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, 1994
0-15680
Commission File
Number..........................................................................
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
................................................................................
(Exact name of registrant as specified in its charter)
Massachusetts 04-2921566
................................................................................
(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
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Balance Sheets at September 30, 1994 and December 31, 1993 3
Statements of Operations for the Three and Nine Months
Ended September 30, 1994 and 1993 4
Statements of Partners' Equity for the Nine Months Ended
September 30, 1994 and for the Year Ended December 31, 1993 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1994 and 1993 6
Notes to Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
PART II: OTHER INFORMATION 15
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, 1994 December 31, 1993
Current assets: ------------------ -----------------
Cash and cash equivalents $3,036,064 $2,359,803
Restricted cash 21,772 18,808
Other current assets 168,122 74,365
-------------- ---------------
Total current assets 3,225,958 2,452,976
Investment in property:
Land 8,934,077 8,959,677
Buildings and improvements 29,174,904 29,661,304
------------ ------------
38,108,981 38,620,981
Less: accumulated depreciation (7,215,508) (6,485,966)
------------- -------------
30,893,473 32,135,015
Long-term restricted cash 18,494 20,965
Deferred expenses, net of accumulated
amortization of $638,891 in 1994
and $525,002 in 1993 451,613 541,751
------------- --------------
Total assets $34,589,538 $35,150,707
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $396,833 $257,184
Accounts payable to affiliates 49,648 51,128
--------------- ---------------
Total current liabilities 446,481 308,312
Partners' equity:
General Partner (191,831) (184,837)
Limited Partners 34,334,888 35,027,232
------------ ------------
Total partners' equity 34,143,057 34,842,395
------------ ------------
Total liabilities and partners' equity $34,589,538 $35,150,707
=========== ===========
See Notes to Financial Statements
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
Income:
Rental income $888,415 $853,690 $2,761,825 $2,601,928
Interest income 31,661 17,003 74,268 54,107
----------- ----------- ----------- -----------
Total income 920,076 870,693 2,836,093 2,656,035
Expenses:
Depreciation 243,181 243,181 729,542 729,542
Property operating expenses 75,383 108,924 246,325 302,298
General and administrative 41,482 38,329 135,100 139,489
Amortization of deferred
expenses 37,069 59,934 113,772 152,502
Management fee 20,985 21,125 62,955 69,555
Property write-down 512,000 -- 512,000 --
---------- ---------- ---------- ----------
Total expenses 930,100 471,493 1,799,694 1,393,386
---------- ---------- ----------
Net income ($10,024) $399,200 $1,036,399 $1,262,649
========== ========== ========== ==========
Allocation of net income:
General Partner ($100) $3,992 $10,364 $12,626
John Hancock Limited Partner (19,477) (19,477) (58,431) (49,721)
Investors 9,553 414,685 1,084,466 1,299,744
---------- --------- --------- ----------
($10,024) $399,200 $1,036,399 $1,262,649
========= ======== ========== ==========
Net income per Unit $0.10 $4.52 $11.83 $14.18
=========== ========== ========== ==========
See Notes to Financial Statements
<PAGE>
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Nine Months Ended September 30, 1994 and
Year Ended December 31, 1993
General Limited
Partner Partners Total
------- -------- -----
Partners' equity/(deficit)
at January 1, 1993
(91,647 Units outstanding) ($175,069) $35,994,321 $35,819,252
Less: Cash distributions (26,614) (2,634,851) (2,661,465)
Add: Net income 16,846 1,667,762 1,684,608
---------- ------------- -------------
Partners' equity/(deficit)
at December 31, 1993
(91,647 Units outstanding) (184,837) 35,027,232 34,842,395
Less: Cash distributions (17,358) (1,718,379) (1,735,737)
Add: Net income 10,364 1,026,035 1,036,399
---------- ------------- -------------
Partners' equity/(deficit)
at September 30, 1994
(91,647 Units outstanding) ($191,831) $34,334,888 $34,143,057
======== =========== ===========
See Notes to Financial Statements
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
---- ----
Operating activities:
Net income $1,036,399 $1,262,649
Adjustments to reconcile net income to net
cash provided by operating
activities:
Amortization of deferred expenses 113,772 152,502
Depreciation 729,542 729,542
Property write-down 512,000 --
Write-off of leasehold improvements -- 17,913
-------------- --------------
2,391,713 2,162,606
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash (493) 12,763
Increase in other current assets (93,757) (66,755)
Increase in accounts payable
and accrued expenses 139,649 136,919
Decrease in accounts payable
to affiliates (1,480) (495)
-------------- --------------
Net cash provided by operating activities 2,435,632 2,245,038
Investing activities:
Increase in deferred expenses (23,634) (257,245)
-------------- --------------
Net cash used in investing activities (23,634) (257,245)
Financing activities:
Cash distributed to Partners (1,735,737) (2,082,887)
-------------- --------------
Net cash used in financing activities (1,735,737) (2,082,887)
-------------- --------------
Net increase/(decrease) in cash and
cash equivalents 676,261 (95,094)
Cash and cash equivalents at
beginning of year 2,359,803 2,552,370
-------------- --------------
Cash and cash equivalents at
end of period $3,036,064 $2,457,276
============== ==============
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization of Partnership
---------------------------
John Hancock Realty Income Fund Limited Partnership (the "Partnership") was
formed under the Massachusetts Uniform Limited Partnership Act on June 12, 1986.
As of September 30, 1994, the Partnership consisted of John Hancock Realty
Equities Inc. (the "General Partner"), a wholly-owned, indirect subsidiary of
John Hancock Mutual Life Insurance Company; John Hancock Realty Funding, Inc.
(the"John Hancock Limited Partner"); and 4,174 Investor Limited Partners (the
"Investors"), owning 91,647 Units of Investor Limited Partnership Interests (the
"Units"). The John Hancock Limited Partner and the Investors are collectively
referred to as the Limited Partners. The initial capital of the Partnership was
$2,000, representing capital contributions of $1,000 from the General Partner
and $1,000 from the John Hancock Limited Partner. The Amended Agreement of
Limited Partnership of the Partnership (the "Amended Agreement of Limited
Partnership") authorized the issuance of up to 100,000 Units of Limited
Partnership Interests at $500 per unit. During the offering period, which
terminated on September 9, 1987, 91,647 Units were sold and the John Hancock
Limited Partner made additional capital contributions of $7,330,760. There have
been no changes in the number of Units outstanding subsequent to the termination
of the offering period. The Partnership is engaged in the business of acquiring,
improving, operating, holding for investment and disposing of existing,
income-producing, commercial and industrial properties on an all-cash basis,
free and clear of mortgage indebtedness. Although the Partnership's properties
were acquired and are held free and clear of mortgage indebtedness, the
Partnership may incur mortgage indebtedness on its properties under certain
circumstances.
The latest date on which the Partnership is due to terminate is December 31,
2016, unless it is sooner terminated in accordance with the terms of the
Amended Agreement of Limited Partnership. It is expected that in the
ordinary course of the Partnership's business, the properties of the
Partnership will be disposed of, and the Partnership terminated, before
December 31, 2016.
2. Significant Accounting Policies
-------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. 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, 1993.
Cash equivalents are highly liquid investments with maturities of three months
or less when purchased. These investments are recorded at cost plus accrued
interest, which approximates market value. Restricted cash represents funds
restricted for tenant security deposits and other escrows, and has been
designated as short or long-term, based upon the term of the related lease
agreement.
Investments in property are recorded at cost less any property write-downs for
permanent impairment in values. Cost includes the initial purchase price of the
property plus acquisition and legal fees, other miscellaneous acquisition costs,
and the cost of significant improvements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies (continued)
-------------------------------------------
Depreciation has been provided on a straight-line basis over the estimated
useful lives of the various assets: thirty years for the buildings and five
years for related improvements. Maintenance and repairs are charged to
operations as incurred.
