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 SEPTEMBER 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
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COMMISSION FILE NUMBER 0-15680
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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
- --------------------------------------------------------------------------------
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 [ ]
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JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
Item 1 - Financial Statements:
Balance Sheets at September 30, 2000 and
December 31, 1999 3
Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 4
Statements of Partners' Equity for the
Nine Months Ended September 30, 2000 and
Year Ended December 31, 1999 5
Statements of Cash Flows for the Nine
Months Ended September 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 12-14
PART II: OTHER INFORMATION 15
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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)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Cash and cash equivalents $ 1,906,421 $ 2,476,260
----------- -----------
Total assets $ 1,906,421 $ 2,476,260
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 68,524 $ 266,759
Accounts payable to affiliates 284,099 480,542
----------- -----------
Total liabilities 352,623 747,301
Partners' equity/(deficit):
General Partners' deficit (241,743) (239,991)
Limited Partners' equity 1,795,541 1,968,950
----------- -----------
Total partners' equity 1,553,798 1,728,959
----------- -----------
Total liabilities and partners' equity $ 1,906,421 $ 2,476,260
=========== ===========
See Notes to Financial Statements
3
4
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Income:
Rental income $ -- $ 33,352 $ -- $ 886,422
Interest income 31,413 85,795 95,995 197,375
Gain (loss) on sale of property -- (357,150) -- 1,320,278
----------- ----------- ----------- -----------
Total income 31,413 (238,003) 95,995 2,404,075
Expenses:
General and administrative expenses 53,618 150,978 270,481 526,294
Property operating expenses -- 26,532 675 136,413
Management fee -- (2,043) -- 14,738
----------- ----------- ----------- -----------
Total expenses 53,618 175,467 271,156 677,445
----------- ----------- ----------- -----------
Net income/(loss) $ (22,205) $ (413,370) $ (175,161) $ 1,726,630
=========== =========== =========== ===========
Allocation of net income/(loss):
General Partner $ (222) $ (4,135) $ (1,752) $ 17,266
John Hancock Limited Partner -- (48,770) -- 180,286
Investors (21,983) (360,565) (173,409) 1,529,078
----------- ----------- ----------- -----------
$ (22,205) $ (413,470) $ (175,161) $ 1,726,630
=========== =========== =========== ===========
Net income/(loss) per Unit $ (0.24) $ (3.94) $ (1.89) $ 16.68
=========== =========== =========== ===========
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)
NINE MONTHS ENDED SEPTEMBER 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 (1,752) (173,409) (175,161)
------------ ------------ ------------
Partners' equity/(deficit) at September 30, 2000
(91,647 Units outstanding) $ (241,743) $ 1,795,541 $ 1,553,798
============ ============ ============
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)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
Operating activities:
Net income/(loss) $ (175,161) $ 1,726,630
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation -- --
Amortization of deferred expenses -- --
Gain on sale of property (1,320,277)
------------ ------------
(175,161) 406,353
------------
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash -- 63,879
Decrease/(increase) in other assets -- 77,433
Increase/(decrease) in accounts payable and accrued
expenses (198,235) (140,331)
Increase/(decrease) in accounts payable to affiliates (196,443) 236,226
------------ ------------
Net cash provided by (used in) operating activities (569,839) 643,560
Investing activities:
Proceeds from sales of properties -- 20,172,395
Increase in deferred expenses -- (22,434)
------------ ------------
Net cash provided by investing activities -- 20,149,961
Financing activities:
Cash distributed to Partners -- (17,945,278)
------------ ------------
Net cash used in financing activities -- (17,945,278)
------------ ------------
Net increase (decrease) in cash
and cash equivalents (569,839) 2,848,243
Cash and cash equivalents at
beginning of year 2,476,260 2,055,017
------------ ------------
Cash and cash equivalents at
end of period $ 1,906,421 $ 4,903,260
============ ============
See Notes to Financial Statements
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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 September 30, 2000, 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 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
nine-month period ended September 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.
