T. ROWE PRICE
REALTY INCOME
FUND III
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
QUARTERLY REPORT
FOR THE PERIOD ENDED
JUNE 30, 1997
For information on your
Realty Income Fund account, call:
1-800-962-8300 toll free
410-625-6500 Baltimore area
For information on your
mutual fund account, call:
1-800-225-5132 toll free
410-625-6500 Baltimore area
T. Rowe Price Real Estate Group
100 East Pratt Street
Baltimore, Maryland 21202
Invest With Confidence(registered trademark)
T. Rowe Price
FELLOW PARTNERS:
By now you should have received materials requesting your
consent to sell T. Rowe Price Realty Income Fund III's interests
in its remaining eight properties to Glenborough Realty Trust
Incorporated for $35,987,000, and also to complete the
liquidation of the Fund. A majority of the Fund's outstanding
units must be voted in favor of the proposal for the transaction
to proceed.
As mentioned previously, the Fund has held the properties
for the period anticipated when the Fund was organized, and
current market conditions appear favorable for a sale. The Fund
expects to benefit substantially by selling all of the
properties in bulk instead of individually. In particular, the
costs of selling each property individually-including sales
commissions and other closing-related costs-could be materially
higher. Our experience indicates that there could be more
negative price adjustments as a result of each buyer's due
diligence activities. Also considered was the advantage of
limited partners receiving their sales proceeds immediately
rather than having them spread over the next several years.
The price offered by Glenborough should allow the Fund to
liquidate its investment for an amount that exceeds the most
recent adjusted estimated aggregate value.
Under the heading "THE TRANSACTION- Recommendations of the
General Partner" in the consent materials you received, we
discussed in detail the advantages and disadvantages of the
Glenborough transaction. After carefully weighing the facts and
circumstances associated with this transaction against
alternative courses of action, we concluded that the bulk sale
to Glenborough and subsequent liquidation of the Fund is an
outstanding opportunity to maximize value for investors.
Therefore, we recommend that you consent to the proposed
transaction by voting now and returning the consent card in the
postage-paid envelope, if you have not already done so. Your
participation is extremely important, and your response to the
solicitation will save your Fund the substantial costs
associated with a follow-up mailing. If you have not received
your materials, or if you need an additional consent card,
please call one of our real estate representatives at
1-800-962-8300.
Real Estate Investments (Dollars in Thousands)
______________________________________________________________
Average Contri-
Leased Leased bution to
Status Status Net Income
_________ _______ _______
Six Six
Gross Months Months
Properties Leasable Ended Ended
Held for Area June 30, June 30, June 30,
Sale (Sq. Ft.) 1997 1996 1997 1996 1997
_______ ________ _____ ___ ___ ___ ___
Scripps
Terrace 56,796 90% 82% 90 %$ 94$ 134
Tierrasanta 104,236 62 100 62 74 47
Clark Avenue 40,000 100 72 91 42 104
Westbrook
Commons 121,558 98 94 98 186 271
Winnetka 188,260 100 100 100 176 308
Wood Dale 89,718 70 95 70 61 85
Riverview 113,700 100 98 100 120 205
River Run 92,787 93 93 93 313 310
________ ____ ____ ____ ______ ______
807,055 90 95 90 1,066 1,464
Properties
Sold - - - - (34) (34)
Fund Expenses
Less Interest
Income - - - - (121) (179)
________ ____ ____ ____ ______ ______
Total 807,055 90% 95% 90% $ 911 $1,251
Cash Distributions
Pending the completion of the sale to Glenborough, the Fund has suspended
cash distributions from operations. Proceeds from the sale of South Point
Plaza were distributed in May. When the distribution of $5.73 per unit is
deducted from the December 1996 estimated unit value of $145, the result is
$139. Assuming all other properties are sold during the next few months, the
General Partner will determine the amount it believes sufficient for the
payment of Fund liabilities; the balance of the assets will then be promptly
distributed. Based on the negotiated sale price and other information
currently available, we expect future distributions to exceed the figure
mentioned above.
