-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVR5NZfVzkmHsufJi+lCwynW5uP50lZUe0EWZ287rCTrfXzmD20bmoVFGlkMJ0WC FFY5ADzQLmx65Uea6QgVQQ== 0000746262-96-000013.txt : 19960517 0000746262-96-000013.hdr.sgml : 19960517 ACCESSION NUMBER: 0000746262-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN REALTY INCOME FUND II LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000818257 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042969061 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17664 FILM NUMBER: 96567311 BUSINESS ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 8007225457 10-Q 1 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 Commission File Number 0-17664 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2969061 (State or other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 200 Clarendon Street, Boston, MA 02117 (Address of Principal Executive Office) (Zip Code) (800) 722-5457 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO __ JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) INDEX PART I: FINANCIAL INFORMATION PAGE Item 1 - Financial Statements: Balance Sheets at March 31, 1996 and December 31, 1995 3 Statements of Operations for the Three Months Ended March 31, 1996 and 1995 4 Statements of Partners' Equity for the Three Months Ended March 31, 1996 and for the Year Ended December 31, 1995 5 Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 6 Notes to Financial Statements 7-16 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 17-23 PART II: OTHER INFORMATION 24 2 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) PART I: FINANCIAL INFORMATION Item 1: Financial Statements BALANCE SHEETS (Unaudited) ASSETS March 31, December 31, 1996 1995 ---- ---- Current assets: Cash and cash equivalents $4,042,109 $3,520,394 Restricted cash 52,359 26,240 Other current assets 182,108 107,596 ---------- ----------- Total current assets 4,276,576 3,654,230 Real estate loans 6,433,352 6,557,159 Investment in property: Land 5,560,000 5,560,000 Buildings and improvements 18,836,994 18,836,000 ---------- ----------- 24,396,994 24,396,994 Less: accumulated depreciation 4,681,326 4,524,369 ---------- ----------- 19,715,668 19,872,625 Investment in joint venture 7,748,522 7,842,586 Long-term restricted cash 99,466 106,027 Deferred expenses, net of accumulated amortization of $1,067,530 in 1996 and $995,374 in 1995 1,255,252 1,316,753 ---------- ----------- Total assets $39,528,836 $39,349,380 =========== =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable and accrued expenses $443,390 $239,566 Accounts payable to affiliates 41,559 35,735 ---------- ----------- Total current liabilities 484,949 275,301 Partners' equity/(deficit): General Partner's deficit (153,211) (152,910) Limited Partners' equity 39,197,098 39,226,989 ---------- ----------- Total partners' equity 39,043,887 39,074,079 ---------- ----------- Total liabilities and partners' equity $39,528,836 $39,349,380 =========== =========== See Notes to Financial Statements 3 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 1996 1995 ---- ---- Income: Rental income 608,875 $603,239 Interest income 219,562 218,095 Income from joint venture 181,516 188,211 ---------- ---------- Total income 1,009,953 1,009,545 Expenses: Depreciation 156,957 157,019 Property operating expenses 125,888 128,470 General and administrative expenses 54,466 56,900 Amortization of deferred expenses 72,156 62,156 ---------- ---------- Total expenses 409,467 404,545 ---------- ---------- Net income $600,486 $605,000 ========== ========== Allocation of net income: General Partner $6,005 $6,050 John Hancock Limited Partner - - Investors 594,481 598,950 ---------- ---------- $600,486 $605,000 ========== ========== Net income per Unit $0.23 $0.23 ========== ========== See Notes to Financial Statements 4 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (Unaudited) Three Months Ended March 31, 1996 and Year Ended December 31, 1995
General Limited Partner Partners Total ------- -------- ----- Partner's equity/(deficit) at January 1, 1995 (2,601,552 Units outstanding) ($151,822) $39,334,595 $39,182,773 Less: Cash distributions (25,228) (2,497,490) (2,522,718) Add: Net income 24,140 2,389,884 2,414,024 -------- ----------- ----------- Partner's equity/(deficit) at December 31, 1995 (2,601,552 Units outstanding) (152,910) 39,226,989 39,074,079 Less: Cash distributions (6,306) (624,372) (630,678) Add: Net income 6,005 594,481 600,486 -------- ----------- ----------- Partner's equity/(deficit) at March 31, 1996 (2,601,552 Units outstanding) ($153,211) $39,197,098 $39,043,887 ======== =========== ===========
