T. Rowe Price Real Estate Group, Inc., 100 East Pratt Street,
Baltimore, MD 21202
James S. Riepe
President
December 20, 1996
Fellow Partner:
In previous correspondence, we mentioned that an
unaffiliated third party intended to offer a higher price than
earlier offers for your units of T. Rowe Price Realty Income Fund
III. This has now taken place with the latest tender offer from
Lido Associates. Under SEC rules, we are required to respond to
limited partners each time a tender offer is made. Again, we
apologize for repeating some of the information contained in
recent letters but would like you to be aware of certain facts:
Under applicable law, we were required to provide the
names and addresses of the Fund s limited partners and the number
of units held by each;
Lido s offer is higher than the earlier offers but
still well below our estimate of the fair market value of your
units;
After adjusting for distributions of sales proceeds
from Fairchild, the estimated per unit value of your fund based
on our December 31, 1995 valuation is $143;
Lido, on the other hand, is offering only $107 per
unit, significantly less than our estimated valuation. For those
who elect to sell, Lido s offer will be reduced by the amount of
any distributions in the first and possibly second quarter of
1997, depending on when units are sold;
We cannot assure that you will ultimately receive the
exact amount of the estimated unit value, but we believe our
property valuation process has been sound, particularly when
prior estimates are compared with the actual prices of properties
sold. The five T. Rowe Price Real Estate Funds sold seven
complete properties during the past three years, none below the
estimated range used in the prior year s unit valuation, and four
above the range.
It is not surprising that all these discounted offers
have been made after we announced our intention to liquidate the
Fund s investments by the end of 1998, as market conditions
permit. Lido states clearly that it hopes to purchase units at a
discount and profit as we liquidate properties at market value
over the next couple of years.
While our disposition plan remains intact, we will
continue to monitor market conditions to take any actions that we
believe are in the best interests of limited partners, including
an accelerated liquidation of the Fund s portfolio if it is
appropriate. It is worth noting that four of the Fund s
properties are currently being marketed for sale.
One of Lido s main arguments for accepting its offer is
liquidity. While those with pressing needs for liquidity may find
some appeal in cashing out now, the price you will pay by
selling for a discounted amount could be significant since we are
in the disposition phase, and cash distributions will generally
be paid as properties are sold. Regular distributions of income
earned on each property held will also be made.
Whether or not you accept this offer is your decision,
of course. From our perspective, we want you to be as
well-informed as possible about the current and prospective value
of your investment. Over the past few years, you have weathered
the downtown in the commercial real estate market, but now
conditions have improved. Based on our outlook for this market,
we believe that limited partners will realize a higher value for
their units by holding them until the fund is fully liquidated.
For further details concerning our response to Lido Associates
offer, we refer you to the enclosed statement filed with the
Securities and Exchange Commission.
Sincerely,
James S. Riepe
Note 1 - Organization
T. Rowe Price Realty Income Fund III, America's Sales-Commission-
Free Real Estate Limited Partnership (the "Partnership"), was
formed 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 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.
AGREEMENT FOR DELIVERY AND USE OF LIST OF LIMITED PARTNERS
This Agreement for Delivery and Use of List of Limited
Partners ("Agreement") is entered into as of October , 1996 by
and between T. Rowe Price Realty Income Fund III Management,
Inc., a Maryland corporation (the "General Partner") Ray Wirta,
an individual (the "Limited Partner") and Koll Real Estate
Services, a Delaware corporation ("Koll") with respect to a list
of limited partners of T. Rowe Price Realty Income Fund III,
America s Sales-Commission-Free Real Estate Limited Partnership,
a Delaware Limited Partnership (the "Partnership").
