face lift
has made a substantial difference.
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.
River Run: At this South Florida retail center, the signing of new and
renewal leases representing 3% of the total space was not enough to offset the
effect of three tenants who did not renew their leases and three others who
defaulted and were forced to vacate. As you may recall, the Fund foreclosed on
its loan for this property and officially took ownership on October 10. As the
new owner, we are in the process of repositioning the property to meet the
needs of the surrounding communities. As a result, occupancy may decline
further in the near term as we focus on improving both tenant creditworthiness
and mix.
Outlook
We believe 1995 was a turning point for Realty Income Fund III. We gained
control of River Run, all of the markets except King of Prussia showed signs
of improvement, and renovations were commenced at one property and completed
at another. We hope 1996 will continue in a favorable vein and that operating
results will improve during the year ahead.
LaSalle Advisors
February 15, 1996
REAL ESTATE HOLDINGS
December 31, 1995
(In thousands)
Accumu- Current
Type and Date Total lated De- Carrying
Property Name Location Acquired Cost* preciation Amount
_____________ ____________ __________ _______ ___________ ________
Scripps Business Park 2/88 $ 4,354 $ (1,030) $ 3,324
Terrace San Diego,
California
Winnetka Industrial 3/88 5,794 (1,643) 4,151
Crystal,
Minnesota
South Point Retail 4/88 2,213 (841) 1,372
Tempe,
Arizona
Tierrasanta Business Park 4/88 3,454 (859) 2,595
San Diego,
California
Fairchild Office
Corporate Irvine, 5/88 4,063 (465) 3,598
Center California
Wood Dale Industrial 9/88 3,657 (658) 2,999
Wood Dale,
Illinois
Clark Avenue R&D/Office 10/88 4,242 (733) 3,509
King of Prussia,
Pennsylvania
Riverview Industrial 12/88 4,184 (870) 3,314
St. Paul,
Minnesota
River Run Retail 6/89 7,700 (42) 7,658
Miramar,
Florida
Westbrook Retail 12/90 5,659 (690) 4,969
Commons Westchester,
Illinois
_______ _______ _______
$45,320 $ (7,831) $37,489
_______ _______ _______
_______ _______ _______
*Includes original purchase price, subsequent improvements, and, in the case
of South Point, Tierrasanta, Scripps Terrace, 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. . . . . . . . . . . . . . . . . . . $ 12,181 $ 10,332
Buildings and Improvements. . . . . . . . 33,139 26,475
________ ________
45,320 36,807
Less: Accumulated Depreciation
and Amortization. . . . . . . . . . . . . (7,831) (7,037)
________ ________
37,489 29,770
Participating Mortgage Loan and Deferred Interest
(less allowance of $1,736 in 1994) . . . . . - 7,840
Cash and Cash Equivalents. . . . . . . . . . 3,436 3,663
Accounts Receivable (less allowances
of $230 and $238). . . . . . . . . . . . . . 529 434
Other Assets . . . . . . . . . . . . . . . . 279 178
________ ________
$ 41,733 $ 41,885
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents. . . . . $ 391 $ 385
Accrued Real Estate Taxes. . . . . . . . . . 433 441
Accounts Payable and
Other Accrued Expenses . . . . . . . . . . . 335 238
________ ________
Total Liabilities. . . . . . . . . . . . . . 1,159 1,064
Partners' Capital. . . . . . . . . . . . . . 40,574 40,821
________ ________
$ 41,733 $ 41,885
________ ________
________ ________
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. . . . . . . . . . . . . . . $5,502 $5,369 $5,220
Interest Income from Participating
Mortgage Loan. . . . . . . . . . . . . . . 429 858 897
Other Interest Income. . . . . . . . . . . 163 130 94
_______ _______ _______
6,094 6,357 6,211
_______ _______ _______
Expenses
Property Operating Expenses. . . . . . . . 1,284 1,249 1,511
Real Estate Taxes. . . . . . . . . . . . . 1,002 936 1,000
Depreciation and Amortization. . . . . . . 1,266 1,572 1,138
Decline (Recovery) of
Property Values. . . . . . . . . . . . . . (109) 1,385 1,968
