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 March 31, 2001
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 0-18563
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-3025607
(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
2
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1- Financial Statements:
Balance Sheets at March 31, 2001 and
December 31, 2000 3
Statements of Operations for the Three
Months Ended March 31, 2001 and 2000 4
Statements of Partners' Equity for the
Three Months Ended March 31, 2001 and
for the Year Ended December 31, 2000 5
Statements of Cash Flows for the Three
Months Ended March 31, 2001 and 2000 6
Notes to Financial Statements 7-13
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-16
PART II: OTHER INFORMATION 17
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
Cash and cash equivalents $2,907,432 $6,436,528
----------- -----------
Total assets $2,907,432 $6,436,528
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $46,568 $66,605
Accounts payable to affiliates 132,928 125,765
----------- -----------
Total liabilities 179,496 192,370
Partners' equity/(deficit):
General partner's (95,189) (95,400)
Limited partners' 2,823,125 6,339,558
----------- -----------
Total partners' equity 2,727,936 6,244,158
----------- -----------
Total liabilities and partners' equity $2,907,432 $6,436,528
=========== ===========
See Notes to Financial Statements
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4
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
---- ----
Income:
Rental income $747 $613,349
Income from joint venture -- 223,813
Interest income 65,659 39,617
--------- ---------
Total income 66,406 876,779
Expenses:
General and administrative expenses 64,559 54,458
Depreciation -- 80,540
Amortization of deferred expenses -- 31,659
Property operating expenses (2,369) 72,946
--------- ---------
Total expenses 62,190 239,603
--------- ---------
Net income $4,216 $637,176
========= =========
Allocation of net income:
General Partner $211 $39,595
John Hancock Limited Partner -- --
Investors 4,005 597,581
--------- ---------
$4,216 $637,176
========= =========
Net Income per Unit $0.00 $0.25
========= =========
See Notes to Financial Statements
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5
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 AND
YEAR ENDED DECEMBER 31, 2000
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------------ ------------ ------------
Partners' equity/(deficit) at January 1, 2000
(2,415,234 Units outstanding) ($67,086) $30,344,139 $30,277,053
Less: Cash distributions (147,618) (28,520,955) (28,668,573)
Add: Net income 119,304 4,516,374 4,635,678
------------ ------------ ------------
Partners' equity/(deficit) at December 31, 2000
(2,415,234 Units outstanding) (95,400) 6,339,558 6,244,158
Less: Cash distributions -- (3,520,438) (3,520,438)
Add: Net income 211 4,005 4,216
------------ ------------ ------------
Partners' equity/(deficit) at March 31, 2001
(2,415,234 Units outstanding) ($95,189) $2,823,125 $2,727,936
============ ============ ============
See Notes to Financial Statements
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
----------- -----------
Operating activities:
Net income $4,216 $637,176
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation -- 80,540
Amortization of deferred expenses -- 31,659
Cash distributions over (under) equity
in income from joint venture -- (148,513)
----------- -----------
4,216 600,862
Changes in operating assets and liabilities:
(Increase)/decrease in other assets -- (3,893)
Increase/(decrease) in accounts payable and
accrued expenses (20,037) 31,495
Increase (decrease) in accounts payable to affiliates 7,163 (50,181)
----------- -----------
Net cash provided by (used in) operating activities (8,658) 578,283
Investing activities:
Increase in deferred expenses -- (3,500)
----------- -----------
Net cash provided by (used in) investing activities -- (3,500)
Financing activities:
Cash distributed to Partners (3,520,438) (737,442)
----------- -----------
Net cash used in financing activities (3,520,438) (737,442)
----------- -----------
Net decrease in cash and cash equivalents (3,529,096) (162,659)
Cash and cash equivalents at beginning
of year 6,436,528 2,899,090
----------- -----------
Cash and cash equivalents at end
of period $2,907,432 $2,736,431
=========== ===========
See Notes to Financial Statements
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION OF PARTNERSHIP
John Hancock Realty Income Fund-III Limited Partnership (the
"Partnership") was formed under the Massachusetts Uniform Limited
Partnership Act on November 4, 1988. As of March 31, 2001, 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-III Assignor,
Inc. (the "Assignor Limited Partner"); and 2,193 Unitholders (the
"Investors"). The Assignor Limited Partner holds five Investor Limited
Partnership Interests for its own account and 2,415,229 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 $2,100, representing capital
contributions of $1,000 from the General Partner, $1,000 from the John
Hancock Limited Partner, and $100 from the Assignor Limited Partner.
The Amended Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") authorized the issuance of up to 5,000,000
Units at $20 per unit. During the offering period, which terminated on
February 15, 1991, 2,415,229 Units were sold and the John Hancock
Limited Partner made additional capital contributions of $3,863,366.
