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 March 31, 1995
Commission File Number 0-17664
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2969061
(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-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Balance Sheets at March 31, 1995 and
December 31, 1994 3
Statements of Operations for the Three
Months Ended March 31, 1995 and 1994 4
Statements of Partners' Equity for the
Three Months Ended March 31, 1995 and
for the Year Ended December 31, 1994 5
Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 6
Notes to Financial Statements 7-14
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-19
PART II: OTHER INFORMATION 20
2
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1995 1994
---- ----
Current assets:
Cash and cash equivalents $2,775,434 $2,561,288
Restricted cash 40,232 24,557
Other current assets 286,742 92,152
----------- -----------
Total current assets 3,102,408 2,677,997
Real estate loans 6,835,231 6,874,539
Investment in property:
Land 5,560,000 5,560,000
Buildings and improvements 18,836,994 18,836,994
----------- -----------
24,396,994 24,396,994
Less: accumulated depreciation 4,053,502 3,896,483
----------- -----------
20,343,492 20,500,511
Investment in joint venture 7,909,673 7,882,420
Long-term restricted cash 94,755 86,214
Deferred expenses, net of accumulated
amortization of $785,303 in 1995
and $723,147 in 1994 1,329,573 1,391,729
----------- -----------
Total assets $39,615,132 $39,413,410
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $426,593 $200,424
Accounts payable to affiliates 31,444 30,213
----------- -----------
Total current liabilities 458,037 230,637
Partners' equity/(deficit):
General Partner's deficit (152,078) (151,822)
Limited Partners' equity 39,309,173 39,334,595
----------- -----------
Total partners' equity 39,157,095 39,182,773
----------- -----------
Total liabilities and partners' equity $39,615,132 $39,413,410
=========== ===========
See Notes to Financial Statements
3
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1995 1994
---- ----
Income:
Rental income $603,239 $516,933
Interest income 218,095 215,846
Income/(loss) from joint venture 188,211 (131,638)
---------- ----------
Total income 1,009,545 601,141
Expenses:
Depreciation 157,019 157,051
Property operating expenses 128,470 101,718
General and administrative 56,900 58,422
Amortization of deferred expenses 62,156 70,220
---------- ----------
Total expenses 404,545 387,411
---------- ----------
Net income $605,000 $213,730
========== ==========
Allocation of net income:
General Partner $6,050 $2,137
John Hancock Limited Partner - -
Investors 598,950 211,593
---------- ----------
$605,000 $213,730
========== ==========
Net income per Unit $0.23 $0.08
========== ==========
See Notes to Financial Statements
4
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Three Months Ended March 31, 1995 and
Year Ended December 31, 1994
General Limited
Partner Partners Total
------- -------- -----
Partners' equity/(deficit) at
January 1, 1994 (2,601,552
Units outstanding) ($146,449) $39,866,829 $39,720,380
Less: Cash distributions (25,224) (2,497,490) (2,522,714)
Add: Net income 19,851 1,965,256 1,985,107
--------- ----------- -----------
Partners' equity/(deficit) at
December 31, 1994 (2,601,552
Units outstanding) (151,822) 39,334,595 39,182,773
Less: Cash Distributions (6,306) (624,372) (630,678)
Add: Net Income 6,050 598,950 605,000
--------- ----------- -----------
Partners' equity/(deficit) at
March 31, 1995 (2,601,552
Units outstanding) ($152,078) $39,309,173 $39,157,095
========= =========== ===========
See Notes to Financial Statements
5
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1995 1994
---- ----
Operating activities:
Net income $605,000 $213,730
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 157,019 157,051
Amortization of deferred expenses 62,156 70,220
Excess cash distributions over equity
in net income/(loss) of joint venture (27,253) 82,638
--------- ---------
796,922 523,639
Changes in operating assets and liabilities:
(Increase)/decrease in restricted cash (24,216) 2,159
Increase in other current assets (194,590) (90,000)
Increase in accounts payable
and accrued expenses 226,169 60,432
Increase in accounts payable to
affiliates 1,231 20,793
---------- ----------
Net cash provided by operating
activities 805,516 517,023
Investing activities:
Increase in investment in joint venture - (1,110,500)
Principal payments on real estate loans 39,308 -
Increase in deferred expenses and other
assets - (27,597)
---------- ----------
Net cash provided by\(used in)
investing activities 39,308 (1,138,097)
Financing activities:
Cash distributed to Partners (630,678) (630,678)
---------- ----------
Net cash used in financing activities (630,678) (630,678)
---------- ----------
Net increase\(decrease) in cash and cash
equivalents 214,146 (1,251,752)
Cash and cash equivalents at beginning
of year 2,561,288 3,742,273
---------- ----------
Cash and cash equivalents at end
of period $2,775,434 $2,490,521
========== ==========
See Notes to Financial Statements
6
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization of Partnership
---------------------------
John Hancock Realty Income Fund-II Limited Partnership (the
