<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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
I.R.S. Employer Identification No.: 52-1512713
Address and Zip Code of Principal Executive Offices: 100 E. Pratt
Street, Baltimore, Maryland 21202
Registrant's telephone number, including area code: 1-800-638-
5660
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 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 . . . . . . . 11,786
________
. . . . . . . . . . . . 30,721
Cash and Cash Equivalents . . . $ 11,953 2,468
Receivables (less allowance of
$131 in 1996) . . . . . . . 20 445
Other Assets . . . . . . . . . - 318
________ ________
$ 11,973 $ 33,952
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and
Prepaid Rents . . . . . . . $ 439
Accrued Real Estate Taxes . . . 450
Accounts Payable and Other
Accrued Expenses . . . . . $ 76 217
________ ________
Total Liabilities . . . . . . . 76 1,106
Partners' Capital . . . . . . . 11,897 32,846
________ ________
$ 11,973 $ 33,952
________ ________
________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-unit amounts)
January 1 Years Ended
through December 31,
September 30, _________________
1997 1996 1995
__________ _______ ________
Revenues
Rental Income . . . . $ 3,768 $ 6,091 $ 5,502
Interest Income from
Participating Mortgage
Loan . . . . . . . - - 429
Interest Income . . . 156 189 163
________ ________ ________
3,924 6,280 6,094
________ ________ ________
Expenses
Property Operating
Expenses . . . . . 696 1,329 1,284
Real Estate Taxes . . 683 1,083 1,002
Depreciation and
Amortization . . . 155 1,268 1,266
Decline (Recovery) of
Property Values . 65 2,750 (109)
Provision for Loan
Loss . . . . . . . - - 202
Management Fee to
General Partner . 234 164 282
Partnership Management
Expenses . . . . . 572 410 384
________ ________ ________
2,405 7,004 4,311
________ _______ ________
Income (Loss) from Operations
before Real Estate
Sold . . . . . . . 1,519 (724) 1,783
Gain on Real Estate
Sold . . . . . . . 5,937 1,630 -
________ ________ ________
Net Income . . . . . $ 7,456 $ 906 $ 1,783
________ ________ ________
________ ________ _______
<PAGE>4
January 1 Years Ended
through December 31,
September 30, _________________
1997 1996 1995
__________ _______ ______
Activity per Limited Partnership Unit
Net Income . . . . . $ 29.34 $ 3.54 $ 6.96
________ ________ ________
________ _______ ________
Cash Distributions Declared
from Operations . $ 10.08 $ 8.00 $ 10.36
as Return of
Capital . . . . . 0.87 - .75
from Sale Proceeds 99.78 21.60 -
________ ________ ________
Total Distributions
Declared . . . . . $ 110.73 $ 29.60 $ 11.11
________ ________ ________
________ ________ ________
Units Outstanding . . 253,599 253,599 253,599
________ ________ ________
________ ________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>5
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
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
Net Income . . . . . 9 897 906
Cash Distributions . (19) (8,615) (8,634)
_______ _______ _______
Balance, December 31,
1996 . . . . . . . (198) 33,044 32,846
Net Income . . . . . 15 7,441 7,456
Cash Distributions . (29) (28,588) (28,617)
Capital Contribution 212 - 212
_______ _______ _______
Balance, September 30,
1997 . . . . . . . $ 0 $ 11,897 $ 11,897
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
January 1 Years Ended
through December 31,
September 30, ________________
1997 1996 1995
_____________ _________ _________
Cash Flows from
Operating Activities
Net Income . . . . . $ 7,456 $ 906 $ 1,783
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities
Depreciation and
Amortization 155 1,268 1,266
Decline (Recovery)
of Property
Values . . . 65 2,750 (109)
Provision for Loan
Loss . . . . - - 202
Gain on Real Estate
Sold . . . . (5,937) (1,630) -
Change in
Receivables . 425 77 (95)
Change in Other
Assets . . . 45 (48) (101)
Change in Security
Deposits and
Prepaid Rents (439) 48 6
Change in Accrued
Real Estate
Taxes . . . . (450) 17 (8)
Change in Accounts
Payable and
Other Accrued
Expenses . . (141) (118) 35
_______ _______ _______
Net Cash Provided
by Operating
Activities . . . . 1,179 3,270 2,979
_______ _______ _______
<PAGE>7
January 1 Years Ended
