SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995
Commission File Number 0-15680
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2921566
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
200 Berkeley Street, Boston, MA 02117
(Address of Principal Executive Office) (Zip Code)
(800) 722-5457
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
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
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Balance Sheets at June 30, 1995 and
December 31, 1994 3
Statements of Operations for the Three and
Six Months Ended June 30, 1995 and 1994 4
Statements of Partners' Equity for the
Six Months Ended June 30, 1995 and
for the Year Ended December 31, 1994 5
Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 6
Notes to Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
PART II: OTHER INFORMATION 19
2
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1995 1994
---- ----
Current assets:
Cash and cash equivalents $3,158,209 $3,124,999
Restricted cash 11,258 22,457
Other current assets 135,640 68,354
---------- ----------
Total current assets 3,305,107 3,215,810
Investment in property:
Land 8,934,077 8,934,077
Buildings and improvements 29,174,904 29,174,904
----------- -----------
38,108,981 38,108,981
Less: accumulated depreciation (7,929,361) (7,453,459)
----------- -----------
30,179,620 30,655,522
Long-term restricted cash 31,982 22,166
Deferred expenses, net of accumulated
amortization of $738,907 in 1995 and
$673,932 in 1994 464,195 431,741
----------- -----------
Total assets $33,980,904 $34,325,239
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $320,024 $251,976
Accounts payable to affiliates 63,983 47,965
----------- -----------
Total current liabilities 384,007 299,941
Partners' equity/(deficit):
General Partner (197,292) (193,008)
Limited Partners 33,794,189 34,218,306
----------- -----------
Total partners' equity 33,596,897 34,025,298
----------- -----------
Total liabilities and partners' equity $33,980,904 $34,325,239
=========== ===========
See Notes to Financial Statements
3
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
Income:
Rental income $737,293 $911,765 $1,568,645 $1,873,410
Interest income 43,792 24,019 85,008 42,607
-------- -------- ---------- ----------
Total income 781,085 935,784 1,653,653 1,916,017
Expenses:
Depreciation 237,951 243,181 475,902 486,361
Property operating expenses 148,899 91,063 227,623 170,942
General and administrative 54,983 46,137 114,426 93,618
Amortization of deferred expenses 32,624 38,695 64,975 76,703
Management fee 20,985 21,720 41,970 41,970
-------- -------- ---------- ----------
Total expenses 495,442 440,796 924,896 869,594
-------- -------- ---------- ----------
Net income $285,643 $494,988 $728,757 $1,046,423
======== ======== ========== ==========
Allocation of net income:
General Partner $2,857 $4,950 $7,288 $10,464
John Hancock Limited Partner (19,477) (19,477) (38,954) (38,954)
Investors 302,263 509,515 760,423 1,074,913
-------- -------- ---------- ----------
$285,643 $494,988 $728,757 $1,046,423
======== ======== ========== ==========
Net income per Unit $3.30 $5.56 $8.30 $11.73
======== ======== ========== ==========
See Notes to Financial Statements
4
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Six Months Ended June 30, 1995 and
Year Ended December 31, 1994
General Limited
Partner Partners Total
------- -------- -----
Partners' equity/(deficit) at January 1, 1994
(91,647 Units outstanding) ($184,837) $35,027,232 $34,842,395
Less: Cash distributions (23,143) (2,291,175) (2,314,318)
Add: Net income 14,972 1,482,249 1,497,221
-------- ----------- -----------
Partners' equity/(deficit) at December 31, 1994
(91,647 Units outstanding) (193,008) 34,218,306 34,025,298
Less: Cash distributions (11,572) (1,145,586) (1,157,158)
Add: Net income 7,288 721,469 728,757
-------- ----------- -----------
Partners' equity/(deficit) at June 30, 1995
(91,647 Units outstanding) ($197,292) $33,794,189 $33,596,897
======== =========== ===========
See Notes to Financial Statements
5
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Operating activities:
Net income $728,757 $1,046,423
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred expenses 64,975 76,703
Depreciation 475,902 486,361
----------- -----------
1,269,634 1,609,487
Changes in operating assets and liabilities:
Decrease in restricted cash 1,383 108
Increase in other current assets (67,286) (49,623)
Increase in accounts payable and
accrued expenses 68,048 68,889
Increase in accounts payable
to affiliates 16,018 4,889
----------- -----------
Net cash provided by operating activities 1,287,797 1,633,750
Investing activities:
Increase in deferred expenses (97,429) (12,169)
