T. Rowe Price
Renaissance
Fund, Ltd.
A Sales-Commission-Free
Real Estate Investment
For information on your
Renaissance Fund account, call:
1-800-962-8300 toll free
For information on your
mutual fund account, call:
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price Real Estate Group
100 East Pratt Street
Baltimore, Maryland 21202
Annual Report
For The Period Ended
December 31, 1996
FELLOW STOCKHOLDER:
The sale of Buckley Square during the fourth quarter had a major
impact on Fund results. We realized net proceeds after closing
costs and minority interest distributions of $6,189,000. After
distributing the taxable gain to shareholders, the remaining $4.8
million was used to pay down part of the Fund's debt on Buschwood
III under the terms of the loan agreement requiring all net
proceeds, except for the gain, to be applied against the
outstanding loan amount.
Excluding the $1,368,000 gain on the sale of Buckley, the
Fund experienced a loss from operations of $223,000 in 1996
compared with income of $678,000 in 1995. The difference between
1995 and 1996 was a direct result of a valuation impairment of
$907,000 at Post Oak Place. Including the gain from the sale, the
Fund's net income in 1996 was $1,145,000.
Revenues from rental income and interest resulted in total
revenues of $5,320,000 for the year compared with $4,878,000 a
year earlier. Revenues and operating expenses, excluding the Post
Oak impairment, were up by comparable amounts, $442,000 and
$436,000, respectively, due primarily to the inclusion of
Buschwood for the full year in 1996. Increases in operating
income at Buckley prior to the sale, and at Buschwood for a full
year, offset operating declines at Gatehall I due to a lower
average leased status over the year, and at Post Oak Place due to
greater depreciation and bad debt expense.
We signed new, renewal, and expansion leases totaling 26% of
the Fund's total square footage in 1996. Declines because of
tenant turnover at Valley Business Center in the fourth quarter
offset gains at Gatehall I and Post Oak Place, resulting in the
overall leased status of the Fund remaining unchanged at 87% from
the prior year-end.
Real Estate Investments (Dollars in thousands)
_________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
___________ _____________ ____________
Gross Twelve Twelve
Leasable Months Ended Months Ended
Property Area December 31, December 31, December 31,
Name (Sq. Ft.) 1996 1995 1996 1995 1996
_________ __________ __________ _____ _____ ____ ____
Valley
Business
Center 202,500 87% 98% 97% $253 $ 256
Post Oak
Place 56,400 81 75 76 48 (933)
Gatehall I 113,600 82 82 73 157 (52)
Buschwood
III 76,900 100 100 100 7 154
________ ____ ____ ____ _____ _____
449,400 87 91 89 465 (575)
Properties
Sold - - - - 357 1,958
Fund
Expenses
Less
Interest
Income - - - - (144) (238)
________ ____ ____ ____ _____ _____
Total 449,400 87% 91% 89% $678 $1,145
At Valley Business Center, we signed three new and five
renewal leases representing 25% of the property. Near year-end,
however, the loss of two tenants caused a decline in occupancy,
but in January we signed a new lease for most of the remaining
vacancy.
The gains at Post Oak Place were a result of four new
leases, three renewals, and two expansion leases totaling 21% of
this Houston office property. The market is slowly improving, but
we cannot be sure this trend will continue and thought it prudent
to record the valuation impairment.
While the average leased status at Gatehall I fell from a
year earlier, the year-end leased rate increased 11 percentage
points. The rise at this Parsippany, New Jersey, property was
attributable to four new leases, one renewal, and five expansion
leases encompassing 28% of the property. Occupancy had been hurt
earlier by the loss of two tenants that did not renew and one
whose lease was terminated for credit reasons. We successfully
appealed taxes on the property, which resulted in an $86,000
refund.
Buschwood III, an office building located in Tampa, Florida,
has been 100% leased since June 1995, when the Fund acquired it.
There is a problem with the existing energy management system,
and we will be making the necessary changes shortly. We will have
more to say in our first quarter 1997 report.
Share Valuation
As you know, at the end of each year we employ a third-party
appraiser to review and assess the analysis and assumptions used
to prepare an estimated current value of the properties held in
your Fund. The Fund then uses these valuations to prepare an
estimated share value, which is approved by the Fund's Board of
Directors. The estimated share value may not be representative of
the value of your shares when the Fund ultimately liquidates. Nor
is there any assurance that you could sell your shares today at a
price equal to the current estimated value.
