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.
