-----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, FtKQacPz2yVNlhRSGm5wetSodQwaEu6jDgdPTAn38AzuZ2Ek4myQS9dsRDyKybjK Cec/Fk1GTx1gtK7L5G/mUQ== 0000818257-95-000004.txt : 19951119 0000818257-95-000004.hdr.sgml : 19951119 ACCESSION NUMBER: 0000818257-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591600 BUSINESS ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 8007225457 10-Q 1 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 September 30, 1995 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 Berkeley 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 September 30, 1995 and December 31, 1994 3-4 Statements of Operations for the Three and Nine Months Ended September 30, 1995 and 1994 5 Statements of Partners' Equity for the Nine Months Ended September 30, 1995 and for the Year Ended December 31, 1994 6 Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 7 Notes to Financial Statements 8-15 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16-21 PART II: OTHER INFORMATION 22 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
September 30, December 31, 1995 1994 ---- ---- Current assets: Cash and cash equivalents $3,407,101 $2,561,288 Restricted cash 35,851 24,557 Other current assets 160,351 92,152 ----------- ----------- Total current assets 3,603,303 2,677,997 Real estate loans 6,677,621 6,874,539 Investment in property: Land 5,560,000 5,560,000 Buildings and improvements 18,836,994 18,836,994 ----------- ----------- 24,396,994 24,396,994 Less: accumulated depreciation 4,367,414 3,896,483 ----------- ----------- 20,029,580 20,500,511 Investment in joint venture 7,895,603 7,882,420 Long-term restricted cash 107,885 86,214 Deferred expenses, net of accumulated amortization of $922,153 in 1995 and $723,147 in 1994 1,316,007 1,391,729 ----------- ----------- Total assets $39,629,999 $39,413,410 =========== ===========
Continued on next page 3 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS (Continued) (Unaudited) LIABILITIES AND PARTNERS' EQUITY
September 30, December 31, 1995 1994 ---- ---- Current liabilities: Accounts payable and accrued expenses $528,886 $200,424 Accounts payable to affiliates 33,522 30,213 ----------- ----------- Total current liabilities 562,408 230,637 Partners' equity/(deficit): General Partner's deficit (152,972) (151,822) Limited Partners' equity 39,220,563 39,334,595 ----------- ----------- Total partners' equity 39,067,591 39,182,773 ----------- ----------- Total liabilities and partners' equity $39,629,999 $39,413,410 =========== ===========
See Notes to Financial Statements 4 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Income: Rental income $608,739 $573,736 $1,779,294 $1,588,307 Interest income 220,680 208,884 658,522 633,370 Income/(loss) from joint venture 193,829 139,528 557,024 52,656 ---------- ---------- ---------- ---------- Total income 1,023,248 922,148 2,994,840 2,274,333 Expenses: Depreciation 156,957 157,050 470,931 471,150 Property operating expenses 148,708 155,068 384,713 364,089 General and administrative expenses 53,524 50,723 163,336 159,525 Amortization of deferred expenses 68,162 68,752 199,006 208,683 ---------- ---------- ---------- ---------- Total expenses 427,351 431,593 1,217,986 1,203,447 ---------- ---------- ---------- ---------- Net income $595,897 $490,555 $1,776,854 $1,070,886 ========== ========== ========== ========== Allocation of net income: General Partner $5,959 $4,906 $17,769 $10,709 John Hancock Limited Partner - - - - Investors 589,938 485,649 1,759,085 1,060,177 ---------- ---------- ---------- ---------- $595,897 $490,555 $1,776,854 $1,070,886 ========== ========== ========== ========== Net income per Unit $0.23 $0.19 $0.68 $0.41 ========== ========== ========== ==========
See Notes to Financial Statements 5 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (Unaudited) Nine Months Ended September 30, 1995 and Year Ended December 31, 1994
General Limited Partner Partners Total ------- -------- ----- Partners' equity/(deficit) at January 1, 1994 (2,601,552 Units outstanding) ($146,449) $39,866,829 $39,720,380 Less: Cash distributions (25,224) (2,497,490) (2,522,714) Add: Net income 19,851 1,965,256 1,985,107 -------- ----------- ----------- Partners' equity/(deficit) at December 31, 1994 (2,601,552 Units outstanding) (151,822) 39,334,595 39,182,773 Less: Cash distributions (18,919) (1,873,117) (1,892,036) Add: Net income 17,769 1,759,085 1,776,854 -------- ----------- ----------- Partners' equity/(deficit) at September 30, 1995 (2,601,552 Units outstanding) ($152,972) $39,220,563 $39,067,591 ======== =========== ===========
See Notes to Financial Statements 6 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1995 1994 ---- ---- Operating activities: Net income $1,776,854 $1,070,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 470,931 471,150 Amortization of deferred expenses 199,006 208,683 Cash distributions over/(under) equity in income/(loss) from joint venture (13,183) 218,585 ---------- ---------- 2,433,608 1,969,304 Changes in operating assets and liabilities: Decrease in restricted cash (32,965) (58,179) Increase in other current assets (68,199) (68,627) Increase/(decrease) in accounts payable and accrued expenses 328,462 (302,940) Increase in accounts payable to affiliates 3,309 21,178 ---------- ---------- Net cash provided by operating activities 2,664,215 1,560,736 Investing activities: Increase in investment in joint venture - (1,104,902) Principal payments on real estate loans 196,918 287,214 Increase in deferred expenses and other assets (123,284) (47,240) ---------- ---------- Net cash provided by/(used in) investing activities 73,634 (864,928) Financing activities: Cash distributed to Partners (1,892,036) (1,890,145) ---------- ---------- Net cash used in financing activities (1,892,036) (1,890,145) ---------- ---------- Net increase/(decrease) in cash and cash equivalents 845,813 (1,194,337) Cash and cash equivalents at beginning of year 2,561,288 3,742,273 ---------- ---------- Cash and cash equivalents at end of period $3,407,101 $2,457,936 ========== ==========