See Notes to Financial Statements 5 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1996 1995 ---- ---- Operating activities: Net income $600,486 $605,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 156,957 157,019 Amortization of deferred expenses 72,156 62,156 Cash distributions over/(under) equity in income from joint venture 94,064 (27,253) ---------- ---------- 923,663 796,922 Changes in operating assets and liabilities: (Increase)/decrease in restricted cash (19,558) (24,216) Increase in other current assets (74,512) (194,590) Increase in accounts payable and accrued expenses 203,824 226,169 Increase in accounts payable to affiliates 5,824 1,231 ---------- ---------- Net cash provided by operating activities 1,039,241 805,516 Investing activities: Principal payments on real estate loans 123,807 39,308 Increase in deferred expenses and other assets (10,655) - ---------- ---------- Net cash provided by investing activities 113,152 39,308 Financing activities: Cash distributed to Partners (630,678) (630,678) ---------- ---------- Net cash used in financing activities (630,678) (630,678) ---------- ---------- Net increase in cash and cash equivalents 521,715 214,146 Cash and cash equivalents at beginning of year 3,520,394 2,561,288 ---------- ----------- Cash and cash equivalents at end of period $4,042,109 $2,775,434 ========== ==========
See Notes to Financial Statements 6 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Organization of Partnership --------------------------- John Hancock Realty Income Fund-II Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on June 30, 1987. As of March 31,1996, the partners in the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), a wholly-owned, indirect subsidiary of John Hancock Mutual Life Insurance Company; John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"); John Hancock Income Fund-II Assignor, Inc. (the "Assignor Limited Partner"); and 4,664 Unitholders (the "Investors"). The Assignor Limited Partner holds 2,601,552 Assignee Units (the "Units"), representing economic and certain other rights attributable to Investor Limited Partnership Interests in the Partnership, for the benefit of the Investors. The John Hancock Limited Partner, the Assignor Limited Partner and the Investors are collectively referred to as the Limited Partners. The General Partner and the Limited Partners are collectively referred to as the Partners. The initial capital of the Partnership was $2,000, representing capital contributions of $1,000 by the General Partner and $1,000 from the John Hancock Limited Partner. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the issuance of up to 5,000,000 Assignee Units at $20 per Unit. During the offering period, which terminated on January 2, 1989, 2,601,552 Units were sold and the John Hancock Limited Partner made additional capital contributions of $4,161,483. There were no changes in the number of Units outstanding subsequent to the termination of the offering period. The Partnership is engaged solely in the business of (i) acquiring, improving, holding for investment and disposing of existing income- producing retail, industrial and office properties on an all-cash basis, free and clear of mortgage indebtedness, and (ii) making mortgage loans consisting of conventional first mortgage loans and participating mortgage loans secured by income-producing retail, industrial and office properties. Although the Partnership's properties were acquired and are held free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness on its properties under certain circumstances as specified in the Partnership Agreement. The latest date on which the Partnership is due to terminate is December 31, 2017, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that, in the ordinary course of the Partnership's business, the investments of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2017. 7 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 2. Significant Accounting Policies ------------------------------- The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. 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 has been designated as short or long-term based upon the term of the related lease agreement. Real estate loans are recorded at amortized cost unless it is determined by the General Partner that in economic substance the loan represents an investment in property or joint venture. In such instances, these investments are accounted for using the equity method. Investments in property are recorded at the lower of cost or market. Cost includes the initial purchase price of the property plus acquisition and legal fees, other miscellaneous acquisition costs and the cost of significant improvements. Depreciation has been provided on a straight-line basis over the estimated useful lives of the various assets: thirty years for the buildings and five years for related improvements. Maintenance and repairs are charged to operations as incurred. Investment in joint venture is recorded using the equity method. 