----------- -----------
Net cash used in investing activities (97,429) (12,169)
Financing activities:
Cash distributed to Partners (1,157,158) (1,157,158)
----------- -----------
Net cash used in financing activities (1,157,158) (1,157,158)
----------- -----------
Net increase in cash and cash
equivalents 33,210 464,423
Cash and cash equivalents at
beginning of year 3,124,999 2,359,803
----------- -----------
Cash and cash equivalents at
end of period $3,158,209 $2,824,226
=========== ===========
See Notes to Financial Statements
6
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization of Partnership
---------------------------
John Hancock Realty Income Fund Limited Partnership (the
"Partnership") was formed under the Massachusetts Uniform Limited
Partnership Act on June 12, 1986. As of June 30, 1995, the
Partnership consisted of John Hancock Realty Equities, Inc. (the
"General Partner"), a wholly-owned, indirect subsidiary of John
Hancock Mutual Life Insurance Company; John Hancock Realty Funding,
Inc. (the "John Hancock Limited Partner"); and 4,225 Investor Limited
Partners (the "Investors"), owning 91,647 Units of Investor Limited
Partnership Interests (the "Units"). The John Hancock Limited Partner
and the Investors are collectively referred to as the Limited
Partners. The initial capital of the Partnership was $2,000,
representing capital contributions of $1,000 from the General Partner
and $1,000 from the John Hancock Limited Partner. The Amended
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement") authorized the issuance of up to 100,000 Units of Limited
Partnership Interests at $500 per Unit. During the offering period,
which terminated on September 9, 1987, 91,647 Units were sold and the
John Hancock Limited Partner made additional capital contributions of
$7,330,760. There have been no changes in the number of Units
outstanding subsequent to the termination of the offering period. The
Partnership is engaged in the business of acquiring, improving,
operating, holding for investment and disposing of existing, income-
producing, commercial and industrial properties on an all-cash basis,
free and clear of mortgage indebtedness. Although the Partnership's
properties were acquired and are held free and clear of mortgage
indebtedness, the Partnership may incur mortgage indebtedness on its
properties under certain circumstances, as described in the
Partnership Agreement.
The latest date on which the Partnership is due to terminate is
December 31, 2016, unless it is sooner terminated in accordance with
the terms of the Partnership Agreement. It is expected that in the
ordinary course of the Partnership's business, the properties of the
Partnership will be disposed of, and the Partnership terminated,
before December 31, 2016.
2. Significant Accounting Policies
-------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to the
financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1994.
Cash equivalents are highly liquid investments with maturities of
three months or less when purchased. These investments are recorded
at cost plus accrued interest, which approximates market value.
Restricted cash represents funds restricted for tenant security
deposits and other escrows, and has been designated as short or long-
term, based upon the term of the related lease agreement.
7
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies (continued)
-------------------------------
Investments in property are recorded at cost less any property write-
downs for permanent impairment in values. Cost includes the initial
purchase price of the property plus acquisition and legal fees, other
miscellaneous acquisition costs, and the cost of significant
improvements.
Depreciation has been provided on a straight-line basis over the
estimated useful lives of the various assets: thirty years for the
buildings and five years for related improvements. Maintenance and
repairs are charged to operations as incurred.
Deferred expenses relating to tenant improvements and lease
commissions are amortized on a straight-line basis over the terms of
the leases to which they relate. During 1993, the Partnership reduced
the period over which its remaining deferred acquisition fees are
amortized from thirty years, the estimated useful life of the
buildings owned by the Partnership, to four and one-half years, the
then estimated remaining life of the Partnership.
The net income per Unit for the periods hereof are computed by
dividing the Investors' share of net income by the number of Units
outstanding at the end of such period.
No provision for income taxes has been made in the financial
statements as such taxes are the responsibility of the individual
partners and not of the Partnership.