Deferred expenses relating to tenant improvements and lease commissions are
amortized on a straight-line basis over the various lease terms. During 1993,
the Partnership reduced the period over which its remaining deferred acquisition
fees are amortized from thirty years, the estimated useful life of the buildings
owned by the Partnership, to four and one-half years, the estimated remaining
life of the Partnership.
The net income per Unit for the periods hereof are computed by dividing the
Investors' share of net income by the number of Units outstanding at the end of
such period.
No provision for income taxes has been made in the financial statements as such
taxes are the responsibility of the individual partners and not of the
Partnership.
3. The Partnership Agreement
-------------------------
Distributable Cash from Operations, as defined in the Amended Agreement of
Limited Partnership, is distributed 99% to the Limited Partners and 1% to the
General Partner. The Limited Partners' share of Distributable Cash from
Operations is distributed as follows: first, to the Investors until they receive
a 7% non-cumulative, non-compounded annual cash return on their Invested
Capital, as defined in the Amended Agreement of Limited Partnership; second, to
the John Hancock Limited Partner until it receives a 7% non-cumulative,
non-compounded annual cash return on its Invested Capital; and third, to the
Investors and the John Hancock Limited Partner in proportion to their respective
Capital Contributions, as defined in the Amended Agreement of Limited
Partnership. However, any Distributable Cash from Operations which is available
as a result of the reduction of working capital reserves funded by Capital
Contributions of the Investors will be distributed 100% to the Investors.
Profits for tax purposes from the normal operations of the Partnership for each
fiscal year are allocated to the Limited Partners and General Partner in the
same amounts as Distributable Cash from Operations for that year. If such
profits are less than Distributable Cash from Operations for any year, they are
allocated in proportion to the amounts of Distributable Cash from Operations for
that year. If such profits are greater than Distributable Cash from Operations
for any year, they are allocated 99% to the Limited Partners and 1% to the
General Partner, with the allocation made between the John Hancock Limited
Partner and the Investors in proportion to their respective Capital
Contributions. Losses for tax purposes from the normal operations of the
Partnership will be allocated 99% to the Limited Partners and 1% to the General
Partner, with the allocation made between the John Hancock Limited Partner and
the Investors in proportion to their respective Capital Contributions. However,
tax deductions arising from the Initial Expenses, as defined in the Amended
Agreement of Limited Partnership, which are paid by the Partnership from the
Capital Contributions made by the John Hancock Limited Partner and all other tax
aspects of the Partnership's payment of the Initial Expenses, as defined in the
Amended Agreement of Limited Partnership, 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Investment in Property
----------------------
Investment in property at cost and reduced by write-downs consists of managed,
fully-operating, commercial real estate as follows:
September 30, 1994 December 31, 1993
------------------ -----------------
1300 North Dutton Avenue Office Complex$ 2,835,779 $2,835,779
Marlboro Square Shopping Center 3,183,643 3,183,643
Crossroads Square Shopping Center 12,266,920 12,266,920
Carnegie Center Office/Warehouse 6,844,991 7,356,991
Warner Plaza Shopping Center 6,473,889 6,473,889
J.C. Penney Credit Operations Center 6,503,759 6,503,759
----------- -----------
Total $38,108,981 $38,620,981
=========== ===========
The net realizable value of a property held for long-term investment purposes is
measured by the recoverability of the investment through expected future cash
flows on an undiscounted basis. The net book value of the property in the
financial statements may be in excess of its current fair market value.
During the nine months ended September 30, 1994, the Partnership reduced the
carrying value of the Carnegie Center property by $512,000.