8 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 2. Significant Accounting Policies (continued) ------------------------------- Fees paid to the General Partner for the acquisition of joint venture and mortgage loan investments have been deferred and are being amortized over the life of the investments to which they apply. During 1993, the Partnership reduced the period over which its remaining deferred acquisition fees are amortized from thirty years, the estimated useful life of the buildings owned by the Partnership, to eight and one-half years, the then estimated remaining life of the Partnership. Capitalized tenant improvements and lease commissions are being amortized on a straight-line basis over the terms of the leases to which they relate. The net income per Unit for each of the three months ended March 31, 1996 and 1995 was calculated by dividing the Investors' share of net income by the number of Units outstanding at the end of each such period. No provision for income taxes has been made in the Financial Statements since such taxes are the responsibility of the individual Partners and Investors and not of the Partnership. 3. The Partnership Agreement ------------------------- Distributable Cash from Operations (defined in the Partnership Agreement) is distributed 1% to the General Partner and the remaining 99% in the following order of priority: first, to the Investors until they receive a 7% non-cumulative, non-compounded annual cash return on their Invested Capital (defined in the Partnership Agreement); second, to the General Partner to pay the Subordinated Allocation (defined in the Partnership Agreement) equal to 3 1/2% of Distributable Cash from Operations for managing the Partnership's activities; third, to the John Hancock Limited Partner until it receives a 7% non-cumulative, non-compounded annual cash return on its Invested Capital; fourth, to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions (defined in the Partnership Agreement), until they have received a 10% non-cumulative, non-compounded annual cash return on their Invested Capital; fifth, to the General Partner to pay the Incentive Allocation (defined in the Partnership Agreement) equal to 2 1/2% of Distributable Cash from Operations; and sixth, to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions. Any Distributable Cash from Operations which is available as a result of a reduction of working capital reserves funded by Capital Contributions of the Investors, will be distributed 100% to the Investors. 9 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 3. The Partnership Agreement (continued) ------------------------- Cash from a Sale, Financing or Repayment (defined in the Partnership Agreement) of a Partnership Investment, 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, Financings or Repayments is distributed and paid in the following order of priority: first, to the Investors and the John Hancock Limited Partner, with the distribution allocated to Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions, until the Investors and the John Hancock Limited Partner have received an amount equal to their Invested Capital; second, to the Investors until they have received, after giving effect to all previous distributions of Distributable Cash from Operations and any previous distributions of Cash from Sales, Financings or Repayments after the return of their Invested Capital, the Cumulative Return on Investment (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, Financings or Repayments after the return of its Invested Capital, the Cumulative Return on Investment; fourth, to the General Partner to pay any Subordinated Disposition Fees then payable pursuant to Section 6.4(c) of the Partnership Agreement; and fifth, 99% to the Investors and the John Hancock Limited Partner and 1% to the General Partner, with the distribution allocated to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions. Cash from the sale or repayment of the last of the Partnership's properties or mortgage loans is distributed in the same manner as Cash from Sales, Financings or Repayments, 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, Financings or Repayments, as specified in the previous paragraph. 10 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 3. The Partnership Agreement (continued) ------------------------- Profits for tax purposes from the normal operations of the Partnership for each fiscal year are allocated to the 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, then they are allocated in proportion to the amounts of Distributable Cash from Operations allocated for that year. If such profits are greater than Distributable Cash from Operations for any year, they are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner and the Investors, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Losses for tax purposes from the normal operations of the Partnership are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner and the Investors, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Profits and Losses from Sales, Financings or Repayments are generally allocated 99% to the Limited Partners and 1% to the General Partners, subject to the provisions of the Partnership Agreement. 