At December 31, 1996, the estimated share value of the Fund
was $13.44. After adjusting for our February distribution of
$0.99, the estimated value per share is $12.45.
Dividend
The Fund declared a fourth quarter dividend of $0.99 per share,
of which $0.912 was from the taxable gain on the sale of Buckley
Square. This brings the total dividends for the year to $1.44,
100% of taxable income. During the first three quarters of 1996,
the dividend had been set at $0.15 per unit. Going forward, we
expect Buschwood to become more profitable now that part of its
debt has been paid down, and increased income from this property
should partly offset the loss of income from Buckley Square.
However, we will determine future dividends each quarter based on
cash flows, anticipated capital requirements, and the status of
property dispositions.
Outlook
Currently, the Fund has no properties held for sale, but we
anticipate that some will be put on the market through the course
of the year. Some of you have asked why we are interested in
selling now, just as the market has been exhibiting signs of
strengthening.
Our primary goal is to take advantage of rising property
values while the market is improving and using the opportunity to
capture higher prices for investors. As usually happens in
improving markets, the turnaround in real estate is broadly
encouraging an increasing supply of new properties, which could
eventually lead to an oversupply and softer prices down the road.
This is normal as the real estate cycle runs its course. While we
do not expect a recession in either real estate or the general
economy to emerge in the near future, the country's economic
expansion is almost six years old and is approaching an advanced
stage, by historical measures.
It is possible that by selling Fund properties during the
next few years, we might miss some further advances in real
estate values. However, with prices currently rising due to
strong tenant and investor demand, supply growing in many
markets, and the Fund nearing the end of its expected lifespan,
we believe it is prudent to sell into that strength while prices
are on the upswing.
Sincerely,
James S. Riepe
Chairman
February 7, 1997
REAL ESTATE HOLDINGS
December 31, 1996
(In thousands)
Date Carrying
Property Name Type and Location Acquired Amount
_______________ _______________ _________ ________
Valley Business Industrial 6/90 $6,219
Center Denver, Colorado
Post Oak Place Office 2/92 1,982
Houston, Texas
Gatehall I Office 8/94 6,192
Corporate Center Parsippany, New Jersey
Buschwood III Office 6/95 5,424
Tampa, Florida
_________
$19,817
_________
_________
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31,December 31,
1996 1995
_______________________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . $ 5,438 $ 6,037
Buildings and Improvements. . . . . 16,245 15,971
_______ _______
21,683 22,008
Less: Accumulated Depreciation
and Amortization . . . . . . . . (1,866) (1,387)
_______ _________
19,817 20,621
Held for Sale . . . . . . . . . . . - 5,332
_______ ________
19,817 25,953
Cash and Cash Equivalents. . . . . . 2,738 1,608
Accounts Receivable
(less allowances of $10 and
$11) . . . . . . . . . . . . . . 277 281
Other Assets . . . . . . . . . . . . 148 194
________ ________
$22,980 $ 28,036
________ ________
________ ________
Liabilities and Stockholders' Equity
Liabilities
Mortgage Loans Payable. . . . . . . $ 4,106 $ 8,976
Security Deposits and Prepaid
Rents. . . . . . . . . . . . . . 268 326
Accrued Real Estate Taxes . . . . . 175 284
Accounts Payable and
Other Accrued Expenses . . . . . 346 285
Dividends Declared. . . . . . . . . 1,514 76
Minority Interest . . . . . . . . . - 541
_______ ________
Total Liabilities. . . . . . . . . . 6,409 10,488
_______ ________
Stockholders' Equity
Common Stock, $.001 Par Value,
Authorized 5,500,000 Shares;
Issued and Outstanding 1,529,446
and 1,527,191 Shares . . . . . . 1 1
Additional Paid-In Capital. . . . . 18,526 18,447
Dividends in Excess of Net Income . (1,956) (900)
________ ________
Total Stockholders' Equity . . . . . 16,571 17,548
________ ________
$22,980 $ 28,036
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-share amounts)
Years Ended December 31,
1996 1995 1994
_________ _________ _________
Revenues
Rental Income. . . . . . . . . $ 5,231 $ 4,822 $ 3,246
Interest Income. . . . . . . . 89 56 118
_________ _________ _________
5,320 4,878 3,364
_________ _________ _________
Expenses
Property Operating
Expenses . . . . . . . . . . 2,055 1,749 948
Real Estate Taxes. . . . . . . 512 566 373
Depreciation and
Amortization . . . . . . . . 816 807 466
Decline of Property
Values . . . . . . . . . . . 907 - -
Investment Advisory Fees . . . 280 251 157
Fund Management Expenses . . . 203 169 202