5. Deferred Expenses
-----------------
Deferred expenses consist of the following:
Unamortized Unamortized
Balance at Balance at
September 30, 1994 December 31, 1993
------------------ -----------------
$114,494 of acquisition fees paid to the
General Partner. This amount was amortized
over a period of thirty years prior to
June 30, 1993. Subsequent to June 30, 1993,
the unamortized balance is amortized over a
period of fifty-four months. $69,598 $85,659
$626,154 of tenant improvements. These amounts
are amortized over the terms of the leases to which
they relate. 248,768 299,919
$349,739 of lease commissions. These amounts
are amortized over the terms of the leases to which
they relate.
133,247 156,173
-------- --------
$451,613 $541,751
======== ========
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Transactions with the General Partner and Affiliates
----------------------------------------------------
Fees and expenses incurred or paid by the General Partner or its affiliates and
to which the General Partner or its affiliates are entitled to reimbursement
from the Partnership were as follows:
Nine Months Ended
September 30,
1994 1993
---- ----
Reimbursement for operating expenses $ 91,312 $ 82,092
Partnership management fee expense 62,955 69,555
---------- ----------
$154,267 $151,647
========== ==========
The expenses referred to above are included in expenses in the Statements of
Operations.
Accounts payable to affiliates represents amounts due to the General Partner or
its affiliates for various services provided to the Partnership.
The General Partner serves in a similar capacity for four other affiliated real
estate limited partnerships.
7. Federal Income Taxes
--------------------
A reconciliation of the net income reported in the Statements of Operations to
the net income reported for federal income tax purposes is as follows:
Nine Months Ended
September 30,
1994 1993
---- ----
Net income per Statements of Operations $1,036,399 $1,262,649
Add/(deduct):
Excess of tax depreciation
over book depreciation (17,361) (17,361)
Excess of book amortization
over tax amortization 50,642 126,437
Reduction of property
carrying value 512,000 --
---------- ----------
Net income for federal income tax purposes $1,581,680 $1,371,725
========== ==========
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- - -------------------------------------------------------------------------------
of Operations
- - -------------
General
During the offering period from September 9, 1986 to September 9, 1987, the
Partnership sold 91,647 Units representing gross proceeds (exclusive of the John
Hancock Limited Partner's contribution which was used to pay sales commissions,
acquisition fees and organizational and offering expenses) of $45,823,500. The
proceeds of the offering were used to acquire investment properties and fund
reserves. These properties are described more fully in Note 4 to the Financial
Statements included in Item 1 of this Report.
Liquidity and Capital Resources
- - -------------------------------
At September 30, 1994 the Partnership had $3,036,064 in cash and cash
equivalents, $21,772 in restricted cash and $18,494 in long-term restricted
cash.
The Partnership has a working capital reserve with a current balance of
approximately 4.5% of the offering proceeds. During 1993, a substantial portion
of the Partnership's working capital reserves was used to fund leasing costs at
the Crossroads Square, Warner Plaza, Carnegie Center and Marlboro Square
properties. Given this use of working capital reserves as well as the projected
level of future leasing costs and capital expenditures expected to be incurred
at the Partnership's properties, the General Partner reduced cash distributions
to Investors commencing with the fourth quarter of 1993, from an annualized rate
of 6% to an annualized rate of 5%, in order to replenish working capital
reserves and satisfy the Partnership's future general liquidity requirements.
Cash distributions to Investors during the third quarter of 1994 continued at
the 5% annualized rate. Liquidity would, however, be materially adversely
affected by a significant reduction in revenues, unanticipated operating costs
or unanticipated capital expenditures. If any or all of these events were to
occur, to the extent that working capital reserves would be insufficient to
satisfy the cash requirements of the Partnership, it is anticipated that
additional funds would be obtained through a 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 properties.
During the nine months ended September 30, 1994, cash from working capital
reserves was used for the payment of leasing costs in the amount of $23,634
incurred at the Crossroads Square, Warner Plaza, Carnegie Center and Marlboro
Square properties. The General Partner estimates that the Partnership will incur
an additional $33,492 of leasing costs at its properties during the remaining
three months of 1994. The General Partner anticipates that the current balance
in the working capital reserve will be sufficient to pay such costs.