4. Transactions with the General Partner and Affiliates ---------------------------------------------------- Fees and expenses incurred and/or paid by the General Partner or its affiliates on behalf of the Partnership during the three months ended March 31, 1996 and 1995 and to which the General Partner or its affiliates are entitled to reimbursement from the Partnership were $41,559 and $31,444, respectively. These expenses are included in expenses on the Statements of Operations. Accounts payable to affiliates represents amounts due to the General Partner and its affiliates for various services provided to the Partnership. The General Partner serves in a similar capacity for three other affiliated real estate limited partnerships. 11 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 5. Investment in Property ---------------------- Investment in property at cost consists of managed, fully-operating, commercial real estate as follows: March 31, 1996 December 31, 1995 -------------- ----------------- Park Square Shopping Center $12,886,230 $12,886,230 Fulton Business Park 5,138,786 5,138,786 Miami International Distribution Center 6,371,978 6,371,978 ----------- ----------- $24,396,994 $24,396,994 =========== =========== The real estate market is cyclical in nature and is materially affected by general economic trends and economic conditions in the market where a property is located. As a result, determination of real estate values involves subjective judgments. These judgments are based on current market conditions and assumptions related to future market conditions. These assumptions involve, among other things, the availability of capital, occupancy rates, rental rates, interest rates and inflation rates. Amounts ultimately realized from each property may vary significantly from the values presented and the differences could be material. Actual market values of real estate can be determined only by negotiation between the parties in a sales transaction. 6. Real Estate Loans ----------------- On March 10, 1988, the Partnership made a $1,700,000 participating non- recourse mortgage loan to a non-affiliated borrower, secured by a first mortgage on commercial real estate known as 205 Newbury Street, located in Boston, Massachusetts. Under the terms of the loan agreement, the borrower is required to pay interest only monthly at an annual rate of 9.5% with the entire outstanding principal balance due on April 1, 1998. In addition to these amounts, the borrower is also obligated to pay the Partnership 25% of the net cash flow derived from the operations of the property during the term of the loan and a specified portion of the net sales price or mutually agreed upon fair market value of the property upon its sale or refinancing. Contingent interest payments, based on the net cash flow from the property, were not received from 1990 through 1995 because the property did not generate any cash flow in excess of the required minimum debt service payments. During the first quarter of 1996 the Partnership received contingent interest payments at a rate of approximately 1/10 of 1% of the outstanding principal balance. 12 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 6. Real Estate Loans (continued) ----------------- On June 30, 1989, the Partnership made a $5,500,000 mortgage loan to a non-affiliated borrower, secured by a first mortgage on commercial real estate known as the General Camera Corporation Building, located in New York, New York. In addition, the loan is personally guaranteed by the principal stockholders of General Camera Corporation ("GCC"). Under the original terms of the loan agreement, GCC was required to pay interest only monthly at an annual rate of 11%. Effective June 1, 1994, the loan agreement was amended i) to require GCC to make a one- time payment of $250,000 towards the outstanding balance of the loan and ii) to require that all future monthly payments include amounts to amortize the outstanding loan balance. GCC was required to make payments of $60,416 per month on the first day of each month commencing on July 1, 1994 and ending on June 1, 1995. Commencing on July 1, 1995 and ending on June 1, 1996, payments of $85,416 per month are required on the first day of each month. The entire unamortized principal balance and all accrued but unpaid interest are due on July 1, 1996. Based upon current information and events, the General Partner believes it is possible that GCC may not be able to pay the entire outstanding principal balance of the loan upon its maturity date (July 1, 1996). Should GCC fail to pay the entire outstanding balance of the loan, the General Partner will pursue all available remedies, including foreclosing on the property and pursuing the personal guaranty of GCC's principal stockholders, in order to collect upon all amounts due. The General Partner believes that the entire principal balance of the loan will ultimately be collectible. Real estate loans are evaluated for collectibility on an on-going basis. 