Results of Operations
The Fund had net income of $1,251,000 for the first six months of 1997, an
increase of $340,000 over the comparable period in 1996. This increase is
primarily due to a $566,000 decrease in depreciation expense as a result of
stopping the depreciation of Fund properties now Held for Sale. The decline
in depreciation expense was partly offset by reduced operating revenues at
several properties due to lower average occupancy.
Net income for the quarter ended June 30 increased $312,000 from the same
quarter last year. Again, the lack of depreciation expense for the properties
accounted for the increase.
At the property level, the Fund's average leased status declined to 90%
from 95% for the comparable year-ago period. The decline was due to the loss
of tenants at Tierrasanta and Wood Dale. A new lease for 6% of Tierrasanta
has been executed, and two other leases covering the rest of the vacancy at
the property are currently being negotiated.
Outlook
As the real estate market has been improving in recent years, we have taken
advantage of the opportunity to capture higher prices for portfolio
properties. We believe it is in the best interests of investors to liquidate
the Fund's portfolio while real estate values continue to strengthen, since
the Fund is nearing the end of its planned lifespan. In the normal course of
events, as the real estate cycle runs its course, rising property prices
usually lead to an increased supply of new properties, which could lead to
softer prices sometime later.
No one can forecast exactly when the real estate market will peak, but we
believe it is likely that there will be less capital available to real estate
investors in the future and that speculative construction may commence in
several markets in which the Fund owns properties. Each of these factors, if
they occur, could have a negative impact on the value of our properties.
Once again we urge you to read the consent solicitation materials and
return the card as quickly as possible so that we can proceed with the
orderly liquidation of your investment.
Thank you for your cooperation.
Sincerely,
James S. Riepe
Chairman
August 7, 1997
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
June 30, December 31,
1997 1996
___________ ____________
Assets
Real Estate Property
Investments
Land . . . . . . . . . . . $ 6,882
Buildings and
Improvements . . . . . . . 13,112
________
19,994
Less: Accumulated Depreciation
and Amortization . . . . . (1,059)
________
18,935
Held for Sale . . . . . . . . $ 29,652 11,786
________ ________
29,652 30,721
Cash and Cash Equivalents . . . 3,069 2,468
Accounts Receivable (less
allowances of $33
and $131). . . . . . . . . 461 445
Other Assets. . . . . . . . . . 17 318
________ ________
$ 33,199 $ 33,952
________ ________
________ ________
Liabilities and Partners'
Capital
Security Deposits and Prepaid
Rents . . . . . . . . . . . . $ 316 $ 439
Accrued Real Estate Taxes . . . 489 450
Accounts Payable and Other
Accrued Expenses. . . . . . . 262 217
________ ________
Total Liabilities . . . . . . . 1,067 1,106
Partners' Capital . . . . . . . 32,132 32,846
________ ________
$ 33,199 $ 33,952
________ ________
________ ________
See the accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
____ ____ ____ ____
Revenues
Rental Income . . . . $ 1,409 $ 1,666 $ 2,811 $ 3,250
Interest Income . . . 37 29 68 75
________ ________ ________________
1,446 1,695 2,879 3,325
________ ________ ________________
Expenses
Property Operating
Expenses. . . . . 221 448 475 868
Real Estate
Taxes . . . . . . 261 278 527 569
Depreciation and
Amortization. . . - 373 155 721
Decline of Property
Values. . . . . . - - 65 -
Management Fee
to General
Partner . . . . . 106 51 158 63
Partnership Management
Expenses. . . . . 105 104 248 193
________ ________ ________________
693 1,254 1,628 2,414
________ ________ ________________
Net Income. . . . . . $ 753 $ 441 $ 1,251 $ 911
________ ________ ________________
________ ________ ________________
Activity per Limited
Partnership Unit
Net Income . . . . . $ 2.94 $ 1.72 $ 4.88 $ 3.56
________ ________ ________________
________ ________ ________________
Cash Distributions Declared
from Sale
Proceeds. . . . $ 5.73 $ 5.73
from
Operations. . . - $ 2.00 - $ 4.00
________ ________ ________________
Total Distributions
Declared. . . . . $ 5.73 $ 2.00 $ 5.73 $ 4.00
________ ________ ________________
________ ________ ________________
Units
Outstanding . . . 253,599 253,599 253,599 253,599