Interest Expense . . . . . . . 705 588 262
Amortization of
Organization Costs . . . . . - 23 45
Minority Interest in
Operations . . . . . . . . . 65 47 51
_________ _________ _________
5,543 4,200 2,504
_________ _________ _________
Income (Loss) from Operations before
Gain on Real Estate Sold . . (223) 678 860
Gain on Real Estate Sold
(Net of minority interest
of $309) . . . . . . . . . . 1,368 - -
_________ _________ _________
Net Income . . . . . . . . . . $ 1,145 $ 678 $ 860
_________ _________ _________
_________ _________ _________
Activity per Share
Net Income . . . . . . . . . . $ 0.75 $ 0.45 $ 0.58
_________ _________ _________
_________ _________ _________
Dividends Declared . . . . . . $ 1.44 $ 0.59 $ 0.64
_________ _________ _________
_________ _________ _________
Weighted Average Number of
Shares Outstanding . . . . . 1,529,663 1,509,428 1,487,108
_________ _________ _________
_________ _________ _________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share data)
Additional Dividends
Common Stock Paid-In In Excess
Of Net
SharesAmount Capital Income Total
______ _____ ______ _____ _____
Balance,
December 31, 1993 . . .1,479,199 $1 $17,727 $ (597) $17,131
Net Income . . . . . . . - - - 860 860
Dividend
Reinvestments . . . . . 45,557 0 565 - 565
Share Repurchases. . . . (38,013) 0 (404) - (404)
Dividends Declared . . . - - - (950) (950)
________ ___ _______________ ______
Balance,
December 31, 1994 . . .1,486,743 1 17,888 (687) 17,202
Net Income . . . . . . . - - - 678 678
Dividend Reinvestments . 59,602 0 787 - 787
Share Repurchases. . . . (19,154) 0 (228) - (228)
Dividends Declared . . . - - - (891) (891)
________ ___ _______________ ______
Balance,
December 31, 1995 . . .1,527,191 1 18,447 (900) 17,548
Net Income . . . . . . . - - - 1,145 1,145
Dividend
Reinvestments . . . . . 39,491 0 523 - 523
Share Repurchases. . . . (37,236) 0 (444) - (444)
Dividends Declared . . . - - - (2,201) (2,201)
________ ___ _______________ ______
Balance,
December 31, 1996 . . .1,529,446 $1 $18,526 $(1,956)$16,571
________ ___ _______________ ______
________ ___ _______________ ______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . . $1,145 $ 678 $ 860
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities
Depreciation and Amortization. . 816 807 466
Decline of Property Values . . . 907 - -
Amortization of Organization
Costs . . . . . . . . . . . . - 23 45
Minority Interest in
Operations. . . . . . . . . . 65 47 51
Gain on Real Estate Sold . . . . (1,368) - -
Change in Accounts Receivable,
Net of Allowances . . . . . . 4 (99) (79)
Change in Other Assets . . . . . 46 (37) 53
Change in Security Deposits and
Prepaid Rents . . . . . . . . (58) 32 131
Change in Accrued Real Estate
Taxes . . . . . . . . . . . . (109) 2 10
Change in Accounts Payable and Other
Accrued Expenses. . . . . . . 61 (12) 8
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . . . . . 1,509 1,441 1,545
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property
Disposition. . . . . . . . . . . . 7,036 - -
Investments in Real Estate . . . . . (946) (6,070) (6,222)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . . . 6,090 (6,070) (6,222)
_______ _______ _______
Cash Flows from Financing Activities
Dividends Paid . . . . . . . . . . . (763) (1,141) (830)
Dividend Reinvestments . . . . . . . 523 787 565
Share Repurchases. . . . . . . . . . (444) (228) (404)
Minority Interest Distributions. . . (915) (54) (37)
Proceeds of Mortgage Loan, Net of
Debt Issuance Costs. . . . . . . . - 5,459 1,400
Repayment of Mortgage Loan . . . . . (4,870) (46) -
_______ _______ _______
Net Cash Provided by (Used in)
Financing Activities . . . . . . . (6,469) 4,777 694
_______ _______ _______
Cash and Cash Equivalents
Net Increase (Decrease)
during Year. . . . . . . . . . . . 1,130 148 (3,983)
At Beginning of Year . . . . . . . . 1,608 1,460 5,443
_______ _______ _______
At End of Year . . . . . . . . . . . $2,738 $1,608 $ 1,460
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment (the "Fund"), was incorporated on June 14,
1989, in the state of Maryland. The Fund intends to continue to
qualify and elect to be taxed as a Real Estate Investment Trust
(REIT) under the Internal Revenue Code of 1986, as amended, and
accordingly will not be subject to federal income taxes on
amounts distributed to stockholders, provided it distributes at
least 95% of its taxable income and meets certain other
conditions. The Fund believes that it has met the requirements
for qualification as a REIT from inception through December 31,
1996. The Fund has declared dividends of at least 100% of its
taxable income since inception. There are, therefore, no
provisions for federal income taxes in the accompanying
consolidated financial statements.