During the second quarter of 1994, a tenant occupying 45% of the Carnegie Center
property notified the Partnership of its intention not to renew its leases. This
tenant had leased 10% of the property on a month-to-month basis, which it
terminated during May 1994, and had leased 35% of the property under leases
which expired in September 1994. The General Partner is actively seeking
replacement tenants for such space. Should the General Partner be unsuccessful
in its efforts to find replacement tenants to take occupancy in the near future,
the Partnership's liquidity will be materially adversely affected. Leasing rates
and concessions will be priced competitively in order to secure new tenants for
the space. For the year ended December 31, 1993, the leases held by this former
tenant represented 11% of the rental income earned by the Partnership.
The tenant that leases all of the 1300 North Dutton Avenue property notified the
Partnership during May 1994 that it will not renew its lease when it expires on
January 31, 1995. As of the date hereof, the tenant has vacated 75% of the
building and will fully vacate the building by the end of the lease term. This
tenant has indicated that it will meet its obligations under the lease through
its scheduled termination date. The General Partner is actively seeking a
replacement tenant for the property. However, should the General Partner be
unsuccessful in its efforts to secure a replacement tenant to take occupancy
shortly after the expiration of the current tenant's lease term, the
Partnership's liquidity would be materially adversely affected. For the nine
months ended September 30, 1994, the 1300 North Dutton Avenue property generated
10% of the rental income earned by the Partnership.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- - -------------------------------------------------------------------------------
of Operations (continued)
- - ------------------------
Liquidity and Capital Resources (continued)
- - ------------------------------------------
During the nine months ended September 30, 1994, approximately $64,000 of cash
from operations was used to fund non-recurring maintenance and repair costs. Of
this amount, approximately $32,000 and $23,000 was incurred at the Warner Plaza
and Carnegie Center properties, respectively. The General Partner anticipates
that the Partnership will incur additional non-recurring repair and maintenance
costs of approximately $40,000 at its properties during the remaining three
months of 1994. 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 amount of $1,735,737, or $578,579 per quarter, generated from the
Partnership's operations, was distributed to the General Partner and the Limited
Partners during the nine months ended September 30, 1994. The General Partner
anticipates that during the fourth quarter of 1994 the Partnership will make a
distribution comparable to the three prior quarters of 1994.
During the second quarter of 1994, the General Partner had the Crossroads Square
property independently appraised. Based upon the appraiser's investigation and
analysis, the property's market value is estimated to be approximately
$10,550,000. The appraised value is significantly less than the Partnership's
cumulative investment in the property of approximately $14,567,000, although it
exceeds the property's net book value of approximately $10,052,000 as of
September 30, 1994.
During the third quarter of 1994, the General Partner had the Warner Plaza
property independently appraised. Based upon the appraiser's investigation and
analysis, the property's market value is estimated to be approximately
$5,600,000 as of September 30, 1994. The appraised value is significantly less
than the Partnership's cumulative investment in the property of approximately
$7,900,000, although it exceeds the property's net book value of approximately
$5,466,000 as of September 30, 1994.
The carrying value of the Carnegie Center property of $5,791,923 as of September
30, 1994 was evaluated in comparison to its estimated future undiscounted cash
flows and a recent internal appraisal in order to determine whether any
permanent impairment in value existed. Based on such evaluation, the Partnership
recorded a write-down of $512,000 to reflect the estimated permanent impairment
in the value of the Carnegie Center property. Lower rental rates and weak
absorption for available R&D/Warehouse properties in Cincinnati, Ohio, in
general, have resulted in a decline in this property's market value.