through December 31,
September 30,
__________________
1997 1996 1995
_____________ _________ __________
Cash Flows from Investing
Activities
Proceeds from Property
Dispositions . . . 37,201 5,477 -
Investments in Real
Estate . . . . . (490) (1,081) (1,176)
_______ _______ _______
Net Cash Provided by
(Used in) Investing
Activities . . . . 36,711 4,396 (1,176)
_______ _______ _______
Cash Flows from Financing
Activities
Capital Contribution 212 - -
Cash Distributions . (28,617) (8,634) (2,029)
Redemption of Units . - - (1)
_______ _______ _______
Net Cash Used in Financing
Activities . . . . (28,405) (8,634) (2,030)
_______ _______ _______
Cash and Cash Equivalents
Net Change during
Period . . . . . 9,485 (968) (227)
At Beginning of Year 2,468 3,436 3,663
_______ _______ _______
At End of Period . . $ 11,953 $ 2,468 $ 3,436
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP AND ITS LIQUIDATION
T. Rowe Price Realty Income Fund III, America's
Sales-Commission-Free Real Estate Limited Partnership (the
Partnership), was formed in 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 General Partner.
In accordance with the provisions of the partnership
agreement, income and cash distributions from operations have
been allocated and paid, and gains on real estate sold before
September 12, 1997, allocated, to the General and Limited
Partners at rates of 1% and 99%, respectively. All sales proceeds
were paid, and the gain on the liquidating sale of the
Partnership's interests in its eight remaining properties on
September 12, 1997, were allocated, 100% to the Limited Partners.
After the sale of its remaining properties on September 12,
1997, the Partnership entered into its final liquidating phase.
Later in September, the Partnership made a partial liquidating
distribution of $26,628,000 to the Limited Partners and a final
distribution to the General Partner of $24,000.
The Partnership will declare and make a final liquidating
distribution of its remaining net assets based on final balances
in the partners' capital accounts. This final distribution will
be made by December 31, 1997, to Limited Partners only and,
thereafter, the Partnership will be dissolved.
The accompanying financial statements for 1997 include
estimates of the costs of liquidating the Partnership. Results of
operations from October 1, 1997, until the date of the final
liquidating distribution are not expected to be significant and
will consist primarily of interest income and the settlement of
receivables and payables.
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.
The consolidated financial statements include the accounts of
the Partnership and its pro-rata share of the partnership
accounts of South Point Partners, Tierrasanta 234, and
<PAGE> 9
Penasquitos 34 (Westbrook Commons) in which the Partnership had
50%, 30%, and 50% interests, respectively. They also include the
Partnership's 56% pro-rata share of the partnership accounts of
Fairchild 234 until the property's disposition in 1996. The other
partners in these ventures are affiliates of the Partnership. All
intercompany accounts and transactions have been eliminated in
consolidation.
The Partnership reviewed its real estate property investments
for impairment whenever events or changes in circumstances
indicated that the property carrying amounts may not have been
recoverable. Such a review resulted in the Partnership recording
a provision for impairment of the carrying value of its real
estate property investments whenever the estimated future cash
flows from a property's operations and projected sale were less
than the property's net carrying value.
Depreciation was calculated primarily on the straight-line
method over the estimated useful lives of buildings and
improvements, which range from 5 to 40 years. Lease commissions
and tenant improvements were 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 is equivalent to fair value.
The Partnership used the allowance method of accounting for
doubtful accounts. Provisions for uncollectible tenant
receivables in the amounts of $34,000, $143,000, and $192,000,
were recorded in 1997, 1996, and 1995, respectively. Bad debt
expense is included in Property Operating Expenses.