T. Rowe Price Real Estate Group, Inc., a wholly-owned
subsidiary of T. Rowe Price Associates, Inc. (the "Sponsor"),
provided the initial capital for the Fund through its purchase of
16,000 shares of common stock at $12.50 per share.
The Fund has a reinvestment plan whereby stockholders may
elect to have dividends automatically reinvested in additional
shares of the Fund, or fractions thereof, instead of receiving
cash payments. Through December 31, 1996, 336,806 shares had been
purchased under this plan for total reinvestment of $4,218,000.
The purchase price of shares acquired through the reinvestment
plan is established at least annually by the Fund's Board of
Directors based upon its estimate of the fair market value of the
net assets of the Fund.
The Fund also provides a Liquidity Enhancement Plan (the
"Plan") pursuant to which stockholders may request that the Fund
repurchase their shares. The Fund utilizes reinvestment proceeds
to repurchase shares of stock. Through December 31, 1994, shares
were repurchased at the lesser of 90% of the estimated fair
market value or $10.625 per share. Subsequently, the repurchase
price of a share has been 90% of the estimated fair market value
of the share, which during 1996 was $11.93 per share. As of
December 31, 1996, 129,919 shares had been repurchased under the
Plan for a total cost of $1,453,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use
of estimates and assumptions by the Fund's management.
The consolidated financial statements include the accounts
of the Fund and the accounts of Buckley Square Associates, a
Colorado general partnership, in which the Fund had a 90%
controlling general partnership interest until its disposition in
late 1996.
The Fund will review its real estate property investments
for impairment whenever events or changes in circumstances
indicate that the property carrying amounts may not be
recoverable. Such a review will result in the Fund recording a
provision for impairment of the carrying value of its real estate
property investments if the estimated future cash flows from a
property's operations and projected sale are less than the
property's net carrying value. Whenever a provision for
impairment is recorded, the estimated fair value of the property
will become its new cost basis. The Fund's management believes
that the estimates and assumptions used in evaluating the
carrying value of the Fund's properties are appropriate; however,
changes in market conditions and circumstances could occur in the
near term which would cause these estimates to change.
Depreciation is calculated primarily on the straight-line
method over the estimated useful lives of buildings and
improvements, which range from five to 40 years. Lease
commissions and tenant improvements are capitalized and amortized
over the life of the lease using the straight-line method.
On January 1, 1996, the Fund adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The impact of adopting this SFAS is that
depreciation expense is not recognized on properties held for
sale after 1995.
Cash equivalents consist of all short-term, highly liquid
investments including money market mutual funds and marketable
U.S. Treasury debt securities with maturities at the time of
acquisition of three months or less. The cost of such investments
approximates fair value.
The Fund uses the allowance method of accounting for
doubtful accounts. Provisions for uncollectible tenant
receivables in the amounts of $78,000, $6,000, and $16,000 were
recorded in 1996, 1995, and 1994, respectively. Bad debt expense
is included in Property Operating Expenses.
Rental income is recognized on a straight-line basis over
the term of each lease. Rental income accrued, but not yet
billed, is included in Other Assets and aggregates $86,000 and
$94,000 at December 31, 1996 and 1995, respectively.