________ ________ ________________
________ ________ ________________
See the accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, December 31,
1996. . . . . . . . . . . $ (198)$ 33,044 $32,846
Net Income. . . . . . . . . . 13 1,238 1,251
Cash Distributions. . . . . . (5) (1,960) (1,965)
_______ . . . . . . . . . . . _______ _______
Balance, June 30, 1997. . . . $ (190) $ 32,322 $32,132
_______ _______ _______
_______ _______ _______
See the accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Six Months Ended
June 30,
1997 1996
_________ _________
Cash Flows from Operating
Activities
Net Income. . . . . . . . . . . . . $ 1,251 $ 911
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating Activities
Depreciation and
Amortization . . . . . . 155 721
Decline of Property
Values . . . . . . . . . 65 -
Change in Accounts
Receivable, Net of
Allowances . . . . . . . (16) 162
Change in Other
Assets . . . . . . . . . 28 (121)
Decrease in Security
Deposits and Prepaid
Rents. . . . . . . . . . (123) (18)
Increase in Accrued Real
Estate Taxes . . . . . . 39 90
Change in Accounts Payable
and Other Accrued
Expenses . . . . . . . . 45 (157)
________ ________
Net Cash Provided by Operating
Activities. . . . . . . . . . . 1,444 1,588
________ ________
Cash Flows from Investing Activities
Proceeds from Property Disposition 1,453 -
Investments in Real Estate. . . . . (331) (517)
________ ________
Net Cash Provided by (Used in)
Investing Activities. . . . . . 1,122 (517)
________ ________
Cash Flows Used in Financing Activities
Cash Distributions. . . . . . . . . (1,965) (2,132)
________ ________
Cash and Cash Equivalents
Net Increase (Decrease) during
Period . . . . . . . . . . . . 601 (1,061)
At Beginning of Year. . . . . . . . 2,468 3,436
________ ________
At End of Period. . . . . . . . . . $ 3,069 $ 2,375
________ ________
________ ________
See the accompanying notes to condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated financial
statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of
a normal, recurring nature.
The unaudited interim financial information contained in
the accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements contained in the 1996 Annual Report to Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs
of the Partnership, the General Partner earns a partnership
management fee equal to 9% of net operating proceeds. The
General Partner earned a partnership management fee of
$158,000 during the first six months of 1997.
In accordance with the partnership agreement, certain
operating expenses are reimbursable to the General Partner.
The General Partner's reimbursement of such expenses totaled
$61,000 for communications and administrative services
performed on behalf of the Partnership during the first six
months of 1997.
An affiliate of the General Partner earned a normal and
customary fee of $2,000 from the money market mutual funds in
which the Partnership made its interim cash investments during
the first six months of 1997.
LaSalle Advisors Limited Partnership ("LaSalle") is the
Partnership's advisor and is compensated for its advisory
services directly by the General Partner. LaSalle is
reimbursed by the Partnership for certain operating expenses
pursuant to its contract with the Partnership to provide real
estate advisory, accounting and other related services to the
Partnership. LaSalle's reimbursement for such expenses during
the first six months of 1997 totaled $60,000.
An affiliate of LaSalle earned $13,000 in the first six
months of 1997 as property manager for several of the
Partnership's properties.
NOTE 2 - PROPERTY DISPOSITION
On April 8, 1997, South Point Plaza, a shopping center in
which the Partnership had a 50% interest, was sold and the
Partnership received net proceeds of $1,453,000. The net book
value of the Partnership's interest in this property at the
date of disposition was also $1,453,000 after accumulated
depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was
recognized on the property sale.
NOTE 3 - PROPERTIES HELD FOR SALE
On April 11, 1997, the Partnership and its consolidated
ventures entered into contracts with a buyer for the sale of
all of its real estate property investments at a price of
$35,987,000 before selling expenses. The transactions are
subject to the approval of the Limited Partners. If the
transactions close, the Partnership will have sold all of its
real estate properties and will begin liquidation.