1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A
--------------------------------------------------
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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
200 Clarendon Street, Boston, MA 02116
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(800) 722-5457
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
N/A
- --------------------------------------------------------------------------------
(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 [ ]
2
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, 2000 and
December 31, 1999 3
Statements of Operations for the [OBJECT OMITTED] and
Six Months Ended June 30, 2000 and 1999 4
Statements of Partners' Equity for the
Six Months Ended June 30, 2000 and
Year Ended December 31, 1999 5
Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
PART II: OTHER INFORMATION 16
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3
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,
2000 1999
---------- -----------
Cash and cash equivalents $1,939,993 $2,476,260
---------- ----------
Total assets $1,939,993 $2,476,260
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 62,602 $ 266,759
Accounts payable to affiliates 301,388 480,542
---------- ----------
Total liabilities 363,990 747,301
Partners' equity/(deficit):
General Partners' deficit (241,521) (239,991)
Limited Partners' equity 1,817,524 1,968,950
---------- ----------
Total partners' equity 1,576,003 1,728,959
---------- ----------
Total liabilities and partners' equity $1,939,993 $2,476,260
========== ==========
See Notes to Financial Statements
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4
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,
2000 1999 2000 1999
-------- -------- --------- ----------
Income:
Rental income $ -- $290,537 $ -- $ 853,070
Interest income 30,523 70,723 64,582 111,580
Realized gain on sales -- -- -- 1,677,428
-------- -------- --------- ----------
Total income 30,523 361,260 64,582 2,642,078
Expenses:
General and administrative expenses 128,960 120,626 216,863 375,316
Property operating expenses -- 34,090 675 109,881
Management fee 7,229 -- 16,781
-------- -------- --------- ----------
Total expenses 128,960 161,945 217,538 501,978
-------- -------- --------- ----------
Net income/(loss) $(98,437) $199,315 $(152,956) $2,140,100
======== ======== ========= ==========
Allocation of net income/(loss):
General Partner $ (984) $ 1,993 $ (1,530) $ 21,401
John Hancock Limited Partner -- -- -- 229,056
Investors (97,453) 197,322 (151,426) 1,889,643
-------- -------- --------- ----------
$ 98,437 $199,315 $(152,956) $2,140,100
======== ======== ========= ==========
Net income/(loss) per Unit $ (1.06) $ 2.15 $ (1.65) $ 20.62
======== ======== ========= ==========
See Notes to Financial Statements
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5
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND
YEAR ENDED DECEMBER 31, 1999
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ------------ ------------
Partners' equity/(deficit) at January 1, 1999
(91,647 Units outstanding) $(253,231) $ 20,653,314 $ 20,400,083
Less: Cash distributions (795) (20,073,849) (20,074,644)
Add: Net income 14,035 1,389,485 1,403,520
--------- ------------ ------------
Partners' equity/(deficit) at December 31, 1999
(91,647 Units outstanding) (239,991) 1,968,950 1,728,959
Less: Cash distributions -- -- --
Add: Net loss (1,530) (151,426) (152,956)
--------- ------------ ------------
Partners' equity/(deficit) at June 30, 2000
(91,647 Units outstanding) $(241,521) $ 1,817,524 $ 1,576,003
========= ============ ============
See Notes to Financial Statements
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JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
---------- ------------
Operating activities:
Net income/(loss) $ (152,956) $ 2,140,100
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation -- --
Amortization of deferred expenses -- --
Gain on sale of properties -- (1,677,428)
---------- ------------
(152,956) 462,672
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash -- 55,924
Decrease/(increase) in other assets -- 10,813
Increase/(decrease) in accounts payable and accrued
expenses (204,157) (89,108)
Increase/(decrease) in accounts payable to affiliates (179,154) 177,751
---------- ------------
Net cash provided by (used in ) operating activities (536,267) 618,052
Investing activities:
Proceeds from sales of properties -- 11,436,275
Increase in deferred expenses -- (16,534)
---------- ------------
Net cash provided by investing activities -- 11,419,741
Financing activities:
Cash distributed to Partners -- (11,071,753)
---------- ------------
Net cash used in financing activities -- (11,071,753)
---------- ------------
Net increase (decrease) in cash and
cash equivalents (536,267) 966,040
Cash and cash equivalents at
beginning of year 2,476,260 2,055,017
---------- ------------
Cash and cash equivalents at
end of period $1,939,993 $ 3,021,057
========== ============
See Notes to Financial Statements
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7
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, 2000, the Partnership consisted of John
Hancock Realty Equities, Inc. (the "General Partner"), a wholly-owned,
indirect subsidiary of John Hancock Life Insurance Company; John
Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"); and
3,611 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,
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 specified 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.