Organization costs were amortized over a five-year period.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
Pursuant to contracts executed in 1991, the Fund pays advisory
fees to T. Rowe Price Real Estate Group, Inc. (the "Investment
Manager"), an affiliate of the Fund's Sponsor, and LaSalle
Advisors Limited Partnership (the "Investment Advisor"). The
Investment Manager provides communications, cash management,
administrative, and other related services to the Fund for an
advisory fee of .45% per year of the fair market value, as
defined, of the Fund's assets and earned $133,000, $119,000, and
$75,000 in 1996, 1995, and 1994, respectively. The Investment
Advisor provides the Fund with real estate advisory, accounting,
and other related services for an advisory fee of .50% per year
of the fair market value, as defined, of the Fund's assets and
earned $147,000, $132,000, and $82,000 in 1996, 1995, and 1994,
respectively. Recognition of these investment advisory fees is
subject to limitations adopted by the Fund pursuant to guidelines
promulgated by the North American Securities Administrators
Association.
An affiliate of the Investment Manager earned a normal and
customary fee of $3,000, $4,000, and $7,000 from the money market
mutual funds in which the Fund made its interim cash investments
during 1996, 1995, and 1994, respectively.
The Fund also reimburses the Investment Manager and
Investment Advisor for certain defined expenses incurred in
operating and administering the affairs of the Fund. Expense
reimbursements for the Investment Manager totaled $40,000,
$32,000, and $26,000 for 1996, 1995, and 1994, respectively.
Reimbursements for the Investment Advisor totaled $30,000 for
each of the last three years.
In addition, the Fund is obligated to pay acquisition fees
for services rendered in connection with the purchase of
properties. Acquisition fees equal two percent of the aggregate
proceeds from the sale of common stock, issuance of debt and
reinvestment of dividends which are used by the Fund to acquire
properties. In 1995, the Investment Manager and Investment
Advisor each received $52,500 in connection with the Buschwood
III acquisition and in 1994 received $23,000 and $58,000,
respectively, related to the Gatehall I purchase.
One director of the Fund is also a director of the
Investment Manager and its affiliates. Certain officers of the
Fund are also officers of the Investment Manager or its
affiliates.
NOTE 4 - PROPERTY DISPOSITION
In November 1996, Buckley Square was sold, and the Fund received
net proceeds of $6,189,000 for its 90% interest. The net book
value of the Fund's interest at the date of sale was $4,821,000
after deduction of accumulated depreciation and minority
interest. Accordingly, the Fund recognized a $1,368,000 gain on
the sale of this property in the fourth quarter of 1996.
Proceeds from this property sale will be distributed in January
1997 to Fund shareholders in the amount of $1,394,000, the gain
on disposition for tax purposes. Proceeds of $4,552,000 were
used to repay a significant portion of the Fund's outstanding
debt in 1996. Subsequent to December 31, 1996, the residual
proceeds of $243,000 were also used to reduce debt.
NOTE 5 - PROPERTY VALUATIONS
Based upon a review of current market conditions, estimated
holding period, and future performance expectations, the Fund's
management has determined that the net carrying value of Post Oak
Place may not be fully recoverable from future operations and
disposition and recognized an impairment charge of $907,000 in
1996.
NOTE 6 - REAL ESTATE PROPERTY INVESTMENTS AND MORTGAGE LOANS
PAYABLE
The Fund entered into a Note and Deed of Trust in conjunction
with the acquisition of Valley Business Center in 1990. The $2.1
million non-recourse loan bears interest at a rate of 9.875% per
annum and is secured by the Fund's interest in the property. The
loan requires monthly interest payments with full principal due
on September 15, 1997.
On August 19, 1994, the Fund acquired Gatehall I, an office
building located in Parsippany, New Jersey, for $5,795,000,
including the proceeds of a $1,422,000 bank borrowing. On June
29, 1995, the Fund acquired Buschwood III, an office building
located in Tampa, Florida, for $5,536,000, primarily from the
proceeds of a $5,500,000 bank borrowing which was combined with
the Gatehall I loan for an aggregate borrowing of $6,922,000.
The new mortgage loan is secured by both properties and bears
interest at the Fund's option of either LIBOR plus 1.75% for up
to six months or the prime rate plus .25%. Monthly payments
include principal in the amount of $9,200 plus accrued interest.
The remaining principal balance is due in June 1998. The debt
terms also require that a significant portion of any proceeds
from the sale of Valley Business Center be applied as a repayment
of the outstanding principal balance. At December 31, 1996,
outstanding borrowings under this loan agreement were $2,006,000.
Debt issuance costs are amortized on a straight-line basis
over the expected life of the related loan. Unamortized amounts
are included in Other Assets and aggregate $14,000 at December
31, 1996 and $63,000 at December 31, 1995.
Interest paid on mortgage loans totaled $707,000, $508,000,
and $234,000 in 1996, 1995, and 1994, respectively.