3. The Partnership Agreement
-------------------------
Distributable Cash from Operations (as defined in the Partnership
Agreement) is distributed 99% to the Limited Partners and 1% to the
General Partner. The Limited Partners' share of Distributable Cash
from Operations is distributed as follows: first, to the Investors
until they receive a 7% non-cumulative, non-compounded annual cash
return on their Invested Capital (as defined in the Partnership
Agreement); second, to the John Hancock Limited Partner until it
receives a 7% non-cumulative, non-compounded annual cash return on its
Invested Capital; and third, to the Investors and the John Hancock
Limited Partner in proportion to their respective Capital
Contributions (as defined in the Partnership Agreement). However, any
Distributable Cash from Operations which is available as a result of
the reduction of working capital reserves funded by Capital
Contributions of the Investors is distributed 100% to the Investors.
8
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
3. The Partnership Agreement (continued)
-------------------------
Profits for tax purposes from the normal operations of the Partnership
for each fiscal year are allocated to the Limited Partners and General
Partner in the same amounts as Distributable Cash from Operations for
that year. If such profits are less than Distributable Cash from
Operations for any year, they are allocated in proportion to the
amounts of Distributable Cash from Operations for that year. If such
profits are greater than Distributable Cash from Operations for any
year, they are allocated 99% to the Limited Partners and 1% to the
General Partner, with the allocation made between the John Hancock
Limited Partner and the Investors in proportion to their respective
Capital Contributions. Losses for tax purposes from the normal
operations of the Partnership are allocated 99% to the Limited
Partners and 1% to the General Partner, with the allocation made
between the John Hancock Limited Partner and the Investors in
proportion to their respective Capital Contributions. However, tax
deductions arising from the Initial Expenses (as defined in the
Partnership Agreement) which are paid by the Partnership from the
Capital Contributions made by the John Hancock Limited Partner and all
other tax aspects of the Partnership's payment of the Initial Expenses
(as defined in the Partnership Agreement) are allocated 1% to the
General Partner and 99% to the John Hancock Limited Partner, and not
to the Investors. Depreciation deductions are allocated 1% to the
General Partner and 99% to the Investors, and not to the John Hancock
Limited Partner.
4. Investment in Property
----------------------
Investment in property at cost and reduced by write-downs consists of
managed, fully-operating, commercial real estate as follows:
June 30, December 31,
1995 1994
---- ----
1300 North Dutton Avenue Office Complex $2,835,779 $2,835,779
Marlboro Square Shopping Center 3,183,643 3,183,643
Crossroads Square Shopping Center 12,266,920 12,266,920
Carnegie Center Office/Warehouse 6,844,991 6,844,991
Warner Plaza Shopping Center 6,473,889 6,473,889
J.C. Penney Credit Operations Center 6,503,759 6,503,759
----------- -----------
Total $38,108,981 $38,108,981
=========== ===========
The net realizable value of a real estate investment held for long-
term investment purposes is measured by the recoverability of the
investment through its expected future cash flows on an undiscounted
basis, which may exceed the related property's current market value.
The J.C. Penney Credit Operations Center is currently listed for sale.
9
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Deferred Expenses
-----------------
Deferred expenses consist of the following:
Unamortized Unamortized
Balance at Balance at
June 30, 1995 December 31, 1994
------------- -----------------
$114,494 of acquisition fees paid to the General
Partner. This amount was amortized over a period
of thirty years prior to June 30, 1993. Subsequent
to June 30, 1993, the unamortized balance is
amortized over a period of fifty-four months. $53,537 $64,244
$692,509 of tenant improvements. These amounts
are amortized over the terms of the leases to which
they relate. 267,114 235,367
$396,099 of lease commissions. These amounts
are amortized over the terms of the leases to which
they relate. 143,544 132,130
--------- ---------
$464,195 $431,741
========= =========
6. Transactions with the General Partner and Affiliates
----------------------------------------------------
Fees and expenses incurred or paid by the General Partner or its
affiliates on behalf of the Partnership and to which the General
Partner or its affiliates are entitled to reimbursement from the
Partnership were as follows:
Six Months Ended
June 30,
1995 1994
---- ----
Reimbursement for operating expenses $79,830 $62,649
Partnership management fee expense 41,970 41,970
-------- --------
$121,800 $104,619
======== ========
These expenses are included in expenses on the Statements of
Operations.