"Partnership") was formed under the Massachusetts Uniform Limited
Partnership Act on June 30, 1987. As of March 31, 1995, the
partners in 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");
John Hancock Income Fund-II Assignor, Inc. (the "Assignor Limited
Partner"); and 4,644 Unitholders (the "Investors"). The Assignor
Limited Partner holds 2,601,552 Assignee Units (the "Units"),
representing economic and certain other rights attributable to
Investor Limited Partnership Interests in the Partnership, for the
benefit of the Investors. The John Hancock Limited Partner, the
Assignor Limited Partner and the Investors are collectively
referred to as the Limited Partners. The General Partner and the
Limited Partners are collectively referred to as the Partners. The
initial capital of the Partnership was $2,000, representing capital
contributions of $1,000 by 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 5,000,000 Assignee Units at $20
per Unit. During the offering period, which terminated on January
2, 1989, 2,601,552 Units were sold and the John Hancock Limited
Partner made additional capital contributions of $4,161,483. There
were no changes in the number of Units outstanding subsequent to
the termination of the offering period. The Partnership is engaged
in the business of (i) acquiring, improving, holding for investment
and disposing of existing income-producing retail, industrial and
office properties on an all-cash basis, free and clear of mortgage
indebtedness, and (ii) making mortgage loans consisting of
conventional first mortgage loans and participating mortgage loans
secured by income-producing retail, industrial and office
properties. 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 specified in the Partnership Agreement.
The latest date on which the Partnership is due to terminate is
December 31, 2017, 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
investments of the Partnership will be disposed of, and the
Partnership terminated, before December 31, 2017.
7
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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 for 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 representation
have been included. Operating results for the three month period
ended March 31, 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 has been designated as short or long-term
based upon the term of the related lease agreement.
Real estate loans are recorded at amortized cost unless it is
determined by the General Partner that in economic substance the
loan represents an investment in property or joint venture. In
such instances, these investments are accounted for using the
equity method.
Investments in property are recorded at cost. 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.
Investment in joint venture is recorded using the equity method.
Fees paid to the General Partner for the acquisition of joint
venture and mortgage loan investments have been deferred and are
being amortized over the life of the investments 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 eight and one-half years, the then estimated
remaining life of the Partnership. Capitalized tenant improvements
and lease commissions are being amortized on a straight-line basis
over the various lease terms.
The net income per Unit for the three months ended March 31, 1995
and 1994 was calculated by dividing the Investors' share of net
income by the number of Units outstanding at the end of such
period.
8
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies (continued)
-------------------------------------------
No provision for income taxes has been made in the Financial
Statements since such taxes are the responsibility of the
individual Partners and Investors and not of the Partnership.
3. The Partnership Agreement
-------------------------
Distributable Cash from Operations (defined in the Partnership
Agreement) is distributed 1% to the General Partner and the
remaining 99% in the following order of priority: first, to the
Investors until they receive a 7% non-cumulative, non-compounded
annual cash return on their Invested Capital (defined in the
Partnership Agreement); second, to the General Partner to pay the
Subordinated Allocation (defined in the Partnership Agreement)
equal to 3 1/2% of Distributable Cash from Operations for managing
the Partnership's activities; third, to the John Hancock Limited
Partner until it receives a 7% non-cumulative, non-compounded
annual cash return on its Invested Capital; fourth, to the
Investors and the John Hancock Limited Partner in proportion to
their respective Capital Contributions (defined in the Partnership
Agreement), until they have received a 10% non-cumulative,
non-compounded annual cash return on their Invested Capital; fifth,
to the General Partner to pay the Incentive Allocation equal to 2
1/2% of Distributable Cash from Operations; and sixth, to the
Investors and the John Hancock Limited Partner in proportion to
their respective Capital Contributions. However, any Distributable
Cash from Operations, which is available as a result of reduction
of working capital reserves funded by Capital Contributions of the
Investors, will be distributed 100% to the Investors.