There were no changes in the number of Units outstanding subsequent to
the termination of the offering period.
The Partnership was engaged solely in the business of acquiring,
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. Although the Partnership's properties
were acquired and are held free and clear of mortgage indebtedness, the
Partnership may incur mortgage indebtedness under certain circumstances
as specified in the Partnership Agreement.
The latest date on which the Partnership is due to terminate is
December 31, 2019, 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 and as discussed in the
following paragraph, the properties of the Partnership will be disposed
of, and the Partnership terminated, before December 31, 2019.
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 2000, the Partnership sold the last four properties it its
portfolio, one of which was held in a joint venture, 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 reasonable practicable.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States 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 three
month period ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001 or
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, 2000.
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
The Partnership maintains its accounting records and recognizes rental
revenue on the accrual basis.
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.
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. Operating results for properties held
for sale are reported on the statement of operations along with the
operations of other investments in property.
Investments in property are recorded at cost less any property
write-downs for impairment in value. Cost includes the initial purchase
price of the property plus 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.
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.
The net income per Unit for the three months ended March 31, 2001 and
2000 is calculated by dividing the Investors' share of net income by
the number of Units outstanding at the end of such periods.
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. THE PARTNERSHIP AGREEMENT
Distributable Cash from Operations (defined in the Partnership
Agreement) is distributed 5% to the General Partner and the remaining
95% 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 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 a reduction in
working capital reserves funded by Capital Contributions of the
Investors will be distributed 100% to the Investors.
Cash from a Sale or Financing of a Partnership Property, is first used
to pay all debts and liabilities of the Partnership then due and then
to fund any reserves for contingent liabilities. Cash from Sales or
Financings is then 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 or Financings after the return of
their Invested Capital, the Cumulative Return on Investment (defined in
the Partnership Agreement); 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 or Financings 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.
Cash from the sale of the last of the Properties is distributed in the
same manner as Cash from Sales and 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 of 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 that Partner would have been entitle to
receive based upon the manner of distribution of Cash from Sales and
Financings, as specified in the previous paragraph.
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 for that year. If such profits are greater than
Distributable Cash from Operations for any year, they are allocated 5%
to the General Partner and 95% 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.
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. THE PARTNERSHIP AGREEMENT (CONTINUED)
Profits and Losses from Sales and Financings are generally allocated
99% to the Limited Partners and 1% to the General Partner.
Neither the General Partner nor any affiliate 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 or such affiliate 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
or such affiliates 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.
4. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Fees, commissions and other costs incurred or paid by the General
Partner or its Affiliates during the three months ended March 31, 2001
and 2000, and to which the General Partner or its Affiliates are
entitled to reimbursement from the Partnership were $20,497 and
$26,350, respectively.
The Partnership provides indemnification to the General Partner and its
Affiliates for any acts or omissions of the General Partner or such
Affiliate 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 in Note 8. There were
no costs included in the Statement of Operations for the three months
ended March 31, 2001 and 2000, respectively, representing the
Partnership's share of costs incurred by the General Partner and its
Affiliates relating to the class action complaint. Through March 31,
2001, the Partnership has accrued a total of $217,871 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 one other
affiliated real estate limited partnerships.
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JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. PROPERTY HELD FOR SALE
During the first quarter of 2000, the Pureland Business Center and the
Palms of Carrollwood Shopping Center were listed for sale and during
December 1999, the Yokohama Tire Warehouse was listed for sale.
Accordingly, these properties were classified as "Property Held for
Sale" on the Balance Sheet starting at that time at their carrying
values, which were not in excess of their estimated fair values, less
selling costs.
On November 6, 2000, the Partnership sold the Yokohama Tire Warehouse
and received net sales proceeds of $9,085,227, after deduction for
commissions and selling expenses. This transaction generated a
non-recurring gain of $2,160,610, representing the difference between
the net sales price and the property's carrying value of $6,924,617.
On November 10, 2000, the Partnership sold the Palms of Carrollwood
Shopping Center and received net sales proceeds of $11,730,094, after
deduction for commissions and selling expenses. This transaction
generated a non-recurring gain of $1,550,484, representing the
difference between the net sales price and the property's carrying
value of $10,179,610.
On December 20, 2000, the Partnership sold the Pureland Business Center
and received net sales proceeds of $3,491,502, after deductions for
commissions and selling expenses. This transaction generated a
non-recurring loss of $559,310, representing the difference between the
net sales price and the property's carrying value of $4,050,812.
