-----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, RLmi90utR77LUzk+b3XXsc0yqZcFS4Luk7FaZCGaIjKfrnrO7L6OOCOYFpgTA+JL EYSh9Y1tyEVdLl6EzXszrQ== 0000746262-97-000010.txt : 19970815 0000746262-97-000010.hdr.sgml : 19970815 ACCESSION NUMBER: 0000746262-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97664119 BUSINESS ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 8007225457 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 0-17664 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 (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 filling 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 June 30, 1997 and December 31, 1996 3 Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 4 Statements of Partners' Equity for the Six Months Ended June 30, 1997 and for the Year Ended December 31, 1996 5 Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 6 Notes to Financial Statements 7-18 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19-27 PART II: OTHER INFORMATION 28 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 June 30, December 31, 1997 1996 ----- ----- Cash and cash equivalents $3,255,041 $8,669,990 Restricted cash 99,552 111,612 Other assets 88,139 112,762 Deferred expenses, net of accumulated amortization of $1,086,975 in 1997 and $1,086,688 in 1996 946,817 1,034,045 Real estate loans 1,700,000 5,245,361 Investment in joint venture 7,509,102 7,574,268 Investment in property: Land 5,040,000 5,040,000 Buildings and improvements 14,218,208 14,218,208 ---------- ---------- 19,258,208 19,258,208 Less: accumulated depreciation 4,112,080 3,875,115 ---------- ---------- 15,146,128 15,383,093 ---------- ---------- Total assets $28,744,779 $38,131,131 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $205,337 $282,825 Accounts payable to affiliates 106,584 88,991 -------- -------- Total liabilities 311,921 371,816 Partners' equity/(deficit): General Partner's deficit (171,378) (166,057) Limited Partners' equity 28,604,236 37,925,372 ---------- ---------- Total partners' equity 28,432,858 37,759,315 ---------- ---------- Total liabilities and partners' equity $28,744,779 $38,131,131 =========== =========== 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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 ----- ----- ----- ---- Income: Rental income $517,450 $634,393 $1,058,824 $1,243,268 Income from joint venture 186,173 201,398 374,710 382,914 Interest income 82,375 218,880 226,736 438,442 -------- -------- --------- --------- Total income 785,998 1,054,671 1,660,270 2,064,624 Expenses: Depreciation 118,483 156,955 236,965 313,912 Property operating expenses 100,759 111,721 192,776 237,609 General and administrative expenses 65,298 62,735 177,361 117,201 Amortization of deferred expenses 59,195 74,306 113,755 146,462 -------- -------- -------- --------- Total expenses 343,735 405,717 720,857 815,184 -------- -------- -------- --------- Net income $442,263 $648,954 $939,413 $1,249,440 ======== ======== ======== ========= Allocation of net income: General Partner $4,423 $6,489 $9,394 $12,494 John Hancock Limited Partner - - - - Investors 437,840 642,465 930,019 1,236,946 -------- -------- -------- --------- $442,263 $648,954 $939,413 $1,249,440 ======== ======== ======== ========= Net income per Unit $0.17 $0.25 $0.36 $0.48 ===== ===== ===== =====
See Notes to Financial Statements 4 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (Unaudited) Six Months Ended June 30, 1997 and Year Ended December 31, 1996
General Limited Partner Partners Total -------- --------- ------ Partner's equity/(deficit) at January 1, 1996 (2,601,552 Units outstanding) ($152,910) $39,226,989 $39,074,079 Less: Cash distributions (29,168) (2,887,723) (2,916,891) Add: Net income 16,021 1,586,106 1,602,127 --------- ----------- ----------- Partner's equity/(deficit) at December 31, 1996 (2,601,552 Units outstanding) (166,057) 37,925,372 37,759,315 Less: Cash distributions (14,715) (10,251,155) (10,265,870) Add: Net income 9,394 930,019 939,413 ---------- ----------- ---------- Partner's equity/(deficit) at June 30, 1997 (2,601,552 Units outstanding) ($171,378) $28,604,236 $28,432,858 ======== ========== ===========
See Notes to Financial Statements 5 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1997 1996 ---- ---- Operating activities: Net income $939,413 $1,249,440 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 236,965 313,912 Amortization of deferred expenses 113,755 146,462 Cash distributions over equity in income from joint venture 65,166 112,153 --------- --------- 1,355,299 1,821,967 Changes in operating assets and liabilities: Decrease in restricted cash 12,060 5,602 Decrease/(increase) in other assets 24,623 (34,499) (Decrease)/increase in accounts payable and accrued expenses (77,488) 70,102 Increase in accounts payable to affiliates 17,593 9,101 --------- --------- Net cash provided by operating activities 1,332,087 1,872,273 activities Investing activities: Principal payments on real estate loans 3,545,361 251,049 Increase in deferred expenses (26,527) (22,432) --------- --------- Net cash provided by investing 3,518,834 228,617 activities Financing activities: Cash distributed to Partners (10,265,870) (1,392,750) --------- --------- Net cash used in financing activities (10,265,870) (1,392,750) --------- --------- Net (decrease)/increase in cash and cash equivalents (5,414,949) 708,140 Cash and cash equivalents at beginning of year 8,669,990 3,520,394 --------- --------- Cash and cash equivalents at end of period $3,255,041 $4,228,534 ========= ========= 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 June 30, 1997, 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 4,576 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 six month period ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. 