Provision for Loan Loss and
Uncollectible Interest . . . . . . . . . . 202 - -
Management Fee to General Partner. . . . . 282 342 297
Partnership Management Expenses. . . . . . 384 374 406
_______ _______ _______
4,311 5,858 6,320
_______ _______ _______
Net Income (Loss) from Operations before
Real Estate Sold. . . . . . . . . . . . 1,783 499 (109)
Gain on Real Estate Sold . . . . . . . . . - 80 -
_______ _______ _______
Net Income (Loss). . . . . . . . . . . . . $1,783 $ 579 $ (109)
_______ _______ _______
_______ _______ _______
Activity per Limited Partnership Unit
Net Income (Loss). . . . . . . . . . . . . $ 6.96 $ 2.26 $(0.43)
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . . . . . . . . $11.11 $13.53 $11.74
from Sale Proceeds . . . . . . . . . . . - 3.92 -
_______ _______ _______
Total Distributions Declared . . . . . . . $11.11 $17.45 $11.74
_______ _______ _______
_______ _______ _______
Units Outstanding. . . . . . . . . . . . . 253,599 253,605 253,613
_______ _______ _______
_______ _______ _______
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 . . . . . $ (127) $ 47,875 $ 47,748
Net Loss . . . . . . . . . . . . . . (1) (108) (109)
Cash Distributions . . . . . . . . . (30) (2,932) (2,962)
_______ _______ _______
Balance, December 31, 1993 . . . . . (158) 44,835 44,677
Net Income . . . . . . . . . . . . . 6 573 579
Redemption of Units. . . . . . . . . - (1) (1)
Cash Distributions . . . . . . . . . (34) (4,400) (4,434)
_______ _______ _______
Balance, December 31, 1994 . . . . . (186) 41,007 40,821
Net Income . . . . . . . . . . . . . 18 1,765 1,783
Redemption of Units. . . . . . . . . - (1) (1)
Cash Distributions . . . . . . . . . (20) (2,009) (2,029)
_______ _______ _______
Balance, December 31, 1995 . . . . . $ (188) $ 40,762 $ 40,574
_______ _______ _______
_______ _______ _______
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). . . . . . . . . . . . . $1,783 $ 579 $ (109)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided
by Operating Activities
Depreciation and Amortization . . . . . 1,266 1,572 1,138
Decline (Recovery) of
Property Values . . . . . . . . . . . . (109) 1,385 1,968
Change in Loan Loss Provision . . . . . 202 - -
Other Changes in Assets
and Liabilities . . . . . . . . . . . . (163) (276) 88
_______ _______ _______
Net Cash Provided by
Operating Activities . . . . . . . . . . . 2,979 3,260 3,085
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property Disposition . . . . - 994 -
Investments in Real Estate . . . . . . . . (1,176) (665) (691)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . . . . . . . (1,176) 329 (691)
_______ _______ _______
Cash Flows from Financing Activities
Cash Distributions . . . . . . . . . . . . (2,029) (4,434) (2,962)
Redemption of Units. . . . . . . . . . . . (1) (1) -
_______ _______ _______
Net Cash Used in
Financing Activities . . . . . . . . . . . (2,030) (4,435) (2,962)
_______ _______ _______
Cash and Cash Equivalents
Net Decrease during Year . . . . . . . . . (227) (846) (568)
At Beginning of Year . . . . . . . . . . . 3,663 4,509 5,077
_______ _______ _______
At End of Year . . . . . . . . . . . . . . $3,436 $3,663 $4,509
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund III, America's Sales-Commission-Free Real
Estate Limited Partnership (the "Partnership"), was formed on October 20,
1986, under the Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, operating, and disposing of existing income-producing
commercial and industrial real estate properties. T. Rowe Price Realty Income
Fund III Management, Inc., is the sole General Partner. The initial offering
resulted in the sale of 253,641 limited partnership units at $250 per unit.
In accordance with provisions of the partnership agreement, income from
operations is allocated and related cash distributions are generally paid to
the General and Limited Partners at the rates of 1% and 99%, respectively.