WHEREAS the General Partner is the general partner of
the Partnership, and the Limited Partner is a limited partner of
the Partnership; and
WHEREAS the Limited Partner has requested a list
("List") of the names, addresses, and number of units of limited
partnership interest ("Units") held by each of the limited
partners in the Partnership; and
WHEREAS the Limited Partner has represented that he is
requesting the list for the purpose of making a tender offer,
regardless of whether any others make such offers, for Units
exclusively in concert with Koll and affiliates of Koll which are
controlled by Koll ("Koll Affiliates"); and
WHEREAS General Partner believes that it is necessary
to establish reasonable standards, including certain restrictions
to be placed on the use of the List by Limited Partner, Koll and
the Koll Affiliates, in order to protect the Partnership and the
limited partners from harm and preclude interference with the
orderly dissolution and liquidation of the Partnership by the
General Partner as publicly disclosed by the General Partner;
THEREFORE, in consideration of the representations,
promises, and covenants of Limited Partner and Koll as contained
herein, General Partner hereby agrees to deliver the list to
Limited Partner on magnetic floppy disk, and Limited Partner and
Koll jointly and severally represent, promise and covenant on
behalf of themselves and their affiliates and the Koll Affiliates
that they will use the List only in accordance with the
following:
1. Limited Partner, Koll and the Koll Affiliates
(collectively "Offerors") shall utilize the list only
for the purpose of making a single written offer by
Offerors, and any amendments thereto, to limited
partners to purchase Units ("Tender Offer"), whether
such Tender Offer shall constitute a tender offer or
not, and shall solicit each limited partner no more
than once in connection with such Tender Offer.
Offerors will keep the List confidential and will not
disclose it to anyone, including any affiliated or
unaffiliated persons or entities, other than a
professional mailing house, information agent, or
depository in connection with the Tender Offer. The
Tender Offer will be transmitted by Offerors within 30
days after delivery of the List to Limited Partner and
Koll.
2. Offerors shall simultaneously copy the General
Partner by fax on any Tender Offer and any amendment thereto.
3. After the expiration of the Tender Offer, Limited
Partner shall return the List to the General Partner
and destroy it in a manner which cannot be retrieved
any and all copies thereof and works derived therefrom,
whether in written, electronic, or other form, and
deliver an affidavit to the General Partner that
Offerors have complied with the provisions of this
section 3.
4. Offerors will not make and will not cause to be made
more than one unsolicited telephone call to each
limited partner in connection with the Tender Offer,
provided that an additional phone call may be made in
connection with any material amendment to the Tender
Offer. An unsolicited telephone call shall be deemed
made when Offerors or their agent call a limited
partner and either speak with an individual or leave a
message for the limited partner.
5. Offerors will not purchase Units which, when taken
together with all other Units beneficially owned by all
Offerors, affiliates of Offerors, or any person or
entity participating in the purchasing group
(collectively the Group ) cause the members of the
Group to be the beneficial owners of 46% or more of the
outstanding Units.
6. Any Tender Offer shall include the following
disclosure:
A. That the price being offered by Offerors for
Units was determined based on an estimate by
Offerors of the current net asset value of the
Units, to which a discount was then applied by
Limited Partner.
B. The existence of third-party resale services,
the range of prices paid for Units in secondary
market sales for the year preceding the
transmission of the Tender Offer, and a statement
as to the source of such information.
C. The most recent estimated unit value published
by the General Partner prior to the transmission
of the Tender Offer.
D. That the General Partner disclosed in its
quarterly report to limited partners for the
quarter ended June 30, 1996 a plan of disposition
for the properties owned by the Partnership.
E. The identity of all persons or entities for
whose benefit, directly or indirectly, the Tender
Offer is made.
7. In any vote of the limited partners subsequent to
the date hereof, Offerors will vote any and all Units
owned by it, directly or indirectly, pro rata to the
vote of all other limited partners.
8. From and at all times after the date of this
agreement none of the Offerors will, either
individually or in concert with others, attempt to
remove the General Partner from its position as general
partner of the Partnership, provided that a vote by one
or more of Offeror in accordance with the provisions of
section 7 hereof shall not constitute a breach of this
section 8.
9. From and at all times after the date of this
agreement none of the Offerors will act, either individually
or in concert with others, to effect a change in control of
the Partnership, provided that a vote by one or more of
Offerors in accordance with the provisions of section 7
hereof shall not constitute a breach of this section 9.
10. Offerors will not transfer any interest, direct or
indirect, in all or any of the Units acquired by either
of them in the Tender Offer unless the transferee or
transferees agree in writing for the benefit of the
Partnership and the General Partner, in a form
reasonably satisfactory to the Partnership and the General
Partner, to abide by and comply with all of the terms, promises
and covenants made by Offerors herein, provided however
that the Offerors may collectively transfer no more than 5%
of the Units and section 10 shall not apply to such
transfer. For purposes of the preceding sentence, the
transfer of less than 5% of such units may be made in one or
more transactions so long as all such transfers, when added
together, do not exceed 5%.