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. 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 the periods hereof was calculated by dividing the Investors' share of net income by the number of Units outstanding at the end of 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. Certain 1996 amounts have been reclassified to be consistent with the 1997 presentation. 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 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, 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 made between 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 Partner. Neither the General Partner nor any Affiliate (as defined in the Partnership Agreement) of the General Partner shall be liable, responsible or accountable in damages to any of the Partners or the Partnership for any act or omission of the General Partner 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, except under certain specified circumstances. 11 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 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 six months ended June 30, 1997 and 1996 and to which the General Partner or its affiliates are entitled to reimbursement from the Partnership were $145,916 and $85,920, respectively. These expenses are included in expenses on the Statements of Operations. The Partnership provides indemnification to the General Partner and its Affiliates for any acts or omissions of the General Partner or an 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 10. Accordingly, included in the Statements of Operations for the six months ended June 30, 1997 and 1996 were $38,173 and $0, respectively, representing the Partnership's share of costs incurred by the General Partner and its Affiliates relating to the class action complaint. As of June 30, 1997, the Partnership has accrued a total of $79,648 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 with respect to the Partnership. All amounts accrued by the Partnership to indemnify the General Partner or its Affiliates for legal fees incurred by them, shall not be paid unless or until all conditions set forth in the Partnership Agreement for such payment have been fulfilled. The General Partner serves in a similar capacity for two other affiliated real estate limited partnerships. 12 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:
June 30, December 31, 1997 1996 ---- ---- Park Square Shopping Center $12,886,230 $12,886,230 Miami International Distribution Center 6,371,978 6,371,978 ----------- ----------- $19,258,208 $19,258,208 =========== ===========
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. The Partnership leases its properties to non-affiliated tenants primarily under long-term operating leases. 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 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 six months ended June 30, 1997 and the year ended December 31, 1996, the Partnership received contingent interest payments, the amount of which is not material. 13 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 was 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 then 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 were required on the first day of each month. The entire unamortized principal balance of $4,606,110 and all accrued but unpaid interest came due on July 1, 1996. During the second quarter of 1996, GCC requested a three month extension of time in which to satisfy the loan while it continued to pursue alternate financing. The General Partner granted GCC this extension in consideration of GCC making an additional one-time payment of $250,000 to reduce the outstanding principal balance of the loan. In addition, GCC was required to make monthly loan payments of $85,416 from July 1, 1996 through September 1, 1996. On July 1, 1996, GCC made the $250,000 payment as required by the extension agreement. During August 1996, GCC made an additional payment of $125,000 to further reduce the outstanding principal balance of the loan. The entire unamortized principal balance and all accrued but unpaid interest came due on October 1, 1996. During the third quarter of 1996, GCC requested an additional three month extension of time in which to satisfy the loan while it continued to pursue alternate financing. The General Partner granted GCC this extension in consideration of GCC making an additional payment in the aggregate amount of $400,000 to reduce the outstanding principal balance of the loan. In addition, GCC was required to make monthly loan payments of $85,416 from October 1, 1996 through December 1, 1996. On October 11, 1996, and November 8, 1996, GCC made additional payments of $200,000 each as required by the extension agreement. The entire unamortized principal balance and all accrued but unpaid interest came due on January 1, 1997. On January 9, 1997, GCC paid the entire outstanding principal balance and accrued but unpaid interest then due. Real estate loans are evaluated for collectibility on an on-going basis. 