Rental income was recognized on a straight-line basis over the
term of each lease. Rental income accrued, but not yet billed,
was included in Other Assets and aggregated $262,000 at December
31, 1996.
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 any
income taxes in the accompanying consolidated financial
statements.
NOTE 3 - PROPERTY VALUATIONS
On January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which changed the Partnership's method of
accounting for its real estate property investments when
circumstances indicated that the carrying amount of a property
might not have been recoverable. Measurement of an impairment
<PAGE> 10
loss on an operating property subsequent to adoption was based on
the estimated fair value of the property, which became the
property's new cost basis, rather than the sum of expected future
cash flows. Properties held for sale subsequent to adoption were
no longer depreciated but continued to be reflected at the lower
of historical cost or estimated fair value less anticipated
selling costs.
Based upon a review of market conditions, estimated holding
period and future performance expectations of each property, the
General Partner determined that the net carrying values of
certain properties held for operations were likely not fully
recoverable. Charges recognized for such impairments aggregated
$2,721,000 in 1996.
With respect to properties held for sale, the partnership
assessed property carrying values and recognized net declines of
$65,000 in 1997 and $29,000 in 1996 and a net recovery of
$109,000 in 1995.
NOTE 4 - PROPERTY DISPOSITIONS
On August 28, 1996, Fairchild Corporate Center was sold and the
Partnership received net proceeds of $5,477,000. The net book
value of the Partnership's 56% interest at the date of sale was
$3,847,000 after deduction of accumulated depreciation and
previously recorded declines in property value. Accordingly, the
Partnership recognized a $1,630,000 gain on the sale of this
property.
On April 8, 1997, South Point Plaza was sold and the
Partnership received net proceeds of $1,453,000. The net book
value of the Partnership's 50% interest in this property at the
date of disposition was also $1,453,000 after accumulated
depreciation expense and previously recorded declines in property
value. Therefore, no gain or loss was recognized on the property
sale.
On September 12, 1997, the Partnership sold its interests in
its eight remaining properties-Clark Avenue, River Run,
Riverview, Scripps Terrace, Tierrasanta, Westbrook, Winnetka, and
Wood Dale-to a single, third-party buyer for net proceeds of
$35,748,000. The sale was approved by a majority of the Limited
Partners on September 11, 1997. The net book value of the
Partnership's interests in the eight properties was $29,811,000
after accumulated depreciation expense and previously recorded
declines in property value. Accordingly, the Partnership
recognized a $5,937,000 gain on the sale of its interests in
these properties.
<PAGE> 11
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
As compensation for services rendered in managing the
Partnership, the General Partner earned a partnership management
fee equal to 9% of net operating proceeds. The General Partner
earned partnership management fees of $234,000, $164,000, and
$282,000 in 1997, 1996, and 1995, respectively. In addition, the
General Partner's share of cash available for distribution from
operations, as discussed in Note 1, totaled $24,000, $20,000 and
$28,000 in 1997, 1996, and 1995, 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
$137,000, $90,000, and $77,000 for communications and
administrative services performed on behalf of the Partnership in
1997, 1996, and 1995, respectively.
An affiliate of the General Partner earned a normal and
customary fee of approximately $7,000, $4,000, and $12,000 from
the money market mutual funds in which the Partnership made its
interim cash investments during 1997, 1996, and 1995,
respectively.
The partnership agreement includes provisions requiring that
the General Partner make a capital contribution upon the
liquidation of the Partnership if, at that time, the General
Partner's capital account has a deficit balance. On September 24,
1997, the General Partner contributed $212,000 to the Partnership
thereby increasing its capital account from a deficit balance to
zero.
LaSalle Advisors Limited Partnership (LaSalle) was the
Partnership's advisor and was compensated for its advisory
services directly by the General Partner. LaSalle was 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 totaled $84,000,
$120,000, and $120,000 during 1997, 1996, and 1995, respectively.