Accounts payable to affiliates represents amounts due to the General
Partner or its affiliates for various services provided to the
Partnership.
The General Partner serves in a similar capacity for three other
affiliated real estate limited partnerships.
10
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Federal Income Taxes
--------------------
A reconciliation of the net income reported in the Statements of
Operations to the net income reported for federal income tax purposes
is as follows:
Six Months Ended
June 30,
1995 1994
---- ----
Net income per Statements of Operations $728,757 $1,046,423
Add/(deduct): Excess of tax depreciation
over book depreciation (24,333) (11,574)
Excess of book amortization
over tax amortization 23,832 33,921
-------- ----------
Net income for federal income tax purposes $728,256 $1,068,770
======== ==========
11
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
-------
During the offering period from September 9, 1986 to September 9, 1987, the
Partnership sold 91,647 Units representing gross proceeds (exclusive of the
John Hancock Limited Partner's contribution which was used to pay sales
commissions, acquisition fees and organizational and offering expenses) of
$45,823,500. The proceeds of the offering were used to acquire investment
properties and fund reserves. A descriptive list of these properties is
set forth in Note 4 to the Financial Statements included in Item 1 of this
Report.
Liquidity and Capital Resources
-------------------------------
At June 30, 1995, the Partnership had $3,158,209 in cash and cash
equivalents, $11,258 in restricted cash and $31,982 in long-term restricted
cash.
The Partnership has established a working capital reserve with a current
balance of approximately 5% of the offering proceeds. Liquidity would,
however, be materially adversely affected by a significant reduction in
revenues or significant unanticipated operating costs or unanticipated
capital expenditures. If any or all of these events were to occur, to the
extent that working capital reserves would be insufficient to satisfy the
cash requirements of the Partnership, it is anticipated that additional
funds would be obtained through a further reduction of cash distributions
to Investors, bank loans, short-term loans from the General Partner or its
affiliates, or the sale or financing of Partnership properties.
During 1994, a tenant that had occupied 45% of the Carnegie Center property
did not renew its leases upon their expiration and, as a result, the
property's occupancy declined to 35%. For the year ended December 31,
1994, the leases held by this former tenant represented 9% of the total
rental income earned by the Partnership. During the first six months of
1995, two new tenants entered into leases representing an aggregate of
approximately 18,000 square feet, or 14% of the property. The Partnership
incurred approximately $78,000 in leasing costs during 1995 in connection
with these leases. In addition, during July 1995 a new tenant entered into
a lease to take occupancy of approximately 3,500 square feet, or 3% of the
property, during September 1995. The Partnership will incur approximately
$2,500 in leasing costs during 1995 in connection with this lease.
At June 30, 1995 the Carnegie Center property was 50% occupied. During the
remainder of 1995, one lease representing approximately 16,100 square feet,
or 13% of the property, was scheduled to expire. During August 1995, the
General Partner secured a new lease with this tenant for a reduced amount
of space, totaling approximately 8,000 square feet. Should additional
tenants not be located to take occupancy of the remaining vacant space at
the property, the Partnership's liquidity would be materially adversely
affected. Rental rates and concessions are priced competitively in an
effort to secure new tenants as well as retain existing tenants at the
property.
12
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
The tenant that had leased all of the rentable space at the 1300 North
Dutton Avenue property notified the Partnership during 1994 that it would
not renew its lease upon its expiration on January 31, 1995. The General
Partner has been actively seeking a replacement tenant, or tenants, for the
property since that time. Due to competitive market conditions and a lack
of demand for office rental space in the Santa Rosa real estate market, it
may not be possible to secure a replacement tenant, or tenants, for the
property by the end of 1995. Should a replacement tenant, or tenants, not
take occupancy of the property in the near future, the Partnership's
liquidity would be adversely affected. For the year ended December 31,
1994, the 1300 North Dutton Avenue property generated approximately 11% of
the total rental income earned by the Partnership.