NOTE 7 - LEASES
Future minimum rentals (in thousands) to be received by the Fund
under noncancelable operating leases in effect at December 31,
1996 are:
1997 $ 3,139
1998 2,413
1999 1,520
2000 573
2001 204
Thereafter -
_______
Total $ 7,849
_______
_______
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 1, the Fund intends to continue to be taxed
as a REIT. Accordingly, the Fund has not provided for an income
tax liability; however, certain timing differences exist between
amounts reported for financial statements and federal income tax
purposes. These differences are summarized below for the last
three years:
1996 1995 1994
________ ________ ________
(in thousands)
Book net income. . . . . . $1,145 $ 678 $ 860
Decline in property
value. . . . . . . . . . 907 - -
Depreciation . . . . . . . 140 192 44
Other items. . . . . . . . 8 21 45
________ ________ ________
Taxable income
before REIT dividend
deduction. . . . . . . . $2,200 $ 891 $ 949
________ ________ ________
________ ________ ________
NOTE 9 - DIVIDEND DECLARATION
The Fund declared a quarterly cash dividend of $.99 per share,
including $.912 related to the gain on the Buckley Square sale,
payable to stockholders of record at December 31, 1996. The
dividend will be paid in January 1997.
MARKET FOR THE FUND'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
On February 1, 1997, there were 2,606 record holders. Although
the Fund's shares of common stock are fully transferable, there
is no public market for the shares, and it is not anticipated
that a public market for the shares will develop.
The Fund has a Reinvestment Plan through which stockholders
may elect to have their dividends automatically reinvested in
additional shares, or fractions thereof, instead of receiving
cash payments. The per-share price under the plan was initially
set at $12.50 in 1990. The Board of Directors determines the
value of the shares to be sold pursuant to the plan on at least
an annual basis, based on its good faith estimate of the amount
stockholders would receive if the Fund's real estate investments
were sold for their estimated values and if such proceeds,
together with the other assets of the Fund, were distributed in a
liquidation of the Fund. The Board has determined the per-share
value to be $12.45 for reinvestments in 1997 (subject to
adjustment in the case of any material changes). Historical
activity in the Reinvestment Plan is discussed in the "Liquidity
and Capital Resources" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
section of this report, below, which section is hereby
incorporated by reference herein. The plan may be terminated at
any time.
The Fund also has a Liquidity Enhancement Plan, which
provides stockholders with the opportunity to present some or all
of their shares to the Fund for repurchase, and to have those
shares repurchased if the Fund has sufficient proceeds from the
Reinvestment Plan available for this purpose. The Liquidity
Enhancement Plan was implemented in the second quarter of 1992.
Under the Plan, the repurchase price per share is 90% of the fair
market value ($11.21 in 1997). Completed repurchase requests must
be received in good order by the Fund at least 30 days prior to
the end of a quarter for the shares to qualify for repurchase at
the end of that quarter. Historical activity in the Liquidity
Enhancement Plan is discussed in the "Liquidity and Capital
Resources" section of "Management's Discussion and Analysis and
Results of Operations" in this report, below, which section is
hereby incorporated by reference herein. The Fund may terminate
the Plan at any time.
The Fund intends to pay dividends on a quarterly basis,
payable within 45 days after the end of each calendar quarter, to
stockholders of record on the record date or dates declared for
such quarter as determined by the Board of Directors. The Fund
intends to pay dividends each year to stockholders in an amount
at least equal to 100% of its taxable income in order to continue
to qualify as a real estate investment trust in accordance with
the Internal Revenue Code of 1986, as amended, and to avoid the
payment of federal income tax at the corporate level. Quarterly
dividends declared during the past two years were: $.18 for each
of the first three quarters of 1995, $.05 for the fourth quarter
of 1995, $.15 for each of the first three quarters of 1996, and
$.99 for the fourth quarter of 1996. Dividends declared for the
first three quarters of 1995 and 1996 were based on estimates of
cash flows and net income for tax purposes made at the beginning
of each year. Fourth quarter dividends were declared in order to
set the total dividends paid for each year equal to 100% of
taxable income. The dividend for the fourth quarter of 1996
included a capital gain dividend of $.912.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Fund sold 1,306,559 shares in connection with the public
offering of shares in 1990, for a total of $16,310,000, in
addition to the purchase of 16,000 shares for $200,000 by T. Rowe
Price Real Estate Group, Inc., at the time the corporation was
formed. After deduction of organizational and offering costs of
$976,000, the Fund had $15,534,000 available for investment and
capital reserves.