As initially stated in its Prospectus, it was expected that the
Partnership would be dissolved upon the sale of its last remaining
property, which at that time was expected to be within seven to ten
years following the date such property was acquired by the Partnership.
During 1999, the Partnership sold the last four properties in its
portfolio resulting in the termination of the operations of the
partnership. The Partnership will be dissolved in accordance with the
terms of the Partnership Agreement, as soon as reasonably practicable.
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, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results may differ
from those estimates.
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.
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JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
Property held for sale is recorded at the lower of its carrying amount,
at the time the property is listed for sale, or its fair value, less
cost to sell. Carrying amount includes the property's cost, as
described below, less accumulated depreciation thereon and less any
property write-downs for impairment in value and plus any related
unamortized deferred expenses.
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.
The Partnership measures impairment in value in accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of" ("Statement
121"). Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations where indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amounts.
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 periods.
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 (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 (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
(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 will be distributed 100% to the Investors.
Cash from Sales or Financings (defined in the Partnership Agreement) is
first used to pay all debts and liabilities of the Partnership then due
and is then used to fund any reserves for contingent liabilities. Cash
from Sales or Financings is then distributed as follows: first, to the
Limited Partners until they receive an amount equal to their Invested
Capital with the distribution being made between the Investors and the
John Hancock Limited Partner in proportion to their respective Capital
Contributions; second, to the Investors until they have received, with
respect to all previous distributions during the year, their Cumulative
Return on Investment (defined in the Partnership Agreement); third, to
the John Hancock Limited Partner until it has received, with respect to
all previous distributions during the year, its Cumulative Return on
Investment; fourth, to the General Partner to pay any Subordinated
Disposition Fees (defined in the Partnership Agreement); and fifth, 99%
to the Limited Partners and 1% to the General Partner, with the
distribution being made between the Investors and the John Hancock
Limited Partner in proportion to their respective Capital
Contributions.
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JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. THE PARTNERSHIP AGREEMENT (CONTINUED)
-------------------------------------
Cash from the sale of the last of the Partnership's properties is to be
distributed in the same manner as Cash from Sales or Financings, except
that before any other distribution is made to the Partners, each
Partner shall first receive from such cash, an amount equal to the then
positive balance, if any, in such Partner's Capital Account after
crediting or charging to such account the profits or losses for tax
purposes from such sale. To the extent, if any, that a Partner is
entitled to receive a distribution of cash based upon a positive
balance in its capital account prior to such distribution, such
distribution will be credited against the amount of such cash the
Partner would have been entitled to receive based upon the manner of
distribution of Cash from Sales or Financings, as specified in the
previous paragraph.
Profits 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 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.
Depreciation deductions are allocated 1% to the General Partner and 99%
to the Investors, and not to the John Hancock Limited Partner.
Profits and Losses from Sales or Financings are generally allocated 99%
to the Limited Partners and 1% to the General Partners. In connection
with the sale of the last of the Partnership's properties, and
therefore the dissolution of the Partnership, profits will be allocated
to any Partners having a deficit balance in their Capital Account in an
amount equal to the deficit balance. Any remaining profits will be
allocated in the same order as cash from the sale would be distributed.
Neither the General Partner nor any Affiliate (as defined in the
Partnership Agreement) of the General Partner shall be liable,
responsible or accountable in damages to any of the Partners or the
Partnership for any act or omission of the General Partner in good
faith on behalf of the Partnership within the scope of the authority
granted to the General Partner by the Partnership Agreement and in the
best interest of the Partnership, except for acts or omissions
constituting fraud, negligence, misconduct or breach of fiduciary duty.
The General Partner and its Affiliates performing services on behalf of
the Partnership shall be entitled to indemnity from the Partnership for
any loss, damage, or claim by reason of any act performed or omitted to
be performed by the General Partner in good faith on behalf of the
Partnership and in a manner within the scope of the authority granted
to the General Partner by the Partnership Agreement and in the best
interest of the Partnership, except that they shall not be entitled to
be indemnified in respect of any loss, damage, or claim incurred by
reason of fraud, negligence, misconduct, or breach of fiduciary duty.