Profits for tax purposes from the normal operations of the
Partnership for each fiscal year are allocated to the Partners 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 allocated for that
year. If such profits are greater than Distributable Cash from
Operations for any year, they are allocated 1% to the General
Partner and 99% to the John Hancock Limited Partner and the
Investors, 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 1% to the General
Partner and 99% to the John Hancock Limited Partner and the
Investors, with the allocation made between the John Hancock
Limited Partner and the Investors in proportion to their respective
Capital Contributions. However, all tax aspects of the
Partnership's payment of the sales commissions from the Capital
Contributions made by the John Hancock Limited Partner 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. Notwithstanding the
foregoing, any such profits or losses or other items which were
based upon the Partnership's operations prior to the first day of
the month in which the initial closing date occurred were allocated
1% to the General Partner and 99% to the John Hancock Limited
Partner.
9
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
3. The Partnership Agreement (continued)
-------------------------------------
Upon the occurrence of a Sale, Financing or Repayment of a
Partnership Investment, the General Partner first applies the
proceeds to the payment of all debts and liabilities of the
Partnership then due and then funds any reserves for contingent
liabilities which it deems to be appropriate. Cash from Sales,
Financings or Repayments is distributed and paid in the following
order of priority: first, to the Investors and the John Hancock
Limited Partner, with the distribution made between the Investors
and the John Hancock Limited Partner in proportion to their
respective Capital Contributions, until the Investors and the John
Hancock Limited Partner have received an amount equal to their
Invested Capital; second, to the Investors until they have
received, after giving effect to all previous distributions of
Distributable Cash from Operations and any previous distributions
of Cash from Sales, Financings or Repayments after the return of
their Invested Capital, the Cumulative Return on Investment; third,
to the John Hancock Limited Partner until it has received, after
giving effect to all previous distributions of Distributable Cash
from Operations and any previous distributions of Cash from Sales,
Financings or Repayments after the return of its Invested Capital,
the Cumulative Return on Investment; fourth, to the General Partner
to pay any Subordinated Disposition Fees then payable pursuant to
Section 6.4(c) of the Partnership Agreement; and fifth, 99% to the
Investors and the John Hancock Limited Partner and 1% to the
General Partner, with the distribution made between the Investors
and the John Hancock Limited Partner in proportion to their
respective Capital Contributions.
4. Transactions with the General Partner and Affiliates
----------------------------------------------------
Fees, commissions and other costs incurred and/or paid by the
General Partner or its affiliates during the three months ended
March 31, 1995 and 1994 and to which the General Partner or its
affiliates are entitled to reimbursement from the Partnership were
$31,444 and $31,332, respectively. These expenses are included in
expenses on the Statements of Operations.
Accounts payable to affiliates represent amounts due to the General
Partner and 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-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Investment in Property
----------------------
Investment in property at cost consists of managed, fully-
operating, commercial real estate as follows:
March 31 December 31
1995 1994
---- ----
Park Square Shopping Center $12,886,230 $12,886,230
Fulton Business Park 5,138,786 5,138,786
Miami International
Distribution Center 6,371,978 6,371,978
----------- -----------
$24,396,994 $24,396,994
=========== ===========
The net realizable value of a property held for long-term
investment purposes is measured by the recoverability of the
investment through expected future cash flows on an undiscounted
basis. The net book value of the property in the financial
statements may be in excess of its current fair market value.
6. Real Estate Loans
-----------------
On March 10, 1988, the Partnership made a $1,700,000 participating
non-recourse mortgage loan to a non-affiliated borrower, secured by
a first mortgage on commercial real estate known as 205 Newbury
Street, located in Boston, Massachusetts. Under the terms of this
loan agreement, the borrower is required to pay interest only
monthly at an annual rate of 9.5% with the entire outstanding
principal balance due on April 1, 1998. In addition to these
amounts, the borrower is also obligated to pay the Partnership 25%
of the net cash flow derived from the operations of the property
during the term of this loan and a specified portion of the net
sales price or mutually agreed upon fair market value of the
property upon its sale or refinancing.
On June 30, 1989, the Partnership made a $5,500,000 mortgage loan
to a non-affiliated borrower, secured by a first mortgage on
commercial real estate known as General Camera Corporation
Building, located in New York, New York. Under the original terms
of this loan agreement, General Camera Corporation ("GCC") was
required to pay interest only monthly at an annual rate of 11%.