See Notes to Financial Statements 7 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 September 30, 1995 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 4,649 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 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. 8 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 nine month period ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. 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, 1994. 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 cost. 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. 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 relate. Subsequent to June 30, 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 three and nine months ended September 30, 1995 and 1994 was calculated by dividing the Investors' share of net income by the number of Units outstanding at the end of such period. 9 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 2. Significant Accounting Policies (continued) ------------------------------- No provision for income taxes has been made in the Financial Statements since such taxes are the responsibility of the individual Partners and not of the Partnership. 3. The Partnership Agreement ------------------------- Distributable Cash from Operations (defined in the Partnership Agreement) is distributed 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 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. However, any Distributable Cash from Operations, which is available as a result of reduction of working capital reserves funded by Capital Contributions of the Investors, will be distributed 100% to the Investors. Profits for tax purposes from the normal operations of the Partnership for each fiscal year are allocated to the Partners in the same amounts as Distributable Cash from Operations for that year. If such profits are less than Distributable Cash from Operations for any year, they are allocated in proportion to the amounts of Distributable Cash from Operations 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. However, all tax aspects of the Partnership's payment of the sales commissions from the Capital Contributions made by the John Hancock Limited Partner are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner and not to the Investors. Depreciation deductions are allocated 1% to the General Partner and 99% to the Investors, and not to the John Hancock Limited Partner. Notwithstanding the foregoing, any such profits or losses or other items which were based upon the Partnership's operations prior to the first day of the month in which the initial closing date occurred were allocated 1% to the General Partner and 99% to the John Hancock Limited Partner. 10 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) (Unaudited) 3. The Partnership Agreement (continued) ------------------------- Upon the occurrence of a Sale, Financing or Repayment (defined in the Partnership Agreement) of a Partnership Investment, the General Partner first applies the proceeds to the payment of all debts and liabilities of the Partnership then due and then funds any reserves for contingent liabilities which it deems to be appropriate. 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 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; 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. 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 nine months ended September 30, 1995 and 1994 and to which the General Partner or its affiliates are entitled to reimbursement from the Partnership were $99,897 and $105,455, respectively. These expenses are included in expenses on the Statements of Operations. Accounts payable to affiliates represent 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:
September 30, December 31, 1995 1994 ---- ---- 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 net realizable value of a real estate investment held for long- term investment purposes is measured by the recoverability of the investment through its expected future cash flows on an undiscounted basis, which may exceed the related property's current market value. 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, have not been received since 1990 because the property has not generated any cash flow in excess of the required minimum debt service payments. 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. Under the original terms of the loan agreement, General Camera Corporation ("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 the month commencing on July 1, 1994 and ending on June 1, 1995. Commencing on July 1, 1995, 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. 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. 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 $1,282,242. Of the cumulative total invested capital in QOCC-1 Associates at September 30, 1995, 97.55% has been contributed by the Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75% interest in QOCC-1 Associates. 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) --------------------------- 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. 8. Deferred Expenses ----------------- Deferred expenses consist of the following:
Unamortized Unamortized Balance at Balance at Description September 30, 1995 December 31, 1994 ------------ ------------------ ----------------- $35,072 acquisition fee for 205 Newbury St. loan. This amount is amortized over the term of the loan. $9,479 $12,322 $113,468 acquisition fee for GCC mortgage loan. This amount is amortized over the term of the loan. 12,157 24,315 $152,880 acquisition fee for investment in the Affiliated Joint Venture. This amount is amortized over a period of 31.5 years. 120,322 123,962 $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. 757,837 848,777 $223,773 of tenant improvements. These amounts are amortized over the terms of the leases to which they relate. 132,584 105,252 $509,870 of lease commissions. These amounts are amortized over the terms of the leases to which they relate. 283,628 277,101 ---------- ---------- $1,316,007 $1,391,729 ========== ==========
14 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:
Nine Months Ended September 30, 1995 1994 ---- ---- Net income per Statements of Operations $1,776,854 $1,099,626 Add/(deduct): Excess of book depreciation over tax depreciation 80,117 80,031 Excess of book amortization over tax amortization 66,239 37,209 Other income (214,403) - ---------- ---------- Net income for federal income tax purposes $1,708,807 $1,142,448 ========== ==========
15 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. A descriptive list of these investments is set forth in Notes 5, 6 and 7 to the Financial Statements included in Item 1 of this Report. Liquidity and Capital Resources - ------------------------------- At September 30, 1995, the Partnership had $3,407,101 in cash and cash equivalents, $35,851 in restricted cash and $107,885 in long-term restricted cash. The Partnership has a working capital reserve with a current balance of approximately 5% of the offering proceeds. The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirements. Liquidity would, however, be materially adversely affected if there were a significant reduction in revenues or significant 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 further 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. A 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 tenant's lease obligations expired in December 1994. The General Partner has brought an action against the former tenant to obtain full collection of all delinquent and other amounts due under the lease agreement in the aggregate amount of approximately $550,000. The matter had been scheduled to be heard by the court during the fourth quarter of 1995; however, because the General Partner amended its complaint, the action has been delayed and the matter is currently expected to be heard by the court during the second quarter of 1996. 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 (continued) Liquidity and Capital Resources (continued) - ------------------------------- The General Partner subsequently secured two replacement tenants for the vacated space at the Miami International Distribution Center. One tenant took occupancy of approximately 28,000 square feet, or 13% of the property, under a lease commencing during June 1994 and the other tenant took occupancy of approximately 42,000 square feet, or 20% of the property, under a lease commencing during July 1994. However, the tenant leasing the 28,000 square foot space and whose lease is scheduled to expire in September 2004, subsequently vacated the space and is delinquent in rental payments and expense reimbursements due since November 1, 1994. The General Partner filed a complaint demanding payment from this tenant for delinquent rental amounts as well as all future obligations due under the lease agreement. The Partnership received a default judgment against this tenant on November 1, 1995 and is seeking a final judgment in the amount of approximately $1,830,000 plus accrued interest from the date of the judgment. Based upon the financial condition of this tenant, there can be no assurance that the Partnership will be able to collect upon this amount. The General Partner has also been seeking 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. In this regard, 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. A resolution of this matter is expected during the first quarter of 1996. The Fulton Business Park's occupancy was 95% at September 30, 1995 and is 100% occupied as of the date hereof. During the third quarter of 1995 two new tenants took occupancy of the property under leases representing approximately 22,000 square feet, or 15% of the property. Another new tenant entered into a lease representing approximately 7,500 square feet, or 5% of the property, which commenced on November 1, 1995. During the first nine months of 1995, two existing