The anchor tenant at the Marlboro Square Shopping Center property occupying
approximately 16,000 square feet, or 38% of the property, under a lease
which expires in October 1996, and whose operations at the property have
declined due to the existence of major competitors in the Marlboro Square
area, requested a reduction in its rental payments. After a detailed
review of the Marlboro Square market and the tenant's operations, the
General Partner agreed to a reduced rental amount in return for an
agreement from the tenant to extend its lease term. Effective June 1,
1995, the tenant will pay a reduced rent through the end of its original
lease term, October 1996, and has extended its lease with respect to
approximately 12,000 square feet, or 28% of the property, through 2005.
At June 30, 1995, Marlboro Square's occupancy was 73%. During the first
six months of 1995, a tenant that occupied approximately 3,150 square feet,
or 7% of the Marlboro Square property, vacated its space. During the
remainder of 1995, one lease representing approximately 1,600 square feet,
or 4% of the property is scheduled to expire and one lease representing
approximately 3,000 square feet, or 7% of the property, is on a month-to-
month basis. Leasing activity continues to be limited due to the sluggish
demand for retail space in the Marlboro, Massachusetts area. In addition,
a new retail development near to Marlboro Square is scheduled for
completion during Spring 1996. As a result, the General Partner
anticipates that absorption of existing retail space in this area will
remain sluggish during the remainder of 1995 due to both the lack of demand
and the pending increase in available retail space within the market.
However, the General Partner expects that the anchor tenant's long-term
lease extension at Marlboro Square will have a favorable impact on efforts
to secure tenants at the property. The General Partner will continue to
offer competitive rental rates and concessions in an effort to retain
existing tenants as well as to lease the vacant space at the property.
At June 30, 1995, Crossroads Square's occupancy was 92%. During the first
six months of 1995, a tenant that had occupied approximately 7,200 square
feet, or 4% of the property, vacated its space. This tenant did not renew
its lease upon its expiration in December 1994 but remained at the property
under a month-to-month lease through March 1995. During the remainder of
1995, one lease representing approximately 6,500 square feet, or 4% of the
property, is scheduled to expire. The General Partner is currently
negotiating with this tenant to renew its lease upon its expiration. The
General Partner will continue to attempt secure to new tenants for the
remaining vacant space at Crossroads Square.
13
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
The Warner Plaza's occupancy was 98% at June 30, 1995. During the six
months ended June 30, 1995, two new leases representing approximately 4,200
square feet, or 5% of the property, were entered into with new tenants.
The General Partner will continue its efforts to retain existing tenants as
well as secure new tenants for the remaining vacant space at the Warner
Plaza.
During the first quarter of 1995, J.C. Penney extended its lease at the
J.C. Penney Credit Operations Center through June 2006. The tenant has
been granted an option to terminate the lease during the year 2001 upon the
payment of $710,325. The Partnership did not incur any leasing costs in
connection with this lease extension. Due to this long-term lease with
J.C. Penney and current favorable real estate market conditions in
Albuquerque, New Mexico, the General Partner listed the J.C. Penney Credit
Operations Center for sale during July 1995.
During the six months ended June 30, 1995, cash from working capital
reserves was used for the payment of leasing costs in the amount of $97,429
incurred at the Carnegie Center and Warner Plaza properties. The General
Partner estimates that the Partnership will incur approximately $524,000 of
additional leasing costs at its properties during the remainder of 1995.
Of this amount, approximately $289,000 is expected to be incurred at the
Carnegie Center property, $130,000 at the Marlboro Square property and
$101,000 at the Warner Plaza property in connection with the Partnership's
efforts to secure new tenants at these properties. In addition, the
General Partner estimates that approximately $250,000 in leasing costs will
be incurred during 1996 in connection with securing a new tenant for the
1300 North Dutton Avenue property. The General Partner anticipates that
the current balance in the working capital reserve will be sufficient to
pay such costs.
During the six months ended June 30, 1995, approximately $60,000 of cash
from operations was used to fund non-recurring repair and maintenance
expenses incurred at the Partnership's properties. The General Partner
estimates that the Partnership will incur additional non-recurring repair
and maintenance expenses of approximately $75,000 at its properties during
the remainder of 1995. These additional expenses will be funded from the
operations of the Partnership's properties and are not expected to have a
significant impact on the Partnership's liquidity.
Cash in the amount of $1,157,158, generated from the Partnership's
operations, was distributed to the General Partner and the Limited Partners
during the six months ended June 30, 1995. The General Partner currently
anticipates that the Partnership will be able to make comparable
distributions during the remaining six months of 1995.