Effective June 1, 1994, the loan agreement was amended i) to
require GCC to make a one-time payment of $250,000 towards the
outstanding balance of the loan and ii) to require that all future
monthly payments include amounts to amortize the outstanding loan
balance. GCC is required to make payments of $60,416 per month on
the first day of the month commencing on July 1, 1994 and ending on
June 1, 1995. Commencing on July 1, 1995, payments of $85,416 per
month are required on the first day of each month. The entire
unamortized principal balance and all accrued but unpaid interest
are due on July 1, 1996.
Real estate loans are evaluated for collectibility on an on-going
basis.
11
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Investment in Joint Venture
---------------------------
On December 28, 1988, the Partnership invested $14,726,079 to
acquire a 99.5% interest in JH Quince Orchard Partners (the
"Affiliated Joint Venture"), a joint venture between the
Partnership and John Hancock Realty Income Fund-III Limited
Partnership ("Income Fund-III"). The Partnership had an initial
99.5% interest and Income Fund-III had an initial 0.5% interest in
the Affiliated Joint Venture. Pursuant to the partnership
agreement of the Affiliated Joint Venture, Income Fund-III had the
option, exercisable prior to December 31, 1990, to increase its
investment and interest in the Affiliated Joint Venture to 50%.
During the second quarter of 1989, Income Fund-III exercised its
option and the Partnership transferred a 49.5% interest in the
Affiliated Joint Venture to Income Fund-III for cash in the
aggregate amount of $7,325,672. The Partnership has held a 50%
interest in the Affiliated Joint Venture since the second quarter
of 1989.
On December 28, 1988, the Affiliated Joint Venture acquired a 98%
interest in QOCC-1 Associates, an existing partnership which owns
and operates the Quince Orchard Corporate Center, a three-story
office building and related land and improvements located in
Gaithersburg, Maryland. During the years ended December 31, 1994
and 1993, the partners in QOCC-1 Associates were required to make
additional capital contributions towards the funding of leasing
costs at the property. In accordance with the terms of the
partnership agreement of QOCC-1 Associates, the Affiliated Joint
Venture contributed 95% of such additional capital, the
Partnership's share of which amounted to an aggregate of
$1,282,243. As a result, the Affiliated Joint Venture held a
97.55% interest in QOCC-1 Associates at March 31, 1995.
12
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Deferred Expenses
-----------------
Deferred expenses consist of the following:
Unamortized Unamortized
Balance at Balance at
Description March 31, 1995 December 31, 1994
----------- -------------- -----------------
$35,072 acquisition fee for 205 Newbury St.
loan. This amount is amortized over the
term of the loan. $11,374 $12,322
$113,468 acquisition fee for GCC mortgage
loan. This amount is amortized over the
term of the loan. 20,263 24,315
$152,880 acquisition fee for investment
in the Affiliated Joint Venture. This
amount is amortized over a period of 31.5 years. 122,749 123,962
$1,203,097 acquisition fees paid to the
General Partner. Prior to June 30, 1993,
this amount was amortized over a period
of 30 years. Subsequent to June 30, 1993,
the unamortized balance is amortized over
a period of 8.5 years. 818,464 848,777
$171,949 of tenant improvements. These amounts
are amortized over the terms of the leases to
which they relate. 97,362 105,252
$438,410 of lease commissions. These amounts
are amortized over the terms of the leases to
which they relate. 259,361 277,101
---------- ----------
$1,329,573 $1,391,729
========== ==========
13
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
9. 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:
Three Months Ended March 31,
1995 1994
---- ----
Net income per Statements of Operations $605,000 $213,730
Add/(deduct): Excess of book depreciation
over tax depreciation 26,706 42,820
Excess of book amortization
over tax amortization 21,056 (2,701)
Other income (71,467) -
-------- --------
Net income for federal income tax purposes $581,295 $253,849
======== ========
14
JOHN HANCOCK REALTY INCOME FUND-II 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 October 2, 1987 to January 2, 1989, the
Partnership sold 2,601,552 Units representing gross proceeds (exclusive of
the John Hancock Limited Partners' contribution, which was used to pay
sales commissions) of $52,031,040. The proceeds of the offering were used
to acquire investments, fund reserves, and pay acquisition fees and
organizational and offering expenses. These investments are described more
fully in Notes 5, 6 and 7 to the Financial Statements included in Item 1 of
this Report.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1995 the Partnership had $2,775,434 in cash and cash
equivalents, $40,232 in restricted cash and $94,755 in long-term restricted
cash.
