<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 March 31, 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
The financial statements of T. Rowe Price Realty Income
Fund III, America's Sales-Commission-Free Real Estate Limited
Partnership ("Partnership") are set forth in Exhibit 19 hereto,
which statements are incorporated by reference herein.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources and Results of Operations
The Partnership's liquidity and capital resources and its
results of operations are discussed in the Chairman's letter to
partners on pages 1-3 of Exhibit 19 hereto, the Partnership's
Quarterly Report to Security-Holders, which letter is hereby
incorporated by reference herein.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 24, 1997, Gramercy Park Investments, L.P.
("Gramercy") and Madison Partnership Liquidity Investors 26, LLC
filed a complaint in the Court of Chancery of the State of
Delaware against the Partnership and its General Partner, T. Rowe
Price Realty Income Fund II Management, Inc., seeking an order
that the defendants furnish immediately to Gramercy a current
list of the names, addresses, and ownership interests of the
unitholders in the Partnership, and damages.
Item 5. Other Information
On May 9, 1997, the Partnership distributed the proceeds
of the sale of South Point Plaza to the Limited Partners. The
amount of the distribution was $5.73 per Unit.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
19 - Quarterly Report Furnished to Security-Holders, including
Financial Statements of the Partnership.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
(1) Report on Form 8-K dated January 17, 1997,
filed with the Commission on January 22, 1997,
regarding planned quarterly distributions and
current estimated unit value.
<PAGE>3
(2) Report on Form 8-K dated April 11, 1997, filed
with the Commission on April 14, 1997,
relating to the execution of a definitive
contract with Glenborough Realty Trust
Incorporated.
All other items are omitted because they are not
applicable or the answers are none.
<PAGE>4
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: May 14, 1997 By: /s/ Kenneth J. Rutherford
Kenneth J. Rutherford
Vice President
Date: May 14, 1997 By: /s/ Joseph P. Croteau
Joseph P. Croteau
Principal Financial Officer of
the Partnership and Controller
<PAGE>
The Quarterly Report to Limited Partners for the Quarter ended
March 31, 1997 should be inserted here.
T. ROWE PRICE
REALTY INCOME
FUND III
AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP
QUARTERLY REPORT
FOR THE PERIOD ENDED
MARCH 31, 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:
As you know from our letter dated April 15, 1997, we signed
purchase and sale agreements on April 11 with Glenborough Realty
Trust Incorporated for the sale of all Fund properties at a
contract sales price of $36.0 million before selling expenses.
Glenborough is a real estate investment trust whose shares are
publicly traded on the New York Stock Exchange. We also closed
on the sale of South Point Plaza in April, after the end of the
reporting period. The disposition of three other properties,
Winnetka, Wood Dale, and Riverview, discussed in our last
report, did not go through as originally planned. However, they
are included in the pending sale to Glenborough, which will
liquidate the Fund's real estate portfolio if consummated.
These developments are in keeping with our previously
announced intention to shift our emphasis from the production of
income to the strategic positioning of Fund properties to
maximize potential sales proceeds. In order for the Fund to
complete the sale of its properties to Glenborough, a majority
in interest of limited partners must consent to the transactions
through a consent solicitation vote, which we expect to take
place in late June or sometime in July. As we cautioned in our
letter of April 15, this sale is subject to further due
diligence by Glenborough, which could result in changes to the
properties in the transaction, the sales proceeds to be
received, or the cancellation of the sale. It is possible that
the Fund may not be liquidated this year if the transactions
fall through.
Real Estate Investments (Dollars in thousands)
__________________________________________________
Average Contri-
Leased bution to
Leased Status Status Net Income
_________ _______ _______
Three Three
Gross Months Months
Leasable Ended Ended
Property Area March 31, March 31, March 31,
Name (Sq. Ft.) 1997 1996 1997 1996 1997
________ ________ ____ ____ ____ ____ ____
Scripps
Terrace 56,796 90% 82% 90% $ 48 $ 65
Tierrasanta 104,236 62 100 62 37 19
Clark Avenue 40,000 100 72 81 18 38
Westbrook
Commons 121,558 98 94 98 87 117
River Run 92,787 93 93 93 138 128
________ ____ ____ ____ _____ _____
415,377 87 92 85 328 367
Held for Sale
Winnetka 188,260 100 100 100 73 145
South Point
Plaza 50,497 90 61 91 2 (28)
Wood Dale 89,718 70 90 82 53 29
Riverview 113,700 100 96 100 59 97
________ ____ ____ ____ ____ ____
857,552 90 92 90 515 610
Property
Sold - - - - (1) -
Fund Expenses
Less
Interest
Income - - - - (44) (112)
________ ____ ____ ____ ____ ____
Total 857,552 90% 92% 90% $ 470 $ 498
It is worth mentioning again some of our reasons for
accepting Glenborough's offer:
o The offer represents more than 100% of the property
valuations used in our last estimated unit value and is
substantially more per unit on an adjusted basis than two
recent tender offers from unaffiliated third parties, which
ranged from approximately 40% to 75% of the estimated
valuation.
o Selling the properties in bulk will reduce transaction and
operating expenses and allow for a more accelerated return
of principal to investors than the original disposition
plan, which contemplated a gradual return of capital over
the next 13 to 21 months.
o There is no financing contingency, and Glenborough's
financial resources appear adequate to consummate the
transaction.
