SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 0-15680
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 Clarendon Street, Boston, MA 02117
(Address of Principal Executive Office) (Zip Code)
(800) 722-5457
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<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 March 31, 1996 and
December 31, 1995 3
Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 4
Statements of Partners' Equity for the
Three Months Ended March 31, 1996 and
for the Year Ended December 31, 1995 5
Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 6
Notes to Financial Statements 7-13
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-21
PART II: OTHER INFORMATION 22
2
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1996 1995
---- ----
Current assets:
Cash and cash equivalents $3,073,269 $8,397,420
Restricted cash 5,946 4,946
Other current assets 150,013 183,696
----------- -----------
Total current assets 3,229,228 8,586,062
Investment in property:
Land 7,511,167 7,511,167
Buildings and improvements 24,094,055 24,094,055
----------- -----------
31,605,222 31,605,222
Less: accumulated depreciation (7,360,695) (7,165,026)
----------- -----------
24,244,527 24,440,196
Long-term restricted cash 43,659 44,659
Deferred expenses, net of accumulated
amortization of $643,859 in 1996 and
$604,967 in 1995 612,034 534,527
----------- -----------
Total assets $28,129,448 $33,605,444
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $358,999 $282,398
Accounts payable to affiliates 63,772 60,360
----------- -----------
Total current liabilities 422,771 342,758
Partners' equity/(deficit):
General Partner's deficit (203,039) (200,634)
Limited Partners' equity 27,909,716 33,463,320
----------- -----------
Total partners' equity 27,706,677 33,262,686
----------- -----------
Total liabilities and
partners' equity $28,129,448 $33,605,444
=========== ===========
See Notes to Financial Statements
3
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Income:
Rental income $656,035 $831,352
Interest income 81,958 41,216
-------- --------
Total income 737,993 872,568
Expenses:
Depreciation 195,669 237,951
Property operating expenses 90,228 78,724
General and administrative expenses 55,198 59,443
Amortization of deferred expenses 38,892 32,351
Management fee 19,910 20,985
-------- --------
Total expenses 399,897 429,454
-------- --------
Net income $338,096 $443,114
======== ========
Allocation of net income:
General Partner $3,381 $4,431
John Hancock Limited Partner (17,348) (19,477)
Investors 352,063 458,160
-------- --------
$338,096 $443,114
======== ========
Net income per Unit $3.84 $5.00
======== ========
See Notes to Financial Statements
4
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Three Months Ended March 31, 1996 and
Year Ended December 31, 1995
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1995
(91,647 Units outstanding) ($193,008) $34,218,306 $34,025,298
Less: Cash distributions (23,143) (2,291,175) (2,314,318)
Add: Net income 15,517 1,536,189 1,551,706
-------- ----------- -----------
Partners' equity/(deficit) at December 31, 1995
(91,647 Units outstanding) (200,634) 33,463,320 33,262,686
Less: Cash distributions (5,786) (5,888,319) (5,894,105)
Add: Net income 3,381 334,715 338,096
-------- ----------- -----------
Partners' equity/(deficit) at March 31, 1996
(91,647 Units outstanding) ($203,039) $27,909,716 $27,706,677
======== =========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Operating activities:
Net income $338,096 $443,114
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 195,669 237,951
Amortization of deferred expenses 38,892 32,351
--------- ---------
572,657 713,416
Changes in operating assets and liabilities:
Decrease/(increase) in other current assets 33,683 (76,144)
Increase in accounts payable and accrued
expenses 76,601 118,340
Increase in accounts payable to affiliates 3,412 9,852
--------- ---------
Net cash provided by operating activities 686,353 765,464
Investing activities:
Increase in deferred expenses (116,399) (79,187)
--------- ---------
Net cash used in investing activities (116,399) (79,187)
Financing activities:
Cash distributed to Partners (5,894,105) (578,579)
--------- ---------
Net cash used in financing activities (5,894,105) (578,579)
--------- ---------
Net (decrease)/increase in cash and
cash equivalents (5,324,151) 107,698
Cash and cash equivalents at
beginning of year 8,397,420 3,124,999
--------- ---------
Cash and cash equivalents at
end of period $3,073,269 $3,232,697
========== ==========
See Notes to Financial Statements
6
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
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 March 31, 1996, 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 4,220 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 "Partnership
Agreement") 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,
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, as specified in the Partnership
Agreement.
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 Partnership Agreement. 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.
7
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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 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 three month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results may differ
from those estimates.
Cash equivalents are highly liquid investments with maturities of
three months or less when purchased. These investments are recorded
at cost plus accrued interest, which approximates market value.
Restricted cash represents funds restricted for tenant security
deposits and other escrows, and has been designated as short or long-
term, based upon the terms of the related lease agreements.
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.
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.
8
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies (continued)
-------------------------------
Deferred expenses relating to tenant improvements and lease
commissions are amortized on a straight-line basis over the terms of
the leases to which they relate. 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
then 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 periods.
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 (defined in the Partnership
Agreement) 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 (defined in the Partnership
Agreement); second, to the John Hancock Limited Partner until it
receives a 7% non-cumulative, non-compounded annual cash return on its
Invested Capital; and third, to the Investors and the John Hancock
Limited Partner in proportion to their respective Capital
Contributions (defined in the Partnership Agreement). However, any
Distributable Cash from Operations which is available as a result of
the reduction of working capital reserves funded by Capital
Contributions of the Investors will be distributed 100% to the
Investors.
9
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
3. The Partnership Agreement (continued)
-------------------------
Cash from Sales or Financings (defined in the Partnership Agreement)
is first used to pay all debts and liabilities of the Partnership then
due and is then used to fund any reserves for contingent liabilities.
Cash from Sales or Financings is then distributed as follows: first,
to the Limited Partners until they receive an amount equal to their
Invested Capital with the distribution being made between the
Investors and the John Hancock Limited Partner in proportion to their
respective Capital Contributions; second, to the Investors until they
have received, with respect to all previous distributions during the
year, their Cumulative Return on Investment (defined in the
Partnership Agreement); third, to the John Hancock Limited Partner
until it has received, with respect to all previous distributions
during the year, its Cumulative Return on Investment; fourth, to the
General Partner to pay any Subordinated Disposition Fees (defined in
the Partnership Agreement); and fifth, 99% to the Limited Partners and