Any indemnity shall be provided out of and to the extent of Partnership
assets only. The Partnership shall not advance any funds to the General
Partner or its Affiliates for legal expenses and other costs incurred
as a result of any legal action initiated against the General Partner
or its Affiliates by a Limited Partner in the Partnership, except under
certain specified circumstances.
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10
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. 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,
2000 1999
------- --------
Reimbursement for operating expenses $29,285 $ 83,309
Partnership management fee expense -- 16,781
------- --------
$29,285 $100,090
======= ========
These expenses are included in expenses on the Statements of
Operations.
The Partnership provides indemnification to the General Partner and its
Affiliates for any acts or omissions of the General Partner in good
faith on behalf of the Partnership, except for acts or omissions
constituting fraud, negligence, misconduct or breach of fiduciary duty.
The General Partner believes that this indemnification applies to the
legal proceedings described in Note 6. Accordingly, included in the
Statements of Operations for the six months ended June 30, 2000 and
1999 is $0 and $129,764, respectively, representing the Partnership's
share of costs incurred by the General Partner and its Affiliates
relating to such legal proceedings. Through June 30, 2000, the
Partnership has accrued a total of $534,861 as its share of the costs
incurred by the General Partner and its Affiliates resulting from these
matters.
Accounts payable to affiliates represents amounts due to the General
Partner or its Affiliates for various services provided to the
Partnership, including amounts to indemnify the General Partner or its
Affiliates for claims incurred by them in connection with their actions
as General Partner of the Partnership. All amounts accrued by the
Partnership to indemnify the General Partner or its Affiliates for
legal fees incurred by them shall not be paid unless or until all
conditions set forth in the Partnership Agreement for such payment have
been fulfilled.
The General Partner serves in a similar capacity for two other
affiliated real estate limited partnerships.
5. FEDERAL INCOME TAXES
--------------------
A reconciliation of the net income reported on the Statements of
Operations to the net income reported for federal income tax purposes
is as follows:
Six Months Ended
June 30,
2000 1999
--------- -----------
Net income per Statements of Operations $(152,956) $ 2,140,100
Add/(deduct): Excess of book gain over tax
gain on disposition of assets -- (9,179,942)
Excess of tax depreciation
over book depreciation -- (6,992)
Excess of tax amortization
over book amortization -- (258,379)
--------- -----------
Net income for federal income tax purposes $(152,956) $(7,305,213)
========= ===========
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11
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. CONTINGENCIES
-------------
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in a
limited partnership affiliated with the Partnership. The complaint
named as defendants the Partnership, the General Partner, certain other
Affiliates of the General Partner, and certain unnamed officers,
directors, employees and agents of the named defendants. The plaintiff
sought unspecified damages stemming from alleged misrepresentations and
omissions in the marketing and offering materials associated with the
Partnership and two limited partnerships affiliated with the
Partnership. On March 18, 1997, the court certified a class of
investors who were original purchasers in the Partnership.
A settlement agreement was approved by the court on December 22, 1999.
Under the terms of the settlement, the defendants guaranteed certain
minimum returns to class members on their investments and have paid
fees and expenses for class counsel in an amount determined by the
court to be $1.5 million. Payment under the settlement agreement will
have no financial impact on the Partnership.
In September 1997, a complaint for damages was filed in the Superior
Court of the State of California for the County of Los Angeles by an
investor in John Hancock Realty Income Fund-II Limited Partnership
("RIF-II"), a limited partnership affiliated with the Partnership. The
complaint named the General Partner as a defendant. The plaintiff
sought unspecified damages that allegedly arose from the General
Partner's refusal to provide, without reasonable precautions on
plaintiffs use of, a list of investors in the Partnership and in
RIF-II. Plaintiff alleges that the General Partner's refusal
unconditionally to provide a list was a breach of contract and a breach
of the General Partner's' fiduciary duty.
A settlement agreement was reached on February 18, 2000 terminating all
litigation between the parties. The settlement will not have a material
adverse impact on the Partnership's financial position.