14 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 7. Investment in Joint Venture --------------------------- On December 28, 1988, the Partnership acquired 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 sold a 49.5% interest in the Affiliated Joint Venture to Income Fund-III. The Partnership has held a 50% interest in the Affiliated Joint Venture since the second quarter of 1989. On December 28, 1988, the Affiliated Joint Venture 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. The partnership agreement of QOCC-1 Associates provides that the Affiliated Joint Venture shall contribute 95% of any required additional capital contributions. Of the cumulative total invested capital in QOCC-1 Associates at June 30, 1997, 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. Prior to 1996, QOCC-1 Associates had not provided the partners with a return in excess of 9% on their invested capital. During 1996, the Affiliated Joint Venture received a return on invested capital of approximately 12%. Income and gains of QOCC-1 Associates, other than the gains allocated arising from a sale or other similar event with respect to the Quince Orchard Corporate Center, are 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 are made and ii) the balance, if any, to the partners, pro rata in accordance with their interests. 15 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 8. Deferred Expenses -----------------
Deferred expenses consist of the following: Unamortized Unamortized Balance at Balance at Description June 30, 1997 December 31, 1996 ----------- ------------- ------------------ $35,072 acquisition fee for 205 Newbury St. loan. This amount is amortized over the term of the loan. $2,843 $4,739 $152,880 acquisition fee for investment in the Affiliated Joint Venture. This amount is amortized over a period of 31.5 years 111,829 114,256 $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. 545,642 606,269 $141,606 of tenant improvements. These amounts are amortized over the terms of the leases to which they relate. 40,258 46,828 $501,137 of lease commissions. These amounts are amortized over the terms of the leases to which they relate. 246,245 261,953 --------- --------- $946,817 $1,034,045 ========= ==========
16 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:
Six Months Ended June 30, 1997 1996 ----- ----- Net income per Statements of Operations $939,413 $1,249,440 Add/(deduct): Excess of book depreciation over tax depreciation 38,576 51,697 Excess of book amortization over tax amortization 39,225 51,606 Other income and expense (8,504) (79,585) ------- ------- Net income for federal income tax purposes $1,008,710 $1,273,158 ========== ==========
10. 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 the Partnership. The complaint named as defendants the Partnership, the General Partner, certain other Affiliates of the General Partner, two limited partnerships affiliated with the Partnership, 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. 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. 17 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 10. Contingencies (continued) ------------------------- The Partnership has incurred approximately $200,000 in legal expenses in connection with the class action lawsuit (see Part II, Item 1 of this Report). Of this amount, approximately $120,000 relates to the Partnership's own defense and approximately $80,000 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. At the present time, the General Partner cannot estimate the aggregate amount of legal expenses and indemnification claims to be incurred and their impact on the Partnership's financial statements, taken as a whole. Accordingly, no provision for any liability which could result from the eventual outcome of these matters has been made in the accompanying financial statements. 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 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 Partner's 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. 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, actions that would be taken in the event of lack of liquidity, anticipated 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.] 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 - ------------------------------- At June 30, 1997 the Partnership had $3,255,041 in cash and cash equivalents, $99,552 in restricted cash. The Partnership's cash and cash equivalents decreased by $5,414,949 from December 31, 1996 primarily due to the distribution on February 14, 1997 of net sales proceeds from the earlier sale of the Fulton Business Park property and the repayment of the General Camera Corporation's ("GCC") mortgage loan. The Partnership has a working capital reserve with a current balance of approximately 5.6% of the Investors' Invested Capital (defined in the Partnership Agreement). The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirements. The Partnership's liquidity would, however, be materially adversely affected if there were a significant reduction in revenues or significant unanticipated operating costs (including but not limited to litigation expenses), unanticipated leasing costs or unanticipated capital expenditures. 