tenants renewed their leases, one representing approximately 30,500 square feet, or 20% of the property, and the other representing approximately 6,500 square feet. This latter tenant also decided to expand the space it occupies at the property by approximately 7,000 square feet, for an aggregate of approximately 13,500 square feet, or 9% of the property. However, two tenants occupying an aggregate of approximately 7,500 square feet, or 5% of the property, vacated the property upon the expiration of their leases during the first six months of 1995. During 1994 a tenant at the Fulton Business Park with a lease representing approximately 20,000 square feet, or 13% of the property, and who was delinquent in meeting its rental obligations, requested an amendment to its lease to reduce the amount of space it occupied by approximately 7,000 square feet, or 5% of the property. The General Partner agreed to the tenant's space reduction request, on the condition that the tenant execute a promissory note for delinquent amounts due under the lease. Payments on the promissory note were originally scheduled to commence on July 1, 1995, however, the General Partner has amended the terms of the promissory note to provide for payments commencing on January 1, 1996. This tenant was current on rental payments due the Partnership as of September 30, 1995. 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) - ------------------------------- At September 30, 1995 the Park Square Shopping Center's occupancy was 86%. The General Partner will continue to offer aggressive rental packages in an effort to secure new tenants for the vacant space at the property. Cash in the aggregate amount of $123,284 was used during the first nine months of 1995 for the payment of leasing costs incurred at the Partnership's properties. The General Partner anticipates that the Partnership will incur an aggregate of approximately $225,000 of additional leasing costs at its properties during the remainder of 1995. The current balance in the working capital reserve should be sufficient to pay such costs. During the nine months ended September 30, 1995, approximately $42,000 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 $88,000 at its properties during the remainder of 1995. 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. Cash in the aggregate amount of $1,892,036, generated from the Partnership's operations, was distributed to the General Partner and the Investors during the first nine months of 1995. The General Partner anticipates that the Partnership will make a distribution during the fourth quarter of 1995 comparable to the distributions made during each of the first three quarters of 1995. Both of the borrowers on the Partnership's mortgage investments, 205 Newbury Associates and General Camera Corporation, remained current on their minimum required debt service payments as of September 30, 1995 and as of the date hereof. Contingent interest payments on the 205 Newbury Associates mortgage investment, which are based upon the net cash flow of the property, have not been received since 1990 because the property has not generated any cash flow in excess of the minimum required debt service payments. The entire unamortized principal balance and all accrued but unpaid interest on the mortgage loan to General Camera Corporation is due on July 1, 1996. 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 loans will not be repaid upon maturity. Should either of the borrowers fail to meet the minimum required debt service payments, there would be a material adverse affect upon the Partnership's liquidity as well as a permanent impairment in the book value of the mortgage investment. The General Partner had the Fulton Business Park property independently appraised during the second quarter of 1995. Based upon the appraiser's investigation and analysis, the property's market value was estimated to be approximately $3,150,000. The net book value of the Fulton Business Park property of approximately $4,054,000 at September 30, 1995 was evaluated in comparison to the 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 September 30, 1995. The Partnership's cumulative investment in the property, before accumulated depreciation is approximately $5,139,000. 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) - ------------------------------- The General Partner evaluated the carrying value of each of the Partnership's properties and its joint venture investment as of December 31, 1994 by comparing each such carrying value to the related property's future undiscounted cash flows and the then most recent independent or internal appraisals, 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, 1994. 