Additional shares have been and will continue to be sold, if
at all, only in connection with the Fund's reinvestment plan.
Additional capital in the amount of $5,257,329 was raised from
dividend distributions reinvested through February 1, 1997, and
420,290 additional shares were issued in connection therewith.
The amount of additional capital to be raised from this source in
the future will depend on the size of the Fund's dividends per
share and the number of shares in the Reinvestment Plan at any
given time. There are no organizational or offering expenses
associated with or deducted from such proceeds. Substantially
all of this capital has been used to repurchase shares in
connection with the Fund's Liquidity Enhancement Plan and for
investment in or improvements to real estate, including the
repayment of debt. As of February 1, 1997, $160,000 remained
available. As of February 1, 1997, 135,092 shares had been
repurchased under the Liquidity Enhancement Plan for a total of
$1,511,000.
In 1996, the Fund sold Buckley Square and received net
proceeds after deduction of minority interest of $6,189,000. The
net book value of the Fund's interest at the date of sale was
$4,821,000. As of December 31, 1996, the Fund held four
properties for a total investment in real estate, before
deduction of accumulated depreciation and amortization, of
$21,683,000, representing initial acquisition costs and
subsequent improvements after an adjustment of $907,000 for a
valuation impairment at Post Oak Place in 1996. The Fund
recognized this impairment based on the Investment Manager's
belief that the Fund may be unable to recover the net carrying
value of this property through future operations and sale.
Initial acquisition costs were partially funded by a $2.1
million loan secured by Valley Business Center, bearing interest
at 9.875% per annum, all due and payable in 1997, a $1.4 million
loan secured by Gatehall I, bearing interest at a floating rate
which as of February 2, 1997, stood at 7.29% per annum, due and
payable in 1998 (subject to the Fund's option to extend the loan
for two one-year terms), and a $5.5 million loan secured by
Buschwood III which was combined with the Gatehall loan. In
February 1996, the Fund made an optional $200,000 payment on the
latter, reducing the combined principal balance to $6.7 million.
In addition, in 1996, the Fund repaid a portion of this loan,
using proceeds from the Buckley Square disposition and leaving a
loan balance of $2 million.
For 1996, the ratio of revenue produced by the Fund's
properties to total debt service under these loans is
approximately 7 to 1. Based on the portion of debt utilized to
acquire the properties, each of Valley Business Center, Gatehall
I, and Buschwood III generated sufficient revenue in 1996 to
cover debt service related to the property and contributed to
dividends paid to the Fund's stockholders. Management
anticipates such a level will continue to be maintained in 1997
for Gatehall I, Buschwood III, and Valley Business Center.
The Fund expects to incur capital expenditures during 1997,
totaling approximately $1,200,000 for tenant improvements, lease
commissions, and other major repairs and improvements;
approximately 73% of these expenditures are dependent on the
execution of leases with new and renewing tenants. As of
December 31, 1996, the Fund maintained cash and cash equivalents
aggregating $2,738,000, an increase of $1,130,000 from the prior
year-end. Cash from financing activities resulted in net outflows
in 1996 as compared to net inflows in 1995, primarily as a result
of the receipt of the proceeds of the mortgage loan utilized to
purchase Buschwood III in 1995 and the repayment of a substantial
portion of the loan in 1996. Net cash provided by operating
activities remained generally unchanged from the prior year.
Cash from investing activities increased by $12,160,000 as a
result of the purchase of Buschwood III in 1995 and the sale of
Buckley Square in 1996.
The Fund maintains cash balances to fund its operating and
investing activities, including the costs of tenant improvements
and leasing commissions, costs which must be disbursed prior to
the collection of any resultant revenues. The Fund also has
additional borrowing capacity of $778,000 for use in connection
with tenant improvements, leasing commissions, and other capital
expenditures at Gatehall I. Management believes that year-end
cash balances, cash generated from operating activities in 1997,
and its borrowing capacity will be adequate to fund its current
operating needs.
Results of Operations
1996 v. 1995
The Fund's net income of $1,145,000 for 1996 equates to $0.75 per
share compared with $678,000, or $0.45 per share, in 1995. The
increase was driven by the $1,368,000 gain on the sale of Buckley
Square. Excluding the gain on the sale of Buckley Square, the
Fund experienced a loss from operations of $223,000 in 1996. The
difference between 1995 and 1996 was a direct result of recording
a valuation impairment of $907,000 at Post Oak Place.