An affiliate of LaSalle earned $27,000, $87,000, and $61,000
in 1997, 1996, and 1995, respectively, for property management
fees and leasing commissions on tenant renewals and extensions at
several of the Partnership's properties.
NOTE 6 - FORECLOSURE OF MORTGAGE LOAN RECEIVABLE
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
<PAGE> 12
$7,700,000, the estimated fair value of the underlying property.
On October 10, 1995, the Partnership purchased the property and,
in connection therewith, reclassified the participating mortgage
loan balance to a real estate property investment.
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not incurred any
income tax liability; however, certain timing differences exist
between net income (loss) for financial statement and federal
income tax purposes. These differences (in thousands) are
summarized below:
1997 1996 1995
________ ________ _________
Net income reported
in financial
statements . . . $ 7,456 $ 906 $1,783
Declines of property
values . . . . . (5,744) (6,540) (109)
Interest income . . . - - 661
Depreciation . . . . (691) (23) (283)
Provision for loan loss - -
(1,956 . . . . . . . )
Other items . . . . . 370 (102) (11)
________ _________ ________
Taxable income (loss) $ 1,391 $ (5,759) $ 85
________ _________ ________
________ _________ ________
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sale-Commission-Free Real Estate Limited Partnership:
We have audited the 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
September 30, 1997 and December 31, 1996, and the related
consolidated statements of operations, partners' capital and cash
flows for the period January 1, 1997 through September 30, 1997
and for the years ended December 31, 1996 and 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 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 September 30, 1997 and
December 31, 1996, and the results of their operations and their
cash flows for the period January 1, 1997 through September 30,
1997 and for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
October 21, 1997
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources and Results of Operations
The Partnership s net income for its final nine months was
$7,456,000, which included a gain of $5,937,000 on the sale of
properties and income from operations of $1,519,000. Net income
amounted to $29.34 per unit. For the year ended December 31,
1996, the Partnership reported net income of $906,000 or $3.54
per unit, which included a gain of $1,630,000 on the sale of
Fairchild partly offset by a loss from operations of $724,000.
The Partnership s real estate properties were sold on September
12, 1997, resulting in net proceeds of $35,748,000 and the gain
of $5,937,000.
The Partnership paid $105 per unit on September 19, 1997,
which was a substantial portion of the total liquidating
distributions. The Partnership anticipates making a final
liquidating distribution in early December of 1997.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On September 11, 1997, the limited partners of the
Partnership approved a proposal to sell all of the Partnership s
remaining real estate properties to Glenborough Realty Trust, and
thereafter dissolve and liquidate the Partnership. Under the
terms of the Partnership s Agreement of Limited Partnership, no
meeting was required in connection with the proposal, and the
vote was taken through a written consent solicitation.
Limited partners holding 81% (209,083) of the outstanding
units of limited partnership interest ("Units") cast votes on the
proposal. Of these, 206,174 Units were voted in favor of the
proposal, 2,025 against, and 884 abstained.
Item 6. Exhibits and Reports on Form 8-K:
(a)Exhibits.
27 - Financial Data Schedule
(b)Reports on Form 8-K
Report on Form 8-K dated September 12, 1997, reporting
the sale of the Partnership s real estate properties and
a distribution of a portion of the proceeds.
All other items are omitted because they are not applicable
or the answers are none.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
T. ROWE PRICE REALTY INCOME FUND III,
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
By: T. Rowe Price Realty Income Fund
III Management, Inc., General
Partner
Date: November 14, 1997 By: /s/ Lucy B. Robins
Lucy B. Robins
Vice President
Date: November 14, 1997 By: /s/ Mark S. Finn
Mark S. Finn
Chief Accounting Officer for
the Partnership
<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-Q
for the period ended September 30, 1997 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,953,000
<SECURITIES> 0
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,973,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,897,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 11,973,000
<SALES> 0
<TOTAL-REVENUES> 3,924,000
<CGS> 0
<TOTAL-COSTS> 2,405,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,456,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,456,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,456,000
<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
$29.34.
</FN>