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, short-term loans from the General Partner or its Affiliates, or the sale or financing of Partnership investments. The mortgage loan to GCC as extended and made in the original amount of $5,500,000 came due on January 1, 1997. On January 9, 1997, GCC paid the entire outstanding principal balance and all accrued but unpaid interest then due. On February 14, 1997, the repayment proceeds were distributed to the Investors and the John Hancock Limited Partner, in accordance with the terms of the Partnership Agreement. The Partnership incurred $26,527 of leasing costs at the Park Square Shopping Center property during the six months ended June 30, 1997. The General Partner anticipates that the Partnership will incur an aggregate of approximately $104,000 of additional leasing costs at the Park Square Shopping Center and Miami International Distribution Center properties during the remainder of 1997. The current balance in the working capital reserve should be sufficient to pay such costs. The Partnership incurred approximately $1,100 of non-recurring repair and maintenance expenses during the six months ended June 30, 1997. The General Partner anticipates that the Partnership will incur additional non- recurring repair and maintenance expenses in the aggregate amount of approximately $25,000 at the Park Square Shopping Center and Miami International Distribution Center properties during the remainder of 1997. These expenses 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. 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) - ------------------------------------------ The Partnership has incurred approximately $200,000 in legal expenses in connection with the class action lawsuit (see Part II, Item 1 of this Report). Of this amount, approximately $120,000 relates to the Partnership's own defense and approximately $80,000 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. At the present time, the General Partner cannot estimate the aggregate amount of legal expenses and indemnification claims to be incurred and their impact on the Partnership's future operations. Liquidity would, however, be materially adversely affected by a significant increase in such legal expenses and related indemnification costs. If such increases were to occur, to the extent that cash from operations and 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, short- term loans from the General Partner or its Affiliates, or the sale or financing of Partnership investments. Cash in the aggregate amount of $10,265,870 was distributed to the Partners during the six months ended June 30, 1997. Of this amount, $1,471,583 was generated from Distributable Cash from Operations (defined in the Partnership Agreement), and $8,794,287 was generated from Distributable Cash from Sales, Financings or Repayments (defined in the Partnership Agreement). These amounts were distributed in accordance with the Partnership Agreement and were allocated as follows: From Distributable From Distributable Cash From Sales Cash From Financings, or Operations Repayments ---------- ----------- Investors $1,456,868 $8,142,858 John Hancock Limited Partner - 652,429 General Partner 14,715 - ----------- ---------- Total $1,471,583 $8,794,287 ========== ========== The amount distributed to the Investors from Distributable Cash from Operations during the six months ended June 30, 1997 represented a 6% annualized return on Investors' Invested Capital. The General Partner anticipates that the Partnership will be able to make comparable quarterly cash distributions from Distributable Cash from Operations during the remainder of 1997. 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) Liquidity and Capital Resources (continued) - ------------------------------------------ The following table summarizes the leasing activity and occupancy status at the Partnership's remaining equity investments during the six months ended June 30, 1997 and scheduled leasing activity for each investment during the remainder of 1997: Miami International Park Square Quince Orchard Distribution Ctr. Shopping Ctr. Corporate Ctr. ----------------- ------------- -------------- Square Footage 215,019 137,108 99,782 Occupancy January 1, 1997 87% 84% 100% ==== ==== ==== New Leases 0% 4% 0% Lease Renewals 0% 0% 0% Leases Expired 0% 1% 0% Occupancy June 30, 1997 87% 87% 100% ==== ==== ==== Leases Scheduled to Expire, Balance of 1997 0% 1% 0% ==== ==== ==== Leases Scheduled to Commence, Balance of 1997 0% 0% 0% ==== ==== ==== A former tenant at the Miami International Distribution Center that had occupied approximately 70,000 square feet, or 33% of the property, had 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. During January 1997, the Partnership reached a settlement agreement with the former tenant whereby the Partnership agreed to dismiss the action in exchange for the sum of $114,000. Of the settlement amount, the former tenant i) received a $24,143 credit against the settlement amount, which credit represents the former tenant's security deposit held by the Partnership, ii) was required to make a one-time payment of $50,000 to the Partnership, and iii) is required to make monthly payments in the amount of $2,000 until the sum of $39,857 is paid to the Partnership. As of the date hereof, the former tenant is current with its required payments. 