14
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
The General Partner evaluated the carrying value of the Carnegie Center
property during the third quarter of 1994 by comparing it to its future
undiscounted cash flows and its then most recent internal appraisal in
order to determine whether a permanent impairment in value existed. Based
on such evaluation, the General Partner determined that a write-down of
$512,000 was required at that time to reflect the estimated permanent
impairment in the value of the Carnegie Center property. Lower rental
rates and weak absorption of available office/industrial properties in
Cincinnati, Ohio, in general, have resulted in a decline in this property's
market value. The carrying value of the Carnegie Center property at
December 31, 1994 was evaluated in comparison to the estimated future cash
flows and a recent internal appraisal and, based upon such evaluation, the
General Partner determined that no further permanent impairment in value
existed and, therefore, an additional write-down in value was not required
as of December 31, 1994.
The General Partner also evaluated the carrying value of each of the
Partnership's other properties as of December 31, 1994 by comparing such
value to the respective property's future undiscounted cash flows and the
then most recent independent or internal appraisals. Based on such
evaluations, the General Partner determined that no permanent impairment in
values existed with respect to these properties and no additional write-
downs were recorded as of December 31, 1994.
The General Partner will continue to conduct property valuations, using
internal or independent appraisals, in order to determine whether a
permanent impairment in value exists on any of the Partnership's
properties.
Results of Operations
---------------------
Net income for the six months ended June 30, 1995 was $728,757 as compared
to net income of $1,046,423 for the same period in 1994. This decrease in
net income of approximately $318,000, or 30%, is primarily due to declines
in the performance of the Carnegie Center, 1300 North Dutton Avenue and
Marlboro Square properties. These declines were partially offset by
increases in the performance of the Crossroads Square and Warner Plaza
properties.
Average occupancy for the Partnership's properties for the six months ended
June 30, 1995 was as follows:
1300 North Dutton Avenue Office Complex 17%
Marlboro Square Shopping Center 74%
Crossroads Square Shopping Center 95%
Carnegie Center Office/Warehouse 41%
Warner Plaza Shopping Center 98%
J.C. Penney Credit Operations Center 100%
15
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
---------------------
Rental income for the six months ended June 30, 1995 decreased by $304,765,
or 16%, as compared to the same period in 1994. This decrease is primarily
due to decreases in rental income at the 1300 North Dutton Avenue, Carnegie
Center and Marlboro Square properties which were partially offset by
increases in rental income at the Crossroads Square and Warner Plaza
properties. Rental income at the 1300 North Dutton Avenue property
decreased by 83% between periods due to the expiration on January 31, 1995
of the lease held by the sole tenant at the property. Rental income at the
Carnegie Center property decreased by 59% between periods due to a decline
in average occupancy from 77% to 41%. Rental income at the Marlboro Square
property decreased by 12% between periods primarily due to a 7% decline in
average occupancy. In addition, rental income decreased further at
Marlboro Square due to a reduction in rental amounts paid by the anchor
tenant since June 1, 1995. These decreases in rental income were partially
offset by increases in rental income of approximately 5% at both the
Crossroads Square and Warner Plaza properties. These increases were
primarily due to increases in average occupancy at these properties between
periods. Rental income at the J.C. Penney property was consistent between
periods.
Interest income for the six months ended June 30, 1995 increased by
$42,401, or 100%, as compared to the same period in 1994. This increase is
primarily due to an increase in the interest rates earned on the
Partnership's working capital reserves as well as an increase in the amount
of such reserves.