The Partnership has a working capital reserve with a current balance of
approximately 4% of the offering proceeds. Liquidity would, however, be
materially adversely affected if there were a significant reduction in
revenues, 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 investments.
A tenant at the Miami International Distribution Center that had occupied
approximately 70,000 square feet, or 33% of the property, has been
delinquent in rental payments and expense reimbursements since July 1993
and vacated the property in September 1993. The tenant's lease obligations
expired in December 1994. The General Partner has brought an action
against the former tenant to obtain full collection of all delinquent and
other amounts due under the lease agreement in the aggregate amount of
approximately $550,000. The matter is not due to be heard by the court
until October 1995. The General Partner subsequently secured two
replacement tenants for the vacated space. One tenant took occupancy of
approximately 28,000 square feet, or 13% of the property, under a lease
commencing during June 1994 and the other tenant took occupancy of
approximately 42,000 square feet, or 20% of the property, under a lease
commencing during July 1994. However, the tenant leasing the 28,000 square
foot space subsequently vacated the space and is delinquent in rental
payments and expense reimbursements due since November 1, 1994. The
General Partner is using available remedies to obtain collection from this
tenant of all obligations due under its lease agreement, which is scheduled
to expire in September 2004. The General Partner has been seeking a
replacement tenant for this space.
The Miami International Distribution Center is located in an area that the
Miami Airport Authority has targeted for future expansion commencing prior
the end of the 1995 calendar year. In this regard the Miami Airport
Authority has contacted the General Partner concerning a potential sale of
the property. It is possible that under certain circumstances the Miami
Airport Authority could obtain this property through its powers of eminent
domain, although at this time no such plans have been announced or
otherwise communicated to the General Partner. A resolution of this matter
is expected prior to the end of the 1995 calendar year.
15
JOHN HANCOCK REALTY INCOME FUND-II 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)
- -------------------------------------------
During the second quarter of 1995, a tenant occupying approximately 31,000
square feet, or 20% of the rentable space at the Fulton Business Park,
renewed its lease for an additional three year term. The Partnership will
incur approximately $10,000 in lease costs in connection with this lease.
The Partnership did not incur any leasing costs during the first three
months of 1995; however, the General Partner anticipates that the
Partnership will incur an aggregate of approximately $367,000 of leasing
costs at the Park Square Shopping Center, Fulton Business Park and Miami
International Distribution Center during the remainder of 1995. The
current balance in the working capital reserve should be sufficient to pay
such costs.
During the three months ended March 31, 1995, approximately $2,500 of cash
generated from the Partnership's operations was used to fund non-recurring
repair and maintenance costs incurred at the Miami International
Distribution Center. The General Partner anticipates that the Partnership
will incur additional non-recurring repair and maintenance costs in the
aggregate amount of approximately $95,000 at its properties during the
remainder of 1995. These additional costs 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 $630,678, generated from the Partnership's
operations, was distributed to the General Partner and the Investors during
the first quarter of 1995. The General Partner currently anticipates that
the Partnership will be able to make comparable distributions during each
of the remaining three quarters of 1995.
Both of the borrowers on the Partnership's mortgage investments, 205
Newbury Associates and General Camera Corporation, remained current on
their required debt service payments as of March 31, 1995 and as of the
date hereof. The General Partner has no reason to believe, based upon
current information and events, that the minimum required debt service
payments will not continue to be met or that the outstanding principal
balance of the loans will not be repaid upon maturity. Should either of
the of the borrowers fail to meet the minimum required debt service
payments, there would be a material adverse affect upon the Partnership's
liquidity as well as a permanent impairment in the book value of the
mortgage investment.
The General Partner evaluated the carrying value of each of the
Partnership's properties and its joint venture investment as of December
31, 1994 by comparing each such carrying value to the related property's
future undiscounted cash flows and recent independent or internal
appraisals, in order to determine whether any permanent impairment in
values existed. In addition, the General Partner evaluated the status of
its mortgage investments and their ultimate collectibility as of December
31, 1994. Based upon such evaluations, the General Partner determined that
no permanent impairment in values existed and, therefore, no write-downs
were recorded. The General Partner will continue to conduct periodic
property and investment valuations, using internal or independent
appraisals, in order to determine whether a permanent impairment in value
exists on any of the Partnership's investments.