The General Partner evaluated the carrying value of each of the Partnership's
properties as of December 31, 1993 by comparing each such carrying value to its
respective future undiscounted cash flows and recent independent or internal
appraisals in order to determine whether any permanent impairment in values
existed. Based on such evaluations, no permanent impairment in values existed
and no write-downs were recorded as of December 31, 1993. The General Partner
will continue to conduct property valuations, using internal or independent
appraisals, in order to determine whether permanent impairment in values exists
on any of the Partnership's properties.
Results of Operations
- - ---------------------
Net income for the nine months ended September 30, 1994 was $1,036,399, as
compared to net income of $1,262,649 for the same period in 1993, representing a
decrease in the Partnership's net income of $226,250, or 18%. Included in net
income for the nine months ended September 30, 1994 is the property write-down
on Carnegie Center of $512,000.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
- - -------------------------------------------------------------------------------
of Operations (continued)
- - ------------------------
Results of Operations (continued)
- - --------------------------------
Average occupancy for the Partnership's properties for the nine months ended
September 30, 1994 was as follows:
1300 North Dutton Avenue Office Complex 100%
Marlboro Square Shopping Center 81%
Crossroads Square Shopping Center 93%
Carnegie Center Office/Warehouse 75%
Warner Plaza Shopping Center 96%
J.C. Penney Credit Operations Center 100%
Rental income for the Partnership's properties increased by $159,897, or 6%, for
the nine months ended September 30, 1994 as compared to the same period in 1993.
This increase is primarily due to increases in rental income at the Crossroads
Square and 1300 North Dutton Avenue properties, which were partially offset by
decreases in rental income at the Carnegie Center and Marlboro Square
properties. Rental income at the Crossroads Square property increased by 33%
during the nine months ended September 30, 1994 as compared to the same period
during 1993 due to an increase in average occupancy from 71% to 93% between
periods. Rental income at the 1300 North Dutton Avenue property increased by 15%
during the nine months ended September 30, 1994 as compared to the same period
during 1993 due to an increase in the sole tenant's rental rate, made in
accordance with the terms of its lease. These increases in rental income were
partially offset by a 15% decrease in rental income between periods at the
Carnegie Center property due to a decrease in average occupancy from 87% to 75%,
and a 3% decline in rental income at the Marlboro Square property primarily due
to a decrease in average occupancy from 83% to 81% between periods.
Interest income for the nine months ended September 30, 1994 increased by
$20,161, or 37%, as compared to the same period in 1993. This increase is
primarily due to an increase in the Partnership's working capital reserves and
interest rates earned on the Partnership's working capital reserves during the
nine months ended September 30, 1994.
Property operating expenses for the nine months ended September 30, 1994
decreased by $55,973, or 19%, as compared to the same period in 1993. This
decrease is primarily due to a decrease in property operating expenses at the
Crossroads Square and 1300 North Dutton Avenue properties. Property operating
expenses decreased at the Crossroads Square property between periods primarily
due to an increase in average occupancy at the property resulting in higher
tenant reimbursements for such expenses. Property operating expenses decreased
at the 1300 North Dutton Avenue property between periods primarily due to a
reduction in the property's real estate taxes. These decreases were partially
offset by an increase in property operating expenses at the Carnegie Center
property. Property operating expenses increased at the Carnegie Center property
between periods primarily as a result of an increase in maintenance and repair
expenses. In addition, the decrease in average occupancy at the Carnegie Center
property resulted in lower tenant reimbursements.
Amortization of deferred expenses for the nine months ended September 30, 1994
decreased by $38,730, or 25%, as compared to the same period in 1993. A
significant portion of deferred expenses relating to leasing costs incurred at
the Carnegie Center property was fully amortized during 1993, reducing the
amortization expense for the nine months ended September 30, 1994 as compared to
the same period in 1993. This decrease was partially offset by an increase in
the amortization of deferred expenses at the Crossroads Square property relating
to leasing costs incurred subsequent to September 30, 1993. In addition, during
the third quarter of 1993, the Partnership reduced the amortization period for
its deferred acquisition costs from thirty years, the estimated useful life of
the buildings owned by the Partnership, to four and one-half years, the
estimated remaining life of the Partnership, thereby further offsetting the
decrease in amortization.