11. In the event the transfer of Units presented for
transfer within a tax year of the Partnership could
cause the Partnership to be treated as a publicly traded
partnership for federal tax purposes, the General
Partner will accept such transfers only after receiving an
opinion of reputable counsel satisfactory to the General
Partner that the recognition of such transfers will not cause
the Partnership to be treated as a publicly traded
partnership under the Internal Revenue Code of 1986,
as amended.
12. This Agreement shall be governed by and construed
in accordance with Delaware law without regard to choice
of law rules.
Agreed and accepted,
T. ROWE PRICE REALTY INCOME FUND III MANAGEMENT, INC..
BY: /s/Lucy B. Robins
TITLE: Vice President
DATE: November 1, 1996
RAY WIRTA
/s/Ray Wirta
KOLL REAL ESTATE SERVICES
BY: /s/Ray Wirta
TITLE:
DATE: November 6, 1996
T. Rowe Price Realty Income Fund III, America s Sales-Commission-
Free Real Estate Limited Partnership
Amended and Restated Agreement of Limited Partnership
Section 5.3. Deficiency in General Partner s Capital
Account. In the event that, immediately prior to the dissolution
of the Partnership referred to in Article 19, the General Partner
shall have a deficiency in its capital account as determined in
accordance with tax accounting principles, then the General
Partner shall contribute in cash to the capital of the
Partnership an amount equal to whichever is the lesser of (a) the
deficiency in the General Partner s capital account or (b) the
excess of 1.01% of the Capital Contributions over the capital
previously contributed by the General Partner.
T. Rowe Price Realty Income Fund III, America s Sales-Commission-
Free Real Estate Limited Partnership
Amended and Restated Agreement of Limited Partnership
Section 21. Indemnification
Section 21.1 Agreement to Indemnify. To the maximum
extent permitted by law, the Partnership shall indemnify, save
harmless and pay all judgments and claims against the General
Partner or its Affiliates, from any liability, loss or damage
incurred by them or by the Partnership by reason of any act
performed or omitted to be performed by them in connection with
the business of the Partnership, including costs and attorneys
fees and any amount expended in the settlement of any claim of
liability, loss or damage, provided that, (a) if such liability,
loss, damage or claim arises out of any action or inaction of a
Affiliate, such actions or inactions must have occurred while
such parties were engaged in activities which could have been
engaged in by the General Partner in its capacity as such; (b) if
such liability, loss, damage or claim arises out of any action or
inaction of a General Partner or an Affiliate, the General
Partner or the Affiliate (as the case may be) must have
determined, in good faith, that such course of conduct was in, or
not opposed to, the best interests of the Partnership; (c) such
conduct did not constitute negligence or misconduct; and (d) any
such indemnification shall be recoverable only from the assets of
the Partnership and not from the assets of the Limited Partners.
All judgments against the Partnership and the General Partner and
its Affiliates, wherein the General Partner or its Affiliates are
entitled to indemnification, must first be satisfied from
Partnership assets before the General Partner, its Affiliates and
broker-dealers are responsible for these obligations. Nothing
contained herein shall constitute a waiver by any Limited Partner
of any right which he may have against any party under federal or
state securities laws. As used in this Article 21, the term
Affiliate shall mean any person performing services on behalf
of the Partnership who: (1) directly or indirectly controls, is
controlled by, or is under common control with the General
Partner; (2) owns or controls 10% or more of the outstanding
voting securities of the General Partner; (3) is an officer,
director, partner or trustee of the General Partner; or (4) if
the General Partner is an officer, director, partner or trustee,
is any company for which the General Partner acts in any such
capacity.
Section 21.2 Limitations. Notwithstanding Paragraph
21.1, a General Partner, its Affiliates and broker-dealers shall
not be indemnified pursuant to Paragraph 21.1 from any liability,
loss or damage incurred by them in connection with (a) any claim
or settlement involving allegations that federal or state
securities laws were violated by the General Partner, its
Affiliates or broker-dealers unless: (A) there has been a
successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court must approve any indemnification of litigation
costs, (B) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular
indemnitee and the court must approve any indemnification of
litigation costs,, or (C) a court of competent jurisdiction
approves a settlement of the claims against a particular
indemnitee, and finds that indemnification of the settlement and
related costs should be made, after being advised as to the
current position of both the Securities and Exchange Commission,
the California Commissioner of Corporations, the Massachusetts
Securities Division, the Tennessee Securities Division and the
Missouri Division of Securities regarding indemnification for
violations of securities law; or (b) any liability imposed by
law, including liability for negligence or misconduct.