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 separately in May.
Deducting the South Point distribution of $5.73 from the
December 1996 adjusted estimated unit value of $145 results in
$139. Assuming all other properties are sold during the next few
months, the Fund plans to accrue for anticipated closing costs
and then make a liquidating cash distribution. Based on the
negotiated sale price and other information currently available,
we expect total future distributions to exceed the figure
mentioned above.
Results of Operations
The Fund had net income of $498,000 for the first three months
of 1997, an increase of $28,000 from the comparable period in
1996. Revenues declined $197,000 due primarily to the sale of
Fairchild in 1996, as well as to lower occupancy at Tierrasanta
caused by the loss of a major tenant, which we discussed in
earlier reports. However, expenses declined $225,000, resulting
in the net income gain. The drop in expenses was attributable to
the disposition of Fairchild and also to lower bad debt expenses
at Winnetka and River Run. Since Winnetka, Riverview, Wood Dale,
and South Point Plaza have been classified as held for sale,
there was no depreciation expense on these properties. Fund
expenses rose during the past three months, primarily as a
result of necessary costs incurred in responding to the recent
tender offers for partnership units.
At the property level, we signed new, renewal, and expansion
leases covering 7.8% of the porfolio's square footage during the
quarter, resulting in a slight increase in the Fund's leased
status from 89% at the end of December to 90% at the end of
March. The Fund's average leased status declined by two
percentage points compared with the year-ago period, primarily
because of the loss of a major tenant at Tierrasanta last
August, mentioned above. The major improvement during the latest
quarter occurred at Clark Avenue where a new tenant signed a
lease for 28% of the property, lifting leased status there to
100% and average leased status to 81%, nine percentage points
higher than in March 1996.
The Fund's cash position was essentially unchanged in the
quarter.
Outlook
Our reasons for wanting to liquidate the Fund's portfolio while
the real estate market is strengthening are unchanged. As
mentioned previously, our primary goal is to take advantage of
rising property values as the Fund nears the end of its planned
lifespan. Real estate markets have been improving during the
past few years, and we have used this opportunity to capture
higher prices for our investors. Rising real estate values could
eventually lead to an increased supply of new properties,
resulting in softer prices some time later. This is a normal
pattern as the real estate cycle runs its course.
No one can forecast precisely when prices will reach their
peak, and it is possible that by selling Fund properties now we
might miss further advances later on. However, demand from
tenants and investors is currently very strong, causing the
supply of properties to grow in many markets. We believe it is
prudent to sell into strength while prices are still advancing.
It is critical that you promptly read the consent
solicitation materials and return the card as soon as you
receive them, so that we can minimize Fund expenses and
implement the orderly liquidation of your investment.
Thank you in advance for your cooperation in this matter.