Sale or refinancing proceeds are generally allocated first to the Limited
Partners in an amount equal to their capital contributions, next to the
Limited Partners to provide specified returns on their adjusted capital
contributions, next 3% to the General Partner, with any remaining proceeds
allocated 85% to the Limited Partners and 15% to the General Partner. Gain on
property sold is generally allocated first between the General Partner and
Limited Partners in an amount equal to the depreciation previously allocated
from the property and then in the same ratio as the distribution of sale
proceeds. Cash distributions, if any, are made quarterly based upon cash
available for distribution, as defined in the partnership agreement. Cash
available for distribution will fluctuate as changes in cash flows and
adequacy of cash balances warrant.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of estimates
and assumptions by the General Partner. 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 South Point
Partners, Tierrasanta 234, Fairchild 234, and Penasquitos 34 (Westbrook
Commons), all of which are California general partnerships, in which the
Partnership has 50%, 30%, 56%, and 50% interests, respectively. The other
partners in these ventures are affiliates of the Partnership. All intercompany
accounts and transactions have been eliminated in consolidation.
Depreciation is calculated primarily on the straight-line method over
the estimated useful lives of buildings and improvements, which range from
five to 40 years. Lease commissions and tenant improvements are capitalized
and amortized over the life of the lease using the straight-line method.
Cash equivalents consist of money market mutual funds, the cost of which
approximates fair value.
The Partnership uses the allowance method of accounting for doubtful
accounts. Provisions for uncollectible tenant receivables in the amounts of
$192,000, $89,000, and $469,000 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 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 $205,000 and $132,000 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 $282,000, $342,000, and $297,000 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 $28,000,
$34,000, and $30,000 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 $77,000, $74,000, and $82,000 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
$12,000, $15,000, and $16,000 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
$120,000.
An affiliate of LaSalle earned $54,000, $37,000, and $7,000 in 1995,
1994, and 1993, respectively, as property manager for several of the
Partnership's properties.
NOTE 4 - PROPERTY DISPOSITION
In September 1994, the Partnership sold the smallest of the three Wood Dale
industrial buildings, the Benoiris Building, and received net proceeds of
$994,000. The net book value of this property at the time of disposition was
$914,000, after accumulated depreciation expense. Results of operations at
this building were immaterial to the Funds' results of operations in 1994 and
1993.
NOTE 5 - 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 $9,000 and the
remaining allowance of $1,629,000 (including $210,000 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 6 - PARTICIPATING MORTGAGE LOAN
In July 1995, the Partnership began consensual foreclosure on the
participating mortgage loan secured by the River Run Shopping Center and
ceased the accrual of interest income. At September 30, 1995, the carrying
value of the loan was reduced to $7,700,000, the estimated fair value of the
underlying property, and additional loan losses of $118,000 were recognized.
On October 10, 1995, the Partnership purchased the property and, in connection
therewith, reclassified the participating mortgage loan as an investment in
real estate.
NOTE 7 - PROPERTY VALUATIONS
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 the carrying values of Scripps Terrace and
Tierrasanta aggregated $1,467,000 in 1994.
Because the South Point property was not being actively marketed for
sale, its carrying value was assessed and, accordingly, the property's net
valuation allowance of $1,576,000 at December 31, 1995 was reclassified as a
permanent impairment of the its carrying value. Valuation allowances
(recoveries) for this property were ($109,000) in 1995, ($73,000) in 1994 and
$1,758,000 in 1993. Because this property continued to operate at the time the
valuation allowance was established, the Partnership continued to recognize
depreciation expense which, in large part, contributed to the valuation
recoveries in 1995 and 1994.