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) Liquidity and Capital Resources (continued) - ------------------------------------------ The General Partner subsequently secured two replacement tenants for this space at MIDC. However, one of these tenants, leasing approximately 28,000 square feet, or 13% of the property, and whose lease was scheduled to expire in September 2004, vacated its space and had 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 final judgment in the amount of approximately $2,010,000 on January 31, 1996. Subsequent to receiving this judgment, the tenant's owner declared personal bankruptcy in a U.S. bankruptcy court in Florida. In March 1997, the Partnership received $10,000 from the bankruptcy court as final settlement of the Partnership's claim. This amount was ordered to be paid as follows: i) $5,000 upon the bankruptcy court approving the settlement and ii) $5,000 thirty days after the approval of the settlement. The Partnership has received all such settlement amounts. The General Partner continues to seek a replacement tenant for this space. The Miami International Distribution Center is located in an area that the Miami Airport Authority has targeted for future expansion of the airport. During May 1996, the Miami Airport Authority made an offer to purchase this property at an amount in excess of its carrying value. The General Partner continues to negotiate with the Miami Airport Authority towards a mutually acceptable 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. The General Partner believes that the Miami Airport Authority's desire to acquire the Miami International Distribution Center has hampered its ability to lease the available space at the property. 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 the remainder of 1997 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. 23 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) - ------------------------------------------ 205 Newbury Associates remained current on its minimum required debt service payments as of June 30, 1997 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 materially adverse effect 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 materially adverse effect on the carrying value of the mortgage loan. If one or both of the above were to occur, there would be a materially adverse effect on the Partnership's liquidity. The General Partner will continue to monitor the operations of the property and the financial condition of the borrower. The General Partner evaluated the carrying value of each of the Partnership's properties and its joint venture investment as of December 31, 1996 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, 1996. 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. Results of Operations - --------------------- Net income for the six months ended June 30, 1997 was $939,413, as compared to net income of $1,249,440 for the same period in 1996. This decrease is primarily due to the repayment of the GCC mortgage loan in January 1997 and the sale of the Fulton Business Park property in December 1996. Excluding the net income attributable to the GCC mortgage loan and the Fulton Business Park property, net income was consistent between periods Average occupancy for the Partnership's equity real estate investments was as follows: Six Months Ended June 30, 1997 1996 ---- ---- Miami International Distribution Center 87% 87% Park Square Shopping Center 87% 86% Quince Orchard Corporate Center (Affiliated Joint Venture) 100% 100% 24 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations(continued) Results of Operations (continued) - --------------------- Rental income for the six months ended June 30, 1997 decreased by $184,444, or 15%, as compared to the same period in 1996. This decrease is primarily due to the sale of the Fulton Business Park. Excluding the rental income generated by the Fulton Business Park, rental income increased slightly between periods. Rental income increased by 12% at the Miami International Distribution Center primarily due to the collection of past due rent from a former tenant at the property. This increase was partially offset by a decrease in rental income at the Park Square property primarily due to a decrease in percentage rent collected from the anchor tenant at the property. Interest income for the six months ended June 30, 1997 decreased by $211,706, or 48%, as compared to the same period in 1996. This decrease was primarily due to a decline in the interest earned on the GCC mortgage loan due to its repayment on January 9, 1997. This decrease was partially offset by the interest earned on the net sales proceeds received from the sale of the Fulton Business Park property and the proceeds from the repayment of the GCC mortgage