The Partnership provides indemnification to the General Partner and its
Affiliates for acts or omissions of the General Partner in good faith
on behalf of the Partnership, except for acts or omissions constituting
fraud, negligence, misconduct or breach of fiduciary duty. The General
Partner believes that this indemnification applies to the class action
complaint described above.
The Partnership has incurred an aggregate of approximately $1,432,577
in legal expenses in connection with these legal proceedings. Of this
amount, approximately $897,716 relates to the Partnership's own defense
and approximately $534,861 relates to the indemnification of the
General Partner and its Affiliates for their defense. These expenses
are funded from the operations of the Partnership.
During August 1998, the General Partner became aware that the
Crossroads Square Shopping Center was environmentally contaminated with
certain hazardous materials. The General Partner then sought to
determine the scope of the contamination and to determine the impact on
the future operating costs, repair and maintenance expenses and market
value of the property. The General Partner estimated that to remediate
the contamination would cost approximately $450,000. The Partnership
sold the property on July 13, 1999 to a non-affiliated buyer for a net
sales price of $8,733,420 after deductions for commissions and selling
expenses incurred in connection with the sale of the property. The sale
was not contingent upon the environmental issues, the costs of which
were factored into the purchase price by the buyer. The General Partner
has no reason to believe, as of the date of this report, that the
Partnership will be held responsible for any further environmental
costs associated with this property. No assurances can be given that no
environmental liabilities will arise in the future.
11
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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. The Partnership's properties are described more fully in Note 4 to the
Financial Statements included in Item 1 of this Report.
IMPACT OF YEAR 2000
- -------------------
The Partnership participated in the Year 2000 remediation project of its parent,
John Hancock Life Insurance Company (John Hancock). By late 1999, John Hancock
and the Partnership completed their Year 2000 readiness plan to address issues
that could result from computer programs written using two digits to define the
applicable year rather than four to define the applicable year and century. As a
result, John Hancock and the Partnership were prepared for the transition to the
Year 2000 and did not experience any significant Year 2000 problems with respect
to mission critical information technology ("IT") or non-IT systems,
applications or infrastructure. During the date rollover to the year 2000, John
Hancock and the Partnership implemented and monitored their millennium rollover
plan and conducted business as usual on Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems which in the event of a Year 2000 failure would have the greatest impact
on operations, have functioned properly. In addition, neither John Hancock nor
the Partnership experienced any significant Year 2000 issues related to
interactions with material business partners. No disruptions have occurred which
impact John Hancock or the Partnership's ability to process claims, update
customer accounts, process financial transactions, report accurate data to
management and no business interruptions due to Year 2000 issues have been
experienced. While John Hancock and the Partnership continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, as of the date of this report neither John
Hancock nor the Partnership have reason to expect any such issues.
FORWARD-LOOKING STATEMENTS
- --------------------------
In addition to historical information, certain statements contained herein
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Those statements appear in a number of places in this
Report and include statements regarding the intent, belief or expectations of
the General Partner with respect to, among other things, the prospective winding
up of the Partnership's business, actions that would be taken in the event of
lack of liquidity, unanticipated leasing costs, repair and maintenance expenses,
litigation expenses and indemnification claims, distributions to the General
Partner and to Investors, the possible effects of tenants vacating space at
Partnership properties, the absorption of existing retail space in certain
geographical areas, and the impact of inflation.
Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance. The following
factors, among others, could cause actual results or performance of the
Partnership and future events to differ materially from those expressed or
implied in the forward-looking statements: general economic and business
conditions; any and all general risks of real estate ownership, including
without limitation adverse changes in general economic conditions and adverse
local conditions, the fluctuation of rental income from properties, changes in
property taxes, utility costs or maintenance costs and insurance, fluctuations
of real estate values, competition for tenants, uncertainties about whether real
estate sales under contract will close; the ability of the Partnership to sell
its properties; and other factors detailed from time to time in the filings with
the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect the General Partner's analysis only as of the date hereof. The
Partnership assumes no obligation to update forward-looking statements. See also
the Partnership's reports to be filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
12
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
- -------------------------------
As initially stated in its Prospectus, it was expected that the Partnership
would be dissolved upon the sale of its last remaining property, which at that
time was expected to be within seven to ten years following the date such
property was acquired by the Partnership. The Partnership sold the last property
in its portfolio, Crossroads Square Shopping Center, on July 13, 1999. The sale
of this last remaining property resulted in the termination of the operations of
the Partnership, and the Partnership will be dissolved, in accordance with the
terms of the Partnership Agreement, as soon as reasonable practicable. At such
time as all liabilities with respect to the Partnership are resolved, the
General Partner will make a final distribution of net assets to the Limited
Partners, as soon as practicable. No assurances can be given as to whether any
distribution can be made after all liabilities of the Partnership are resolved.