Property operating expenses for the six months ended June 30, 1995
increased by $56,681, or 33%, as compared to the same period in 1994. This
increase is primarily due to increases in the Partnership's share of
operating expenses at the Marlboro Square, Carnegie Center and Crossroads
Square properties. The Partnership's share of property operating expenses
increased at the Marlboro Square and Carnegie Center properties between
periods primarily due to decreases in average occupancy at both properties,
and therefore, decreases in tenant reimbursements for such expenses. In
addition, during the period ended June 30, 1995 the Carnegie Center
property incurred approximately $30,000 in non-recurring maintenance and
repair expenses relating to the electrical system at the property and the
Crossroads Square property incurred approximately $21,000 of non-recurring
maintenance and repair expenses to improve the appearance of the center and
maintain its competitive position in the marketplace. These increases were
partially offset by decreases in the Partnership's share of property
operating expenses at the Warner Plaza and 1300 North Dutton Avenue
properties. The Partnership's share of property operating expenses
decreased at Warner Plaza between periods primarily due to non-recurring
maintenance and repair costs which were incurred during the period ended
June 30, 1994. The Partnership's share of property operating expenses
declined further at Warner Plaza due to an increase in average occupancy at
the property, and therefore, an increase in tenant reimbursements for such
expenses during the six months ended June 30, 1995. The 1300 North Dutton
Avenue property has incurred only minor routine maintenance expenses since
it became vacant in January 1995, resulting in a decrease in property
operating expenses during the six months ended June 30, 1995 as compared to
the same period during 1994.
16
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
---------------------
General and administrative expenses for the six months ended June 30, 1995
increased by $20,808, or 22%, as compared to the same period in 1994. This
increase is primarily due to an increase in the time required to be
expended by the General Partner in connection with managing the
Partnership's properties, including focusing on increasing their
occupancies. In addition, general and administrative expenses increased
due to legal fees incurred in connection with the leases entered into at
two of the Partnership's properties during the first six months of 1995 as
well as an increase in postage charges on investor mailings resulting from
the increase in postal rates.
Amortization of deferred expenses for the six months ended June 30, 1995
decreased by $11,728, or 15%, as compared to the same period in 1994. This
decrease is primarily due to the expiration of certain leases at the 1300
North Dutton Avenue, Carnegie Center and Marlboro Square properties and the
full amortization of the related deferred leasing costs.
The General Partner believes that inflation has had no significant impact
on the Partnership's operations during the six months ended June 30, 1995,
and the General Partner anticipates that inflation will not have a
significant impact during the remainder of 1995.
17
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow
---------
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations which are calculated in accordance with
Section 17 of the Partnership Agreement:
Six Months Ended
June 30,
1995 1994
---- ----
Net cash provided by operating activities (a) $1,287,797 $1,633,750
Net change in operating assets and liabilities (a) (18,163) (24,263)
---------- ----------
Cash provided by operations (a) 1,269,634 1,609,487
Increase in working capital reserves (112,476) (452,329)
Add: Accrual basis Partnership
management fee 41,970 41,970
---------- ----------
Cash from operations (b) 1,199,128 1,199,128
Decrease in working capital reserves - -
Less: Accrual basis Partnership
management fee (41,970) (41,970)
---------- ----------
Distributable cash from operations (b) $1,157,158 $1,157,158
========== ==========
Allocation to General Partner $11,572 $11,572
Allocation to John Hancock Limited Partner - -
Allocation to Investors 1,145,586 1,145,586
---------- ----------
Distributable cash from operations (b) $1,157,158 $1,157,158
========== ==========
(a) Net cash provided by operating activities, net change in operating
assets and liabilities, and cash provided by operations are as
calculated in the Statements of Cash Flows included in Item 1 of this
Report.
(b) As defined in the Partnership Agreement. Distributable Cash from
Operations should not be considered as an alternative to net income
(i.e. not an indicator of performance) or to reflect cash flows or
availability of discretionary funds.
During the third quarter of 1995, the Partnership expects to make a cash
distribution of $572,793, representing a 5% annualized return, to all
Investors of record at June 30, 1995, based on Distributable Cash from
Operations for the quarter then ended. The General Partner anticipates
that the Partnership will make comparable cash distributions during each of
the two remaining quarters of 1995.
18
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the
Partnership, to which the Partnership is a party or to which any of
its properties are subject.
Item 2. Changes in Securities
There were no changes in securities during the second quarter of
1995.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the second
quarter of 1995.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of
the Partnership the second quarter of 1995.
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits to this report.
(b) There were no Reports on Form 8-K filed during the second
quarter of 1995.
19
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
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, on the 14th day of August, 1995.
John Hancock Realty Income Fund
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: WILLIAM M. FITZGERALD
William M. Fitzgerald, President
By: RICHARD E. FRANK
Richard E. Frank, Treasurer
(Chief Accounting Officer)