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 8 - 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 $ 3,985
1997 3,166
1998 2,597
1999 1,947
2000 1,478
Thereafter 9,175
_______
Total $ 22,348
_______
_______
NOTE 9 - 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) . . . . $ 1,783 $ 579 $ (109)
Allowances for:
Uncollectible accounts
receivable . . . . . . . . . (4) 71 117
Property valuations. . . . . (109) 1,385 1,968
Normalized and
prepaid rents. . . . . . . . . (23) (103) 56
Interest income. . . . . . . . 661 633 691
Depreciation . . . . . . . . . (283) 353 (62)
Accrued expenses . . . . . . . 16 (1) 9
Provision for loan loss. . . . (1,956) - -
________ ________ ________
Taxable income . . . . . . . . $ 85 $ 2,917 $ 2,670
________ ________ ________
________ ________ ________
NOTE 10 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $6.37 per unit to
Limited Partners of the Partnership as of the close of business on December
31, 1995. The distribution totals $1,632,000 and represents cash available for
distribution from operations for the period October 1, 1995 through December
31, 1995. The Limited Partners will receive $1,616,000, and the General
Partner will receive $16,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets of T. Rowe Price
Realty Income Fund III, America's Sales-Commission-Free Real Estate Limited
Partnership and its consolidated ventures as of December 31, 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 III, 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 22, 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 III,
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> 0000805298
<NAME> T. ROWE PRICE REALTY INCOME FUND III, AMERICA'S
SALES-COMMIS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,436,000
<SECURITIES> 0
<RECEIVABLES> 759,000
<ALLOWANCES> 230,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 45,320,000
<DEPRECIATION> 7,831,000
<TOTAL-ASSETS> 41,733,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 40,574,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 41,733,000
<SALES> 0
<TOTAL-REVENUES> 6,094,000
<CGS> 0
<TOTAL-COSTS> 4,119,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 192,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,783,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,783,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,783,000
<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 $6.96.
</FN>
<PAGE>1
Schedule III
T. Rowe Price Realty Income Fund III,
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
Scripps Terrace Business Park $0
San Diego, California
Winnetka Industrial 0
Crystal, Minnesota
South Point Plaza Retail 0
Tempe, Arizona
Tierrasanta Business Park 0
San Diego, California
Wood Dale Industrial 0
Wood Dale, Illinois
Clark Avenue Office 0
King of Prussia, PA
Riverview Industrial 0
St. Paul, Minnesota
Westbrook Commons Retail 0
Westchester, Illinois
Fairchild Corporate
Center Office 0
Irvine, California
River Run Retail 0
Miramar, Florida
Portfolio Totals $0 __
<PAGE> 2
Initial Cost to Partnership Costs
Capitalized
Buildings and Subsequent to
Description Land Improvements Acquisition
Real Estate
Property Investments
Scripps Terrace $ 2,500 $ 2,397
$ (543)
San Diego, California
Winnetka 685 4,662 447
Crystal, Minnesota
South Point Plaza 1,275 2,335 (1,397)
Tempe, Arizona
Tierrasanta 1,350 2,411 (307)
San Diego, California
Wood Dale 1,073 3,217 (633)
Wood Dale, Illinois
Clark Avenue 1,100 2,709 433
King of Prussia, PA
Riverview 633 2,867 684
St. Paul, Minnesota
Westbrook Commons 1,700 3,431 528
Westchester, Illinois
Fairchild Corporate Center 2,464 2,464 (865)
Irvine, California
River Run 1,850 5,850 0
Miramar, Florida
Portfolio Totals $14,630 $32,343 $(1,653)
======= ======= ========
<PAGE> 3
Gross Amounts at which Carried at
Close of Period
Buildings and
Description Land Improvements
Total
Real Estate
Property Investment
Scripps Terrace $ 2,065 $ 2,289 $ 4,354
San Diego, California
Winnetka 685 5,109 5,794
Crystal, Minnesota
South Point Plaza 539 1,674 2,213
Tempe, Arizona
Tierrasanta 1,157 2,297 3,454
San Diego, California