7. Investment in Joint Venture --------------------------- On December 28, 1988, the Partnership invested $14,726,079 to acquire a 99.5% interest in JH Quince Orchard Partners (the "Affiliated Joint Venture"), a joint venture between the Partnership and John Hancock Realty Income Fund-III Limited Partnership ("Income Fund-III"). The Partnership had an initial 99.5% interest and Income Fund-III had an initial 0.5% interest in the Affiliated Joint Venture. Pursuant to the partnership agreement of the Affiliated Joint Venture, Income Fund-III had the option, exercisable prior to December 31, 1990, to increase its investment and interest in the Affiliated Joint Venture to 50%. During the second quarter of 1989, Income Fund-III exercised its option and the Partnership transferred a 49.5% interest in the Affiliated Joint Venture to Income Fund-III for cash in the aggregate amount of $7,325,672. The Partnership has held a 50% interest in the Affiliated Joint Venture since the second quarter of 1989. 13 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 7. Investment in Joint Venture (continued) --------------------------- 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 owns and operates the Quince Orchard Corporate Center, a three-story office building and related land and improvements located in Gaithersburg, Maryland. During the years ended December 31, 1994 and 1993, the partners in QOCC-1 Associates were required to make additional capital contributions towards the funding of leasing costs incurred at the property. In accordance with the terms of the partnership agreement of QOCC-1 Associates, the Affiliated Joint Venture contributed 95% of such additional capital, the Partnership's share of which amounted to an aggregate of $1,282,243. Of the cumulative total invested capital in QOCC-1 Associates at March 31, 1996, 97.55% has been contributed by the Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75% interest in QOCC-1 Associates. Net cash flow from QOCC-1 Associates is distributed in the following order of priority: first, to the payment of all debts and liabilities of QOCC-1 Associates and to fund reserves deemed reasonably necessary; second, to the partners in proportion to their respective invested capital until each has received a 9% return on invested capital; third, the balance, if any, to the partners in proportion to their interests. Since its inception, QOCC-1 Associates has not provided the partners with a return in excess of 9% on their invested capital. 14 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 8. Deferred Expenses ----------------- Deferred expenses consist of the following:
Unamortized Balance Unamortized Balance Description at March 31,1996 at December 31,1995 ----------- ---------------- ------------------- $35,072 acquisition fee for 205 Newbury St. loan. This amount is amortized over the term of the loan. $7,583 $8,531 $113,468 acquisition fee for GCC mortgage loan. This amount is amortized over the term of the loan. 4,052 8,105 $152,880 acquisition fee for investment in the Affiliated Joint Venture. This amount is amortized over a period of 31.5 years. 117,895 119,108 $1,203,097 acquisition fees paid to the General Partner. Prior to June 30, 1993, this amount was amortized over a period of 30 years. Subsequent to June 30, 1993, the unamortized balance is amortized over a period of 8.5 years. 697,210 727,523 $260,132 of tenant improvements. These amounts are amortized over the terms of the leases to which they relate. 143,864 156,298 $558,133 of lease commissions. These amounts are amortized over the terms of the leases to which they relate. 284,648 297,188 ---------- ---------- $1,255,252 $1,316,753 ========== ==========
15 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 9. Federal Income Taxes -------------------- A reconciliation of the net income reported in the Statements of Operations to the net income reported for federal income tax purposes is as follows:
Three Months Ended March 31, 1996 1995 ---- ---- Net income per Statements of Operations $600,486 $605,000 Add/(deduct): Excess of book depreciation over tax depreciation 25,848 26,706 Excess of book amortization over tax amortization 25,803 21,056 Other income (39,792) (71,467) -------- -------- Net income for federal income tax purposes $612,345 $581,295 ======== ========
16 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations General - ------- During the offering period, from October 2, 1987 to January 2, 1989, the Partnership sold 2,601,552 Units representing gross proceeds (exclusive of the John Hancock Limited Partners' contribution, which was used to pay sales commissions) of $52,031,040. The proceeds of the offering were used to acquire investments, fund reserves, and pay acquisition fees and organizational and offering expenses. These investments are described more fully in Notes 5, 6 and 7 to the Financial Statements included in Item 1 of this Report. Liquidity and Capital Resources - ------------------------------- At March 31, 1996 the Partnership had $4,042,109 in cash and cash equivalents, $52,359 in restricted cash and $99,466 in long-term restricted cash. The Partnership has a working capital reserve with a current balance of approximately 6% of the offering