loan. The Partnership distributed such amounts in February 1997. Depreciation expense for the six months ended June 30, 1997 decreased by $76,947, or 25%, as compared to the same period 1996. This decrease is due to the sale of the Fulton Business Park. The Partnership's share of property operating expenses for the six months ended June 30, 1997 decreased by $44,833, or 19%, as compared to the same period in 1996. This decrease is primarily due to the sale of the Fulton Business Park. Excluding the Partnership's share of property operating expenses attributable to the Fulton Business Park, the Partnership share of property operating expenses decreased by 9% between periods. The Partnership's share of property operating expenses at the Miami International Distribution Center decreased between periods. This decrease is primarily due to a decrease between periods in legal costs related to the collection of past due rents from certain former tenants at the property. The Partnership's share of property operating expenses at the Park Square property was consistent between periods. 25 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations(continued) Results of Operations (continued) - --------------------- General and administrative expenses for the quarter ended June 30, 1997 increased by $60,160, or 51%, primarily due to legal fees incurred by the Partnership in connection with the class action complaint (see Part II, Item 1 of this Report). Excluding such legal fees, general and administrative expenses were consistent between periods. At the present time, the General Partner cannot estimate the aggregate legal fees and indemnification claims to be incurred with respect to the class action lawsuit and their impact on the Partnership's future operations. Operations would, however, be materially adversely affected by a significant increase in such legal expenses and related indemnification costs. If such increases were to occur, to the extent that cash from operations and 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, short-term loans from the General Partner or its Affiliates, or the sale or financing of Partnership properties. Amortization of deferred expenses for the six months ended June 30, 1997 decreased by $32,707, or 22%, as compared to the same period in 1996. This decrease is primarily due to the sale of the Fulton Business Park and the repayment of the GCC mortgage loan and the absence of amortization of their related deferred expenses. The General Partner believes that inflation has had no significant impact on the Partnership's operations during the six months ended June 30, 1997, and the General Partner anticipates that inflation will not have a significant impact during the remainder of 1997. 26 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:
Six Months Ended June 30, 1997 1996 ----- ----- Net cash provided by operating activities (a) $1,332,087 $1,872,273 Net change in operating assets and liabilities (a) 23,212 (50,306) ---------- ---------- Net cash provided by operations (a) 1,355,299 1,821,967 Increase in working capital reserves - (297,826) ---------- ---------- Cash from operations (b) 1,355,299 1,524,141 Decrease in working capital reserves 11,061 - ---------- ---------- Distributable cash from operations (b) $1,366,360 $1,524,141 ========== ========== Allocation to General Partner $13,553 $15,241 Allocation to Investors 1,352,807 1,508,900 Allocation to John Hancock Limited Partner - - ---------- ---------- $1,366,360 $1,524,141 ========== ==========
(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 third quarter of 1997, the Partnership will make a distribution of Distributable Cash from Operations to the Investors in the amount of $650,388. This amount represents a 6% annualized return on Investors remaining Invested Capital. 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 two quarters of 1997 will be comparable to that generated during the second quarter of 1997. 27 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, 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. The certification order should not be construed as suggesting that any member of the class is entitled to recover, or will recover, any amount in the action. The General Partner believes the allegations are totally without merit and will continue 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 second quarter of 1997. Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the second quarter of 1997. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders of the Partnership during the second quarter of 1997. Item 5. Other information Item 6. Exhibits and Reports on form 8-K (a) There are no exhibits to this Report (b) There were no Reports on Form 8-K filed during the second quarter of 1997. 28 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 14th day of August, 1997. 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) 29 EX-27 2
5 0000818257 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP 6-MOS DEC-31-1997 JUN-30-1997 3,354,593 0 88,139 0 0 3,442,732 19,258,208 4,112,080 28,744,779 311,921 0 0 0 0 28,432,858 28,744,779 0 1,660,270 0 370,137 350,720 0 0 939,413 0 939,413 0 0 0 939,413 0.36 0.36
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