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 any accumulated depreciation thereon and less any property write-downs
for impairment in value and plus any related unamortized deferred expenses.
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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)
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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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:
Nine Months Ended
September 30,
2000 1999
---- ----
Reimbursement for operating expenses $ 42,455 $102,692
Partnership management fee expense -- 14,738
-------- --------
$ 42,455 $117,430
======== ========
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 nine months ended September 30, 2000 and 1999 is $0 and $170,899,
respectively, representing the Partnership's share of costs incurred by the
General Partner and its Affiliates relating to such legal proceedings.
Through September 30, 2000, the Partnership has accrued a total of $534,961
as its share of the costs incurred by the General Partner and its
Affiliates resulting from this matter.
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:
Nine Months Ended
September 30,
2000 1999
---- ----
Net income per Statements of Operations $ (175,161) $ 1,726,630
Add/(deduct):
Excess tax loss over book loss
on disposition of assets -- (11,492,810)
Excess of tax depreciation
over book depreciation -- (258,379)
Excess of tax amortization
over book amortization -- (6,945)
------------ ------------
Net income for federal income tax purposes $ (175,161) $(10,031,504)
============ ============
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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 complaints 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.
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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.
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 business, actions that would be taken in the event of lack
of liquidity, litigation expenses and indemnification claims, distributions to
the General Partner and to Investors, 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, 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.
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 reasonably 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 September 30, 2000, the Partnership had $1,906,421 in cash and cash
equivalents.
The Partnership has established a working capital reserve the current balance of
which is approximately $1,554,000. 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.
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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)
There were no cash distributions to the Limited Partners and General Partner
during the nine months ended September 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 the Limited Partners, 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 the Limited Partners 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.
RESULTS OF OPERATIONS
The Partnership generated a net loss of $175,161 for the nine months ended
September 30, 2000 as compared to net income of $1,726,630 for the same period
in 1999. Included in the results for the nine months ended September 30, 2000 is
a net non-recurring gain of $1,320,278 from the sales of the Carnegie Center,
Marlboro Square, Warner Plaza and Crossroads Square properties. Excluding the
results of this gain, net income for the nine months ended September 30, 2000
decreased by $581,512, or 143%, as compared to the prior year. This decrease is
due to the sales of these four properties during 1999.
Rental income for the nine months ended September 30, 2000, decreased by
$886,422, or 100%, 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.
Interest income for the nine months ended September 30, 2000 decreased by
$101,381, or 51%, 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 wound down.
The Partnership's share of property operating expenses for the nine months ended
September 30, 2000 decreased by $135,739, 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.
General and administrative expenses for the nine months ended September 30, 2000
decreased by $255,813, or 49%, 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
last four properties in the portfolio during 1999.
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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 (CONTINUED)
Management fee expense, which is equal to 3.5% of Cash from Operations (as
defined in the Partnership Agreement), decreased by $14,738, or 100%, for the
nine months ended September 30, 2000 as compared to the same period in 1999.
This decrease was due to a decline in Cash from Operations between periods
primarily resulting from the sale of the Partnership's four properties during
1999.
The General Partner believes that inflation has had no significant impact on the
Partnership's operations during the nine months ended September 30, 2000, and
the General Partner anticipates that inflation will not have a significant
impact during the remainder of 2000.
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:
Nine Months Ended
September 30,
2000 1999
---- ----
Net cash provided by operating activities (a) $(569,839) $ 643,560
Net change in operating assets and liabilities (a) 394,678 (237,207)
--------- ---------
Cash provided by operations (a) (175,161) 406,353
Increase in working capital reserves -- (406,353)
Add: Accrual basis Partnership
management fee -- 14,738
--------- ---------
Cash from operations (b) (175,161) 14,738
Decrease in working capital reserves 175,161 --
Less: Accrual basis Partnership
management fee -- (14,738)
--------- ---------
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.
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15
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 third quarter of 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the third 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 third 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 third quarter
of 2000.
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16
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 November, 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)
16