Sincerely,
James S. Riepe
Chairman
May 7, 1997
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
March 31, December 31,
1997 1996
___________ ___________
Assets
Real Estate Property
Investments
Land . . . . . . . . . . $ 6,882 $ 6,882
Buildings and
Improvements. . . . . 13,196 13,112
_________ ________
20,078 19,994
Less: Accumulated
Depreciation and
Amortization. . . . . (1,198) (1,059)
________ ________
18,880 18,935
Properties Held
for Sale. . . . . . . 11,807 11,786
________ ________
30,687 30,721
Cash and Cash
Equivalents. . . . . . . 2,383 2,468
Accounts Receivable (less
allowances of $59
and $131) . . . . . . 579 445
Other Assets. . . . . . . . 305 318
________ ________
$ 33,954 $ 33,952
________ ________
________ ________
Liabilities and Partners'
Capital
Security Deposits and
Prepaid Rents. . . . . . $ 412 $ 439
Accrued Real
Estate Taxes . . . . . . 538 450
Accounts Payable and
Other Accrued
Expenses . . . . . . . . 172 217
________ ________
Total Liabilities . . . . . 1,122 1,106
Partners' Capital . . . . . 32,832 32,846
________ ________
$ 33,954 $ 33,952
________ ________
________ ________
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Ended
March 31,
1997 1996
____ ____
Revenues
Rental
Income. . . . . . . . . . . $ 1,402 $ 1,584
Interest Income . . . . . . . . 31 46
________ ________
1,433 1,630
________ ________
Expenses
Property Operating
Expenses. . . . . . . . . . 254 420
Real Estate Taxes . . . . . . . 266 291
Depreciation and Amortization . 155 348
Decline of Property Value . . . 65 -
Management Fee to
General Partner . . . . . . 52 12
Partnership Management
Expenses. . . . . . . . . . 143 89
________ ________
935 1,160
________ ________
Net Income. . . . . . . . . . . $ 498 $ 470
________ ________
________ ________
Activity per Limited
Partnership Unit
Net Income. . . . . . . . . . . $ 1.94 $ 1.83
________ ________
________ ________
Cash Distributions
Declared from
Operations. . . . . . . . . - $ 2.00
________ ________
________ ________
Units Outstanding . . . . . . . 253,599 253,599
________ ________
________ ________
See 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. . . . . . . 5 493 498
Cash Distributions. . . (5) (507) (512)
_______ _______ _______
Balance, March 31,
1997 . . . . . . . . $ (198)$ 33,030 $32,832
_______ _______ _______
_______ _______ _______
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
March 31,
1997 1996
________ ________
Cash Flows from Operating
Activities
Net Income. . . . . . . . . . . . $ 498 $ 470
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating
Activities
Depreciation and
Amortization . . . . . . . 155 348
Decline of Property
Value. . . . . . . . . . . 65 -
Change in Accounts
Receivable, Net of
Allowances . . . . . . . . . (134) 122
Change in Other Assets . . . . 13 (77)
Decrease in Security
Deposits and Prepaid
Rent . . . . . . . . . . . (27) (34)
Increase in Accrued
Real Estate Taxes. . . . . . 88 96
Decrease in Accounts
Payable and Other
Accrued Expenses . . . . . (45) (134)
________ ________
Net Cash Provided by Operating
Activities . . . . . . . . . . 613 791
________ ________
Cash Flows Used in
Investing Activities
Investments in Real
Estate . . . . . . . . . . . . (186) (190)
________ ________
Cash Flows Used in
Financing Activities
Cash Distributions. . . . . . . . (512) (1,620)
________ ________
Cash and Cash Equivalents
Net Decrease during Period. . . . (85) (1,019)
At Beginning of Year. . . . . . . 2,468 3,436
________ ________
At End of Period. . . . . . . . . $ 2,383 $ 2,417
________ ________
________ ________
See 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 $52,000
during the first three 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
$29,000 for communications and administrative services
performed on behalf of the Partnership during the first three
months of 1997.
An affiliate of the General Partner earned a normal and
customary fee of $1,000 from the money market mutual funds in
which the Partnership made its interim cash investments during
the first three 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 three months of 1997 totaled $30,000.
An affiliate of LaSalle earned $12,000 in the first three
months of 1997 as property manager for several of the
Partnership's properties.
NOTE 2 - REAL ESTATE PROPERTY INVESTMENTS
In early April 1997, South Point Plaza, a shopping center in
which the Partnership had a 50% interest, was sold and the
Partnership received net proceeds of $1,452,930. The net book
value of the Partnership's interest in this property at the
date of disposition was also $1,452,930 after accumulated
depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was
recognized on the property sale. Results of operations for
this property during the first quarter of 1997 include a
$65,000 decline of property value.
The Partnership began actively marketing its three midwest
industrial properties, Wood Dale, Winnetka, and Riverview in
1996, and classifies them as held for sale in the accompanying
balance sheets.
On April 11, 1997, the Partnership and its consolidated
ventures entered into contracts with a buyer for the sale of
all properties in which the Partnership holds an interest,
including the three midwest industrial properties. The total
sales price for the Partnership's interests is $35,987,000
before selling expenses. The transactions are subject to
further due diligence by the buyer and approval of the Limited
Partners which could result in changes to or the cancellation
of the contracts. If the transactions are closed, the
Partnership will have sold all of its real estate property
investments and will begin liquidation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the
unaudited condensed consolidated financial statements of T. Rowe
Price Realty
Income Fund III, America's Sales-Commission-Free Real Estate
Limited
Partnership included in the accompanying Form 10-Q for the period
ended March
31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,383,000
<SECURITIES> 0
<RECEIVABLES> 638,000
<ALLOWANCES> 59,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 31,885,000
<DEPRECIATION> 1,198,000
<TOTAL-ASSETS> 33,954,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 32,832,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 33,954,000
<SALES> 0
<TOTAL-REVENUES> 1,433,000
<CGS> 0
<TOTAL-COSTS> 935,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 498,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 498,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498,000
<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
$1.94.
</FN>
<PAGE>