proceeds. Based upon the current balance of working capital reserves as well as the projected level of cash flows from the Partnership's investments during the remainder of 1996, the Partnership will increase cash distributions to Investors, effective with the May 15, 1996 distribution, from an annualized rate of 5% to an annualized rate of 6%. Liquidity would, however, be materially adversely affected if there were a significant reduction in revenues, unanticipated operating costs or unanticipated capital expenditures. If any or all of these events were to occur, to the extent that working capital reserves would be insufficient to satisfy the cash requirements of the Partnership, it is anticipated that additional funds would be obtained through a reduction of cash distributions to Investors, bank loans, short-term loans from the General Partner or its affiliates, or the sale or financing of Partnership investments. The Partnership incurred approximately $11,000 of leasing costs at the Park Square Shopping Center during the first three months of 1996. The General Partner anticipates that the Partnership will incur an aggregate of approximately $360,000 of leasing costs at the Park Square Shopping Center, Fulton Business Park and Miami International Distribution Center during the remainder of 1996. The current balance in the working capital reserve should be sufficient to pay such costs. During the three months ended March 31, 1996, approximately $1,000 of cash generated from the Partnership's operations was used to fund non-recurring repair and maintenance costs incurred at the Miami International Distribution Center. The General Partner anticipates that the Partnership will incur additional non-recurring repair and maintenance costs in the aggregate amount of approximately $123,000 at its properties during the remainder of 1996. These additional costs will be funded from the operations of the Partnership's properties and are not expected to have a significant impact on the Partnership's liquidity. 17 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- Cash in the amount of $630,678, generated from the Partnership's operations, was distributed to the General Partner and the Investors during the first quarter of 1996. Effective with the May 15, 1996 distribution the Partnership will increase cash distributions to approximately $762,000. The General Partner anticipates that the Partnership will make distributions during the third and fourth quarters of 1996 comparable to the distribution made on May 15, 1996. The following table summarizes the leasing activity at each of the Partnership's equity investments during the three months ended March 31, 1996 and scheduled leasing activity for each investment during the remainder of 1996:
Miami International Fulton Park Square Quince Orchard Distribution Ctr. Business Park Shopping Ctr. Corporate Ctr. ----------------- ------------- ------------- --------------- Square Footage 150,535 215,019 137,108 99,782 Occupancy January 1, 1996 85% 100% 86% 100% == === == === New Leases 0% 0% 2% 0% Lease Renewals 0% 0% 1% 0% Leases Expired 0% 9% 0% 0% Occupancy March 31, 1996 87% 91% 88% 100% == === == === Leases Scheduled to Expire Balance of 1996 23% 3% 10% 0% == === == === Leases Scheduled to Commence Balance of 1996 0% 0% 0% 0% == === == ===
18 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- A former tenant at the Miami International Distribution Center that had occupied approximately 70,000 square feet, or 33% of the property, has been delinquent in rental payments and expense reimbursements since July 1993 and vacated the property in September 1993. The former tenant's lease obligations expired in December 1994. The General Partner brought an action against the former tenant to obtain full collection of all delinquent amounts and other amounts due under the lease agreement in the aggregate amount of approximately $550,000. The matter is now expected to be heard by the court during the third quarter of 1996. Should the Partnership prevail in the action, there can be no assurance that the Partnership will be able to collect all, or any, of this amount. The General Partner will continue to pursue all available legal remedies in an effort to obtain collection from this former tenant. The General Partner subsequently secured two replacement tenants for this space. However, one of these tenants, leasing approximately 28,000 square feet, or 13% of the property, and whose lease is scheduled to expire in September 2004, vacated its space and has been delinquent in its rental payments and expense reimbursements due since November 1994. The General Partner filed a complaint against this tenant demanding payment for delinquent rental amounts as well as all future obligations due under the lease agreement. The Partnership received a default judgment in the amount of approximately $1,830,000 against this tenant on November 1, 1995 and received a final judgment in the amount of approximately $2,010,000 on January 31, 1996. The final judgment amount represents the aggregate of the default judgment amount plus interest thereon from the date of the default judgment through the date of the final judgment. Based upon the financial condition of the tenant, there can be no assurance that the Partnership will be able to collect all, if any, of the judgment amount. The General Partner has also been seeking a replacement tenant for this space. During 1996, one tenant's lease representing approximately 50,000 square feet, or 23% of the property, is scheduled to expire. The General Partner is currently negotiating with this tenant for a lease renewal. If the General Partner is unable to secure a renewal, then it will seek a replacement tenant, or tenants, for this space. 