6. INVESTMENT IN JOINT VENTURE
On December 28, 1988, the Partnership invested $75,000 to acquire a
0.5% interest in JH Quince Orchard Partners (the "Affiliated Joint
Venture"), a joint venture between the Partnership and John Hancock
Realty Income Fund-II Limited Partnership ("Income Fund-II"). The
Partnership had an initial 0.5% interest and Income Fund-II had an
initial 99.5% interest in the Affiliated Joint Venture.
Pursuant to the partnership agreement of the Affiliated Joint Venture,
the Partnership 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, the Partnership exercised
such option and Income Fund-II transferred a 49.5% interest in the
Affiliated Joint Venture to the Partnership for cash in the aggregate
amount of $7,325,672. The Partnership held a 50% interest in the
Affiliated Joint Venture since the second quarter of 1989.
On December 28, 1988, the Affiliated Joint Venture contributed 98% of
the invested capital of, and acquired a 75% interest in, QOCC-1
Associates, an existing partnership which owned and operated the Quince
Orchard Corporate Center, a three-story office building and related
land and improvements located in Gaithersburg, Maryland. The
partnership agreement of QOCC-1 Associates provided that the Affiliated
Joint Venture contribute 95% of any required additional capital
contributions. Of the cumulative total invested capital in QOCC-1
Associates since 1988, 97.55% was contributed by the Affiliated Joint
Venture. The Affiliated Joint Venture held a 75% interest in QOCC-1
Associates.
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12
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. INVESTMENT IN JOINT VENTURE (CONTINUED)
Net cash flow from QOCC-1 Associates was distributed in the following
order of priority: (i) to the payment of all debts and liabilities of
QOCC-1 Associates and to fund reserves deemed reasonably necessary;
ii), to the partners in proportion to their respective invested capital
until each has received a 9% return on invested capital and iii) the
balance, if any, to the partners in proportion to their interests.
Prior to 1996, QOCC-1 Associates had not provided the partners with a
return in excess of 9% on their invested capital. During 1999, 1998,
1997 and 1996, the partners received returns on invested capital of
approximately 12%.
Income and gains of QOCC-1 Associates, other than the gains allocated
arising from a sale other similar event with respect to the Quince
Orchard Corporate Center, were allocated in the following order of
priority: i) to the partners who are entitled to receive a distribution
of net cash flow, pro rata in the same order and amounts as such
distributions were made and ii) the balance, if any, to the partners,
pro rata in accordance with their interests.
On September 29, 2000, QOCC-1 Associates sold the Quince Orchard
Corporate Center to a non-affiliated buyer for a total net sale price
of $12,554,940 after deductions for commissions and selling expenses
incurred in connection with the sale of the property. Fifty percent of
the net proceeds of the sale, or $6,277,470, was distributed to the
Partnership and fifty percent was distributed to Income Fund-II. QOCC-1
Associates was subsequently liquidated in December 2000.
7. FEDERAL INCOME TAXES
A reconciliation of the net income reported in the Statements of
Operations to the net income reported for federal income tax purposes is as
follows:
Three Months Ended
March 31,
2001 2000
--------- ---------
Net income per Statements of Operations $4,216 $641,736
Add/(less): Excess of tax depreciation -- (133,815)
over book depreciation
Excess of book amortization
over tax amortization -- 2,516
Other income -- --
--------- ---------
Net income for federal income tax purposes $4,216 $510,437
========= =========
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13
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. 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.
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.
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14
JOHN HANCOCK REALTY INCOME FUND-III 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 February 17, 1989 to February 15, 1991, the
Partnership sold 2,415,229 Units representing gross proceeds (exclusive of the
John Hancock Limited Partner's contribution which was used to pay sales
commissions) of $48,304,580. The proceeds of the offering were used to acquire
investment properties, fund reserves and pay acquisition fees and organizational
and offering expenses. These investments are described more fully in Notes 5 and
6 to the Financial Statements included in Item 1 of this Report.
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 sale of
Partnership properties, repayment of mortgage loans, actions that would be taken
in the event of lack of liquidity, unanticipated leasing costs, repair and
maintenance expenses, 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.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Partnership had $2,907,432 in cash and cash equivalents.
The Partnership has a working capital reserve with a current balance of
approximately $2,700,000. The General Partner anticipates that such amount will
be sufficient to satisfy the Partnership's general liquidity requirements as the
Partnership's business is wound down. The Partnership's liquidity would,
however, be materially adversely affected if there were 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.