Wood Dale 819 2,838 3,657
Wood Dale, Illinois
Clark Avenue 1,100 3,142 4,242
King of Prussia, PA
Riverview 633 3,551 4,184
St. Paul, Minnesota
Westbrook Commons 1,700 3,959 5,659
Westchester, Illinois
Fairchild Corporate
Center 1,633 2,430 4,063
Irvine, California
River Run 1,850 5,850 7,700
Miramar, Florida
Portfolio Totals $12,181 $33,139 $45,320
_______ _______ _______
<PAGE> 4
Accumulated Date of Date
Description Depreciation Construction Acquired
Real Estate Property
Investments
Scripps Terrace $1,030 1985 02/88
San Diego, California
Winnetka 1,643 1982 03/88
Crystal, Minnesota
South Point Plaza 841 1987 04/88
Tempe, Arizona
Tierrasanta 859 1984 04/88
San Diego, California
Wood Dale 658 1980 09/88
Wood Dale,Illinois
Clark Avenue 733 1980 10/88
King of Prussia, PA
Riverview 870 1972 12/88
St. Paul, Minnesota
Westbrook Commons 690 1982 12/90
Westchester, Illinois
Fairchild Corporate Center 465 1979 05/88
Irvine, California
River Run 42 1988 10/95
Miramar, Florida
Portfolio Totals $7,831 ______
<PAGE> 5
Life on
which
Depreciation
in Latest
Statement of
Operations is
Description Computed
Real Estate Property Investments
Scripps Terrace 5 - 40 years
San Diego, California
Winnetka 5 - 40 years
Crystal, Minnesota
South Point Plaza 5 - 40 years
Tempe, Arizona
Tierrasanta 5 - 40 years
San Diego, California
Wood Dale 5 - 40 years
Wood Dale, Illinois
Clark Avenue 5 - 40 years
King of Prussia, PA
Riverview 5 - 40 years
St. Paul, Minnesota
Westbrook Commons 5 - 40 years
Westchester, Illinois
Fairchild Corporate Center 5 - 40 years
Irvine, California
River Run 5 - 40 years
Miramar, Florida
<PAGE> 6
Notes:
(1) Reconciliation of real estate owned:
1995 1994 1993
Balance at beginning
of period $38,492$42,005 $41,314
Acquisitions through
foreclosure 7,700 -- --
Additions during period 1,176 665 691
Property dispositions 0 (1,082) --
Reductions during period (472) -- --
Provision for value
impairments (2,048) (3,096) 0 _______ _______ _
Balance at end of
period $45,320 $38,492 $42,005 _______ _______ _______
(2) Reconciliation of accumulated depreciation:
1995 1994 1993
Balance at beginning
of period $7,037 $5,633 $4,495
Reductions during
period (472) (168) 0
Depreciation expense 1,266 1,572 1,138 _____ _____ _____
Balance at end
of period $7,831 $7,037 $5,633 ______ ______ ______
Reductions during 1995 reflect the write-off of tenant
improvements and leasing commissions relating to tenants
who have vacated the property.
(3) Aggregate cost of real estate owned at December 31, 1995
for Federal income tax purposes was approximately
$43,024.
(4) Because the South Point property was not being actively
marketed for sale, the valuation allowance totalling
$1,576 at December 31, 1995 was reclassified as a
permanent impairment of the property's carrying value.
Valuation allowances (recoveries) for this property were
($109) in 1995, ($73) in 1994 and $1,758 in 1993. See note
7 of Notes to Consolidated Financial Statements.
(5) During 1994, the Partnership established permanent value
impairments for Tierrasanta and Scripps Terrace of $550
and $917, respectively. See note 7 of Notes to
Consolidated Financial Statements for further details.
<PAGE>7
(6) 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 $9 and the
remaining allowance of $1,629 (including $210 in 1993) was
reclassified as a reduction in the carrying value of the
property. See note 5 of Notes to Consolidated Financial
Statements.
(7) During 1994, the Partnership sold the smallest of the
three Wood Dale properties, the Benoris Building. See note
4 of Notes to Consolidated Financial Statements.
(8) During 1995, the Partnership foreclosed on River Run's
participating mortgage loan, assumed ownership of the
property and recorded the investment in real estate at
$7,700. See note 6 of Notes to Consolidated Financial
Statements.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the consolidated financial statements of T. Rowe Price Realty Income
Fund III, 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 III, 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, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
January 22, 1996