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 periodic property and investment valuations, using internal or independent appraisals, in order to determine whether a permanent impairment in value exists on any of the Partnership's investments. Results of Operations - --------------------- Net income for the nine months ended September 30, 1995 was $1,776,854, as compared to net income of $1,070,886 for the same period in 1994. The increase in net income is primarily attributable to an increase in income from the Partnership's joint venture investment (the "Affiliated Joint Venture") as well as an increase in the performance of the Miami International Distribution Center. Average occupancy for the Partnership's equity real estate investments for the nine months ended September 30, 1995 was as follows: Park Square Shopping Center 85% Fulton Business Park 86% Miami International Distribution Center 87% Quince Orchard Corporate Center (Affiliated Joint Venture) 100% Rental income at the Partnership's properties for the nine months ended September 30, 1995 increased by $190,987, or 12%, as compared to the nine months ended September 30, 1994. Rental income at the Miami International Distribution Center increased by 23% between periods due to an increase in average occupancy from 68% to 87%. Rental income at the Fulton Business Park increased by 20% during the first nine months of 1995 as compared to same period in 1994 primarily due to increases in the rental rates paid by certain tenants. In addition, the first nine months of 1994 were affected by a decrease in rental income due to the fact that two tenants at the Fulton Business Park were delinquent in their rental obligations during that period. Rental income at the Park Square Shopping Center was consistent between periods. The Partnership was allocated income of $557,024 from the Affiliated Joint Venture during the first nine months of 1995 as compared to $52,656 during the same period of 1994, representing an increase of $504,368. This increase is primarily due to the termination of the former tenant's lease at the Quince Orchard Corporate Center in September 1993 and the present tenant taking occupancy of the property in March 1994. 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) Results of Operations (continued) - --------------------- Property operating expenses for the nine months ended September 30, 1995 increased by $20,624, or 6%, as compared to the same period in 1994. The Partnership's share of property operating expenses at the Miami International Distribution Center increased by 9% between periods primarily due to certain non-recurring maintenance and repairs incurred at the property during the nine months ended September 30, 1995. The Partnerships' share of property operating expenses at the Fulton Business Park increased by 23% between periods primarily due to the fact that a refund of a portion of the prior year's real estate taxes was received during the nine months ended September 30, 1994, and, therefore, decreased property operating expenses during that period. Excluding such tax refund, the Partnership's share of operating expenses at the property remained consistent between periods. The Partnership's share of property operating expenses at the Park Square Shopping Center was consistent between periods. The General Partner believes that inflation has had no significant impact on income from operations during the nine months ended September 30, 1995, and the General Partner anticipates that inflation will not have a significant impact during the remainder of 1995. 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) Cash Flow - --------- The following table provides the calculations of Cash from Operations and Distributable Cash from Operations which are calculated in accordance with Section 17 of the Partnership Agreement:
Nine Months Ended September 30, 1995 1994 ---- ---- Net cash provided by operating activities (a) $2,664,215 $1,560,736 Net change in operating assets and liabilities (a) (230,607) 408,568 ---------- ---------- Net cash provided by operations (a) 2,433,608 1,969,304 Increase in working capital reserves (541,570) (77,266) ---------- ---------- Cash from operations (b) 1,892,038 1,892,038 Decrease in working capital reserves - - ---------- ---------- Distributable cash from operations (b) $1,892,038 $1,892,038 ========== ========== Allocation to General Partner $18,920 $18,920 Allocation to Investors 1,873,118 1,873,118 Allocation to John Hancock Limited Partner - - ---------- ---------- $1,892,038 $1,892,038 ========== ==========
(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 fourth quarter of 1995, the Partnership will make a cash distribution in the amount of $624,372 to the Investors, representing a 5% annualized return to all Investors of record at September 30, 1995, based on Distributable Cash from Operations for the quarter then ended. 21 JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) PART II: OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Partnership, to which the Partnership is a party or to which any of its properties is subject. Item 2. Changes in Securities There were no changes in securities during the third quarter of 1995. Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the third quarter of 1995. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders of the Partnership during the third quarter of 1995. Item 5. Other information Item 6. Exhibits and Reports on form 8-K (a) There are no exhibits to this report (b) There were no reports on Form 8-K filed during the third quarter of 1995. 22 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 November, 1995. 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 9-MOS DEC-31-1995 SEP-30-1995 3,550,837 0 160,351 0 0 3,603,303 24,396,994 4,367,414 39,629,999 562,408 0 0 0 0 39,067,591 39,629,999 0 2,336,318 0 384,713 0 0 0 1,776,854 0 1,776,854 0 0 0 1,776,854 0.68 0.68
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