Cash in the amount of $3,520,438, generated from the Partnership's Distributable
Cash from Sales, Financings or Repayments (as defined in the Partnership
Agreement), was distributed to the Limited Partners during the three months
ended March 31, 2001. This amount was distributed in accordance with the
Partnership Agreement and was allocated as follows:
Distributable Cash
From Sales
-----------
Investors $3,381,321
John Hancock Limited Partner 139,117
General Partner -
----------
Total $3,520,438
==========
14
15
JOHN HANCOCK REALTY INCOME FUND-III 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 period ended March 31, 2001 was $4,216, as compared to net
income of $637,176 for the same period in 2000, representing a decrease of
$632,960, or 99%, as compared to the prior year. This decrease was primarily due
to the sales during 2000 of the Yokohama Tire Warehouse, the Palms of
Carrollwood Shopping Center, the Business Center at Pureland and the
Partnership's joint venture interest in the Quince Orchard Corporate Center.
Average occupancy for the Partnership's investments was as follows:
Three Months Ended
March 31,
2001 2000
---- ----
Palms of Carrollwood Shopping Center N/A 87%
Quince Orchard Corporate Center (Affiliated Joint Venture) N/A 100%
Yokohama Tire Warehouse N/A 100%
Business Center at Pureland N/A 50%
Rental income for the period ended March 31, 2001 decreased by $612,602, or
100%, as compared to the same period during 2000 primarily due to the sales of
the Yokohama Tire Warehouse, the Palms of Carrollwood Shopping Center and the
Business Center at Pureland during the fourth quarter of 2000.
Income from joint venture for the period ended March 31, 2001 decreased by
$223,813, or 100%, as compared to the same period during 2000 primarily due to
the sale of the Partnership's joint venture interest in Quince Orchard Corporate
Center in September 2000.
Property operating expenses for the period ended March 31, 2001 decreased by
$75,315, or 100%, as compared to the same period during 2000. This decrease is
primarily due to the sales of the Yokohama Tire Warehouse, the Palms of
Carrollwood Shopping Center and the Business Center at Pureland during the
fourth quarter of 2000.
Depreciation expense for the period ended March 31, 2001 decreased by $80,540,
or 100%, as compared to the same period during 2000 primarily due to the
reclassification of the Palms of Carrollwood and Business Center at Pureland
properties as "Property held for sale" during the first quarter of 2000.
Accordingly, no depreciation has been recorded on these properties since the
time that they were listed for sale.
Amortization expense for the period ended March 31, 2001 decreased by $31,639,
or 100%, as compared to the same period during 2000 primarily due to the
reclassification of the Palms of Carrollwood and Business Center at Pureland
properties as "Property held for sale" during the first quarter of 2000.
Accordingly, no amortization expense has been recorded since the time that they
were listed for sale.
General and administrative expenses for the period ended March 31, 2001
increased by $10,101, or 18%, primarily due to payment in the current period of
final legal expenses in connection with the class action complaint (see Part II,
Item 1 of this Report).
The General Partner believes that inflation has had no significant impact on the
Partnership's income from operations during the three months ended March 31,
2001, and the General Partner anticipates that it will not have a significant
impact during the remainder of 2001.
15
16
JOHN HANCOCK REALTY INCOME FUND-III 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:
Three Months Ended
March 31,
2001 2000
--------- ---------
Net cash provided by (used in) operating
activities (a) ($8,658) $578,283
Net change in operating assets
and liabilities (a) 12,874 22,579
--------- ---------
Net cash provided by operations (a) 4,216 600,862
Increase in working capital reserves (4,216) --
--------- ---------
Cash from operations (b) -- 600,862
Decrease in working capital reserves -- 136,419
--------- ---------
Distributable cash from operations (b) $ -- $737,281
========= =========
Allocation to General Partner $ -- $36,864
Allocation to John Hancock Limited Partner -- --
Allocation to Investors -- 700,417
--------- ---------
$ -- $737,281
========= =========
(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.
During February 2001, the Partnership made a cash distribution in the amount of
$3,520,438 to the John Hancock Limited Partner and the Investors that was
generated from Distributable Cash from Sales, Financings or Repayments. This
amount was distributed in accordance with the Partnership Agreement and was
allocated as follows:
Distributable Cash
From Sales
----------
Investors $3,381,321
John Hancock Limited Partner 139,117
General Partner -
----------
Total $3,520,438
==========
The amount of future cash distributions is 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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17
JOHN HANCOCK REALTY INCOME FUND-III 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 have 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.
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 first quarter of 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the first
quarter of 2001.
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 2001.
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 2001.
17
18
JOHN HANCOCK REALTY INCOME FUND-III 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, 2001.
John Hancock Realty Income Fund-III
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: /s/ Paul F. Hahesy
-------------------------------------
Paul F. Hahesy, President
By: /s/ Virginia H. Lomasney
-------------------------------------
Virginia H. Lomasney, Treasurer
(Chief Accounting Officer)
18