Such final distribution, if any, will result in the liquidation and termination
of the Partnership. At such time of such final distribution, the outstanding
Units will be cancelled, and, in accordance with federal securities laws, they
will be de-registered with the Securities and Exchange Commission, after which
time the Partnership will no longer be required to file periodic reports with
the Commission.
At June 30, 2000, the Partnership had $1,939,993 in cash and cash equivalents.
The Partnership's working capital reserve has a current balance of approximately
$1,576,000. The General Partner anticipates that such amount should be
sufficient to satisfy the Partnership's general liquidity requirements as the
Partnership's business is wound down. Liquidity would, however, be materially
adversely affected by significant unanticipated operating and liquidation costs
(including but not limited to litigation expenses). If any or all of these
events were to occur, to the extent that the working capital reserve would be
insufficient to satisfy the cash requirements of the Partnership, it is
anticipated that additional funds would be obtained through a reduction of cash
distributions to Investors, bank loans, or short-term loans from the General
Partner or its Affiliates.
There was no cash distribution to the Investors and General Partner during the
six months ended June 30, 2000. As a result of the disposition by the
Partnership of all of its remaining properties during 1999, the General Partner
has determined that it was in the best interests of the Partnership to retain,
rather than distribute to Investors, net cash provided by the Partnership's
normal operations in order to fund cash reserves for contingencies, as is
permitted by the Partnership Agreement. Accordingly, no cash distributions will
be made to Investors until the final distribution, if any, as discussed above.
The Partnership has incurred approximately $532,173 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $322,075 relates to the Partnership's own defense
and approximately $210,098 relates to the indemnification of the General Partner
and its Affiliates for their defense. These expenses are funded from the
operations of the Partnership. In addition, the Partnership incurred
approximately $900,404 in legal expenses in connection with the lawsuit filed in
the Superior Court of the State of California for the County of Los Angeles by
an investor in the Partnership. Of this amount, approximately $575,641 relates
to the Partnership's own defense and approximately $324,763 relates to the
indemnification of the General Partner and its Affiliates for their defense.
These expenses are funded from the operations of the Partnership.
13
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)
- -------------------------
RESULTS OF OPERATIONS
- ---------------------
The Partnership generated a net loss of $152,956 for the six months ended June
30, 2000 as compared to net income of $2,140,100 for the same period in 1999.
Included in the results for the six months ended June 30, 1999 is a net
non-recurring gain of $1,667,428 resulting from the sales of the Carnegie
Center, Marlboro Square and Warner Plaza properties. Excluding the results of
this gain, net income decreased by $625,628, or 133%, for the six months ended
June 30, 2000 as compared to the prior period. This decrease is due to the sales
of these three properties and the Crossroads Square Shopping Center during 1999.
Rental income for the six months ended June 30, 2000, decreased by $853,070, or
100%, as compared to the same period in 1999. This decrease is due to the sales
of the Marlboro Square, Carnegie Center, Warner Plaza and Crossroads Square
properties during 1999.
Interest income for the six months ended June 30, 2000 decreased by $46,998, or
42%, as compared to the same period in 1999. This decrease was primarily due to
a decrease in the balance of the Partnership's working capital reserves. The
Partnership's working capital reserves have decreased as a result of the sales
of the Partnership's properties and a need for fewer reserves as the Partnership
is liquidated.
The Partnership's share of property operating expenses for the six months ended
June 30, 2000 decreased by $109,206 or 99%, as compared to the same period in
1999. This decrease is due to the sales of the Carnegie Center, Marlboro Square,
Warner Plaza and Crossroads Square properties during 1999.
General and administrative expenses for the six months ended June 30, 2000
decreased by $158,453, or 42%, as compared to the same period during 1999. This
decrease is primarily due to a decrease in legal fees incurred by the
Partnership in connection with the legal proceedings described in Item 1 of Part
II of this Report and to a decrease in the time required by the General Partner
in managing the activities of the Partnership resulting from the sales of the
four remaining properties during 1999.