16
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
- ---------------------
Net income for the three months ended March 31, 1995 was $605,000, as
compared to net income of $213,730 for the same period in 1994. The
increase in net income is primarily attributable to an increase in income
from the Partnership's joint venture investment as well as an increase in
the performance of the Miami International Distribution Center.
Average occupancy for the Partnership's equity real estate investments for
the three months ended March 31, 1995 was as follows:
Park Square Shopping Center 84%
Fulton Business Park 83%
Miami International Distribution Center 87%
Quince Orchard Corporate Center
(Affiliated Joint Venture) 100%
Rental income at the Partnership's properties for the three months ended
March 31, 1995 increased by $86,306, or 17%, as compared to the three
months ended March 31, 1994. Rental income at the Miami International
Distribution Center increased by 32% between periods due to an increase in
average occupancy from 67% to 87%. Rental income at the Fulton Business
Park increased by 23% during the first three months of 1995 as compared to
same period in 1994 primarily due to increases in the rental rates paid by
certain tenants. In addition, the first three months of 1994 were affected
by the fact that a then tenant at the Fulton Business Park was delinquent
in its rental obligations during that period. Rental income at the Park
Square Shopping Center was consistent between periods.
During the three months ended March 31, 1995 the Partnership was allocated
income of $188,211 from its joint venture investment (the Affiliated Joint
Venture), as compared to a loss of $131,638 during the same period during
1994, representing an increase of $319,849. This increase is primarily due
to the termination of the former tenant's lease at the Quince Orchard
Corporate Center in September 1993 and the present tenant taking occupancy
of the property in March 1994.
Property operating expenses for the three months ended March 31, 1995
increased by $26,752, or 26%, as compared to the same period in 1994. The
Partnership's share of property operating expenses at the Park Square
Shopping Center increased by 52% between periods. This increase is
primarily due to an overall increase in operating expenses, resulting
primarily from an increase in real estate taxes. The Partnerships' share
of property operating expenses at the Fulton Business Park increased by 64%
between periods; however, included in the 1994 results is a refund of a
portion of the prior year's real estate taxes. Excluding this amount, the
Partnership's share of operating expenses at the property remained
consistent between periods. The Partnership's share of property operating
expenses at the Miami International Distribution Center was consistent
between periods.
17
JOHN HANCOCK REALTY INCOME FUND-II 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)
- ---------------------------------
Amortization of deferred expenses decreased by $8,064, or 11%, during the
three months ended March 31, 1995 as compared to the three months ended
March 31, 1994. This decrease is primarily due to the expiration of
certain leases at the Partnership's properties and the full amortization of
the related leasing costs.
The General Partner believes that inflation has had no significant impact
on income from operations during the three months ended March 31, 1995, and
the General Partner anticipates that inflation will not have a significant
impact during the remainder of 1995.
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:
Three Months Ended March 31,
1995 1994
---- ----
Net cash provided by operating
activities (a) $805,516 $366,023
Net change in operating assets and liabilities (a) (8,594) 157,616
-------- --------
Net cash provided by operations (a) 796,922 523,639
Increase in working capital reserves (166,244) -
-------- --------
Cash from operations (b) 630,678 523,639
Decrease in working capital reserves - 105,969
-------- --------
Distributable cash from operations (b) $630,678 $629,608
======== ========
Allocation to General Partner $6,306 $5,236
Allocation to Investors 624,372 624,372
Allocation to John Hancock Limited Partner - -
-------- --------
$630,678 $629,608
======== ========
(a) Net cash provided by operating activities, net change in operating
assets and liabilities, and net 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.
18
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow (continued)
- --------------------
During the second quarter of 1995, the Partnership will make a cash
distribution in the amount of $624,372 to the Investors, representing a 5%
annualized return to all Investors of record at March 31, 1995, based on
Distributable Cash from Operations for the quarter then ended. The General
Partner currently anticipates that the Partnership will be able to make
comparable cash distributions during each of the remaining three quarters
of 1995.
19
JOHN HANCOCK REALTY INCOME FUND-II 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 is subject.
Item 2. Changes in Securities
There were no changes in securities during the first quarter of
1995.
Item 3. Defaults upon Senior Securities
There were no defaults upon senior securities during the first
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 during the first 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 first
quarter of 1995.
20
JOHN HANCOCK REALTY INCOME FUND-II 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 15th day of May, 1995.
John Hancock Realty Income Fund-II
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)