Revenues from rental income and interest resulted in total
revenues of $5,320,000 for the year compared with $4,878,000 a
year earlier. Revenues and operating expenses, excluding the
Post Oak Place impairment, were up by comparable amounts,
$442,000 and $436,000, respectively, due primarily to the
inclusion of Buschwood for the full year in 1996. Increases in
operating income at Buckley Square prior to the sale, and at
Buschwood III for a full year, offset operating declines at
Gatehall I due to a lower average leased status over the year,
and at Post Oak Place due to greater depreciation and bad debt
expenses.
Leases representing 16% of the portfolio's leasable square
footage are scheduled to expire in 1997. These leases represent
approximately 18% of the portfolio's rental income for 1996.
This amount of potential lease turnover is normal for the types
of properties in the portfolio, which typically lease to tenants
under three to five year leases. There are no single-tenant
properties in the Fund's portfolio, and only one tenant, Liberty
Mutual at Buschwood III, accounted for more than 10% of the
Fund's revenue in 1996, providing slightly in excess of 10%. The
Fund, therefore, does not expect any material adverse effect on
revenue in the event of the failure of any single tenant in 1997.
The directors of the Fund declared dividends of $1.44 per
share during 1996. The gain on the sale of Buckley Square
resulted in higher per-share dividends than last year's $0.59
per share. Total dividends declared in 1996 were $2,201,000,
compared to $891,000 in 1995. All of the 1995 dividends were
paid from the Fund's cash flow. Of the 1996 dividends,
$1,394,000 derived from the proceeds of the sale of Buckley
Square and the balance from the Fund's cash flow.
1995 v. 1994
The Fund's net income of $678,000 for 1995 equated to $0.45 per
share compared with $860,000, or $0.58 per share, in 1994. The
decrease was driven by a lower leased level at Post Oak Place
(which was partially offset by lower operating expenses) and by
increased operating expenses and higher depreciation expenses
relating to charge-offs of tenant improvements at Valley Business
Center.
Rental revenue was up $1,576,000 over the prior year, with
Gatehall I contributing $1,002,000 of the total (up $349,000 over
the increase in 1994), and Buschwood III contributing $600,000.
Gatehall I was held for only four months in 1994, versus 12
months in 1995 and Buschwood III was held for only six months in
1995. Interest expense on the debt incurred to purchase Gatehall
I and Buschwood III, together with operating expenses at these
properties, offset almost completely the improvements in rental
revenue.
Other Information
Information or statements provided by or on behalf of the Fund
from time to time may contain certain "forward-looking
information," including information relating to anticipated
growth in revenues or net income, anticipated disposition of
properties, anticipated expense levels, and expectations
regarding real estate market conditions. The cautionary
statements provided below are being made pursuant to the Private
Securities Litigation Reform Act of 1995 and with the intention
of obtaining the benefits of the "safe harbor" provisions of the
Act for any such forward-looking information. Many of the
following important factors discussed below, as well as other
factors, have also been discussed in the Fund's prior public
filings. The Fund cautions readers that any forward-looking
information provided by or on behalf of the Fund is not a
guarantee of future performance and that actual results may
differ materially from those in the forward-looking information
as a result of various factors, including but not limited to
those discussed below. Further, such forward-looking statements
speak only as of the date on which such statements are made, and
the Fund undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of
unanticipated events.
The Fund's future revenues may fluctuate due to factors such
as: changes in demand for space in its properties or in market
rental rates, due to either local conditions or general economic
trends; and changes in demand by purchasers for the types of
properties owned by the Fund, or changes in the prices
prospective purchasers are willing to pay for properties.
The Fund's future operating results are also dependent upon
the level of operating expenses, which are subject to fluctuation
for the following or other reasons: expenses and capital costs,
including depreciation, amortization and other non-cash charges,
incurred by the Fund to maintain its properties and procure
tenants and purchasers; assessed value of real estate or local
tax rates; and costs of environmental remediation.
INDEPENDENT AUDITORS' REPORT
To the Stockholders
T. Rowe Price Renaissance Fund, Ltd.,
A Sales-Commission-Free Real Estate Investment:
We have audited the accompanying consolidated balance sheets of
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment and its consolidated partnership, as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the
responsibility of the Fund'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 from
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 Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment and its consolidated
partnership as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1997