Management fee expense, which is equal to 3.5% of Cash from Operations (as
defined in the Partnership Agreement), decreased by $16,781, or 100%, for the
six months ended June 30, 2000 as compared to the same period in 1999. This
decrease is due to a decline in Cash from Operations between periods primarily
resulting from the sales of the last four properties in the portfolio during
1999.
The General Partner believes that inflation has had no significant impact on the
Partnership's operations during the six months ended June 30, 2000, and the
General Partner anticipates that inflation will not have a significant impact
during the remainder of 2000.
14
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)
- -------------------------
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,
2000 1999
--------- ---------
Net cash provided by operating activities (a) $(536,267) $ 618,052
Net change in operating assets and liabilities (a) 383,311 (155,380)
--------- ---------
Cash provided by operations (a) (152,956) 462,672
Increase in working capital reserves -- (462,672)
Add: Accrual basis Partnership
management fee -- 16,781
--------- ---------
Cash from operations (b) (152,956) 16,781
Decrease in working capital reserves 152,956 --
Less: Accrual basis Partnership
management fee -- (16,781)
--------- ---------
Distributable cash from operations (b) $ 0 $ 0
========= =========
Allocation to General Partner $ -- $ --
Allocation to John Hancock Limited Partner -- --
Allocation to Investors -- --
--------- ---------
Distributable cash from operations (b) $ -- $ --
========= =========
(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.
The amount of future cash distributions will be dependent upon the need to draw
down working capital reserves. As of the date of this report, all of the
properties in the Partnership have been sold. In order to adequately provide for
all future contingencies, the General Partner has determined (as permitted by
the Partnership Agreement) to retain rather than distribute to the Limited
Partners, net cash provided by the Partnership's normal operations in order to
fund cash reserves for contingencies. Accordingly, no cash distributions with
respect to Distributable Cash from Operations will be made to the Limited
Partners. At such time as all liabilities with respect to the Partnership are
resolved, the General Partner will make a final distribution of net assets to
the Limited Partners, in accordance with the terms of the Partnership Agreement.
No assurances can be given as to whether any distribution can be made after all
liabilities of the Partnership are resolved. Such final distribution, if any,
will result in the liquidation and termination of the Partnership.
15
16
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in a
limited partnership affiliated with the Partnership. The complaint
named as defendants the Partnership, the General Partner, certain
other affiliates of the General Partner, and certain unnamed officers,
directors, employees and agents of the named defendants.
The plaintiff sought unspecified damages stemming from alleged
misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited partnerships
affiliated with the Partnership. The complaint alleged, among other
things, that the marketing materials for the Partnership and the
affiliated limited partnerships did not contain adequate risk
disclosures.
On March 18, 1997, the court certified a class of investors who were
original purchasers in the Partnership.
A settlement agreement was approved by the court on December 22, 1999.
Under the terms of the settlement, the defendants guaranteed certain
minimum returns to class members on their investments and paid fees
and expenses to class counsel in an amount determined by the court to
be $1.5 million. These terms of the settlement will have no financial
impact on the Partnership
In September 1997, a complaint for damages was filed in the Superior
Court of the State of California for the County of Los Angeles by an
investor in John Hancock Realty Income Fund-II Limited Partnership
("RIF-II"), a limited partnership affiliated with the Partnership. The
complaint named the General Partner as a defendant.
The plaintiff sought unspecified damages that allegedly arose from the
General Partner's refusal to provide, without reasonable precautions
on plaintiff's use of, a list of investors in the Partnership and in
RIF-II. Plaintiff alleges that the General Partner's refusal
unconditionally to provide a list was a breach of contract and a
breach of the General Partner's fiduciary duty.
A settlement agreement was reached on February 18, 2000 terminating
all litigation between the parties. The settlement will not have a
material adverse impact on the Partnership's financial position.
There are no other 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 second quarter of 2000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the second
quarter of 2000.
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 second quarter of 2000.
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 2000.
16
17
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, 2000.
John Hancock Realty Income Fund
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: /s/ John M. Garrison
----------------------------------
John M. Garrison, President
By: /s/ Virginia H. Lomasney
----------------------------------
Virginia H. Lomasney, Treasurer
(Chief Accounting Officer)
17