19 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- The Miami International Distribution Center is located in an area that the Miami Airport Authority has targeted for future expansion of the Airport. The Miami Airport Authority has contacted the General Partner concerning a potential sale of the property. It is possible that under certain circumstances the Miami Airport Authority could obtain this property through its powers of eminent domain, although at this time no such plans have been announced or otherwise communicated to the General Partner. During May 1996, the Miami Airport Authority made an offer to purchase this property. The General Partner is currently evaluating the offer. Demand for available industrial space in Atlanta, Georgia, where the Fulton Business Park is located, has increased during the past two years and rental rates are increasing. The General Partner believes that, given current real estate market conditions for industrial space in Atlanta, the property will be able to retain existing tenants as well as secure a new tenant, or tenants, at the property during 1996. The Brooklyn Park, Minnesota real estate market, including the Park Square Shopping Center, has experienced increasing vacancy rates as well as competitive pricing for available space in recent years. The General Partner expects market conditions in Brooklyn Park to remain competitive during 1996 and, therefore, no increase in market rental rates is anticipated. The General Partner will continue to offer aggressive rental packages in an effort to retain existing tenants as well as to secure new tenants for the vacant space at the property. 205 Newbury Associates remained current on its minimum required debt service payments as of March 31, 1996 and as of the date hereof. The General Partner has no reason to believe, based upon current information and events, that the minimum required debt service payments will not continue to be met or that the outstanding principal balance of the loan will not be repaid. However, should 205 Newbury Associates fail to make the minimum required debt service payments, there would be a material adverse effect on the Partnership's liquidity and on the carrying value of the mortgage loan. In addition, should there be an unfavorable change in the financial status of the borrower, there could be a material adverse effect on the carrying value of the mortgage loan. The General Partner will continue to monitor the operations of the property and the financial condition of the borrower. 20 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- General Camera Corporation ("GCC") remained current on its minimum required debt service payments as of March 31, 1996 and as of the date hereof. The General Partner believes, based upon current information and events, that GCC may not be able to pay the entire outstanding principal balance of the loan upon the maturity date of the mortgage (July 1, 1996). Should GCC fail to pay the entire outstanding balance of the loan, the General Partner will pursue all available remedies, including foreclosing on the property and pursuing the personal guaranty of GCC's principal stockholders, in order to collect upon all amounts due. The General Partner believes that the entire principal balance of the loan will ultimately be collectible. Should the General Partner fail in its efforts to collect upon amounts due through foreclosure or collection on the personal guaranty, there could be a material adverse effect on the carrying value of the mortgage loan. The General Partner will continue to monitor the operations of GCC and the financial condition of both GCC and the guarantors of the loan. The General Partner had the Park Square Shopping Center property independently appraised during the first quarter of 1996. Based upon the appraiser's investigation and analysis, the property's market value is estimated to be approximately $9,000,000 as of March 31, 1996. The net book value of the Park Square Shopping center property of approximately $10,198,000 at March 31, 1996 was evaluated in comparison to its estimated future undiscounted cash flows and the recent independent appraisal and, based upon such evaluation, the General Partner determined that no permanent impairment in value exists and that a write-down in value was not required