The management fee expense paid to the General Partner for the nine months ended
September 30, 1994 decreased by $6,600, or 9%, as compared to the same period in
1993. This decrease is due to the decline in Cash from Operations (as defined in
the Amended Agreement of Limited Partnership), which resulted from an increase
in the funding of the Partnership's working capital reserves during the nine
months ended September 30, 1994.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
- - -------------------------------------------------------------------------------
Results of Operations (continued)
- - --------------------------------
Results of Operations (continued)
- - --------------------------------
Current economic conditions within the Cincinnati, Ohio market where the
Carnegie Center property is located have caused a decline in the property's
market value. The General Partner evaluated the carrying value of the Carnegie
Center as of September 30, 1994, comparing its carrying value to its estimated
future undiscounted cash flows and a recent internal appraisal in order to
determine whether any permanent impairment in value existed. Based on such
evaluation, the Partnership recorded a write-down of $512,000 at September 30,
1994 to reflect the estimated permanent impairment in the value of the Carnegie
Center property.
The General Partner believes that inflation has had no significant impact on the
Partnership during the nine months ended September 30, 1994, and the General
Partner anticipates that inflation will not have a significant impact during the
remainder of 1994.
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 Amended Agreement of Limited Partnership:
Nine Months Ended
September 30,
1994 1993
---- ----
Net cash provided by operating activities (a) $2,435,632 $2,245,038
Net change in operating assets and liabilities (a) (43,919) (82,432)
------------- -------------
Cash provided by operations (a) 2,391,713 2,162,606
Increase in working capital reserves (655,976) (195,435)
Add: Accrual basis Partnership management fee 62,955 69,555
------------ -------------
Cash from Operations (b) 1,798,692 2,036,726
Decrease in working capital reserves - -
Less: Accrual basis Partnership management fee (62,955) (69,555)
------------- -------------
Distributable Cash from Operations (b) $1,735,737 $1,967,171
========== ==========
Allocation to General Partner $ 17,358 $ 19,672
Allocation to John Hancock Limited Partner - -
Allocation to Investors 1,718,379 1,947,499
----------- -----------
Distributable Cash from Operations (b) $1,735,737 $1,967,171
========== ==========
(a) Net cash provided by operating activities, net change in operating assets
and liabilities, and cash provided by operations are as calculated in the
Statements of Cash Flows included in Item 1 of this Report.
(b) As defined in the Amended Agreement of Limited Partnership. 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 1994, the Partnership expects to make a cash
distribution of $572,793, representing a 5% annualized return, to all Investors
of record at September 30, 1994, based on Distributable Cash from Operations for
the quarter then ended. The General Partner anticipates that the Partnership
will make comparable distributions during each of the four quarters of 1995.
<PAGE>
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 are
subject.
Item 2. Changes in Securities
There were no changes in securities during the third quarter of 1994.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the third quarter of
1994.
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 1994.
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
1994.
<PAGE>
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, 1994.
John Hancock Realty Income Fund
Limited Partnership
By: John Hancock Realty Equities, Inc.,
Its General Partner
By:------------------------------------------
William M. Fitzgerald
President
By:------------------------------------------
Richard E. Frank
Treasurer (Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,076,330
<SECURITIES> 0
<RECEIVABLES> 168,122
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,244,452
<PP&E> 38,108,981
<DEPRECIATION> 7,215,508
<TOTAL-ASSETS> 34,589,538
<CURRENT-LIABILITIES> 446,481
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,143,057
<TOTAL-LIABILITY-AND-EQUITY> 34,589,538
<SALES> 0
<TOTAL-REVENUES> 2,836,093
<CGS> 0
<TOTAL-COSTS> 1,601,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,036,399
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,036,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,036,399
<EPS-PRIMARY> 11.83
<EPS-DILUTED> 11.83
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