as of March 31, 1996. The Partnership's cumulative investment in the property before accumulated depreciation is approximately $12,886,000. The General Partner evaluated the carrying value of each of the Partnership's properties and its joint venture investment as of December 31, 1995 by comparing each such carrying value to the related property's future undiscounted cash flows and the then most recent internal appraisal, in order to determine whether any permanent impairment in values existed. In addition, the General Partner evaluated the status of its mortgage investments and their ultimate collectibility as of December 31, 1995. Based upon such evaluations, the General Partner determined that no permanent impairment in values existed and, therefore, no write-downs were recorded. The General Partner will continue to conduct property valuations, using internal or independent appraisals, in order to determine whether a permanent impairment in value exists on any of the Partnership's properties. 21 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations - --------------------- Net income for the three months ended March 31, 1996 was $600,486, as compared to net income of $605,000 for the same period in 1995. Average occupancy for the Partnership's equity real estate investments was as follows: Three Months Ended March 31, 1996 1995 ---- ---- Miami International Distribution Center 87% 87% Fulton Business Park 91% 83% Park Square Shopping Center 86% 84% Quince Orchard Corporate Center (Affiliated Joint Venture) 100% 100% Amortization of deferred expenses increased by $10,000, or 16%, during the three months ended March 31, 1996 as compared to the three months ended March 31, 1995. This increase is primarily due to leasing costs incurred at the Fulton Business Park during 1995 and the subsequent amortization of such costs. The General Partner believes that inflation has had no significant impact on income from operations during the three months ended March 31, 1996, and the General Partner anticipates that inflation will not have a significant impact during the remainder of 1996. 22 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Cash Flow - --------- 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, 1996 1995 ---- ---- Net cash provided by operating activities (a) $1,039,241 $805,516 Net change in operating assets and liabilities (a) (115,578) (8,594) ---------- -------- Net cash provided by operations (a) 923,663 796,922 Increase in working capital reserves (161,593) (166,244) ---------- -------- Cash from operations (b) 762,070 630,678 Decrease in working capital reserves - - ---------- -------- Distributable cash from operations (b) $762,070 $630,678 ========== ======== Allocation to General Partner $7,620 $6,306 Allocation to Investors 754,450 624,372 Allocation to John Hancock Limited Partner - - ---------- -------- $762,070 $630,678 ========== ========
(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 the second quarter of 1996, the Partnership will make a cash distribution in the amount of $754,450 to the Investors, representing a 6% annualized return to all Investors of record at March 31, 1996, based on Distributable Cash from Operations for the quarter then ended. The source of future cash distributions is dependent upon cash generated by the Partnership's properties and the use of working capital reserves. The General Partner currently anticipates that the Partnership's Distributable Cash from Operations during each of the remaining three quarters of 1996 will be comparable to that generated during the first quarter of 1996. 23 JOHN HANCOCK REALTY INCOME FUND-II 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 the Partnership. The complaint named as defendants the Partnership, the General Partner, two limited partnerships affiliated with the Partnership, 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. The General Partner believes the allegations are totally without merit and intends to vigorously contest the action. 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 1996. Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the first quarter of 1996. 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 1996. 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 1996. 24 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Signatures ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of May, 1996. John Hancock Realty Income Fund-II Limited Partnership By: John Hancock Realty Equities, Inc., General Partner By: WILLIAM M. FITZGERALD -------------------------------- William M. Fitzgerald, President By: RICHARD E. FRANK -------------------------------- Richard E. Frank, Treasurer (Chief Accounting Officer) EX-27 2
5 0000818257 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP 3-MOS DEC-31-1996 MAR-31-1996 4,193,934 0 6,615,460 0 0 4,276,576 24,396,994 4,681,326 39,528,836 484,949 0 0 0 0 39,043,887 39,528,836 0 1,009,953 0 180,354 229,113 0 0 600,486 0 600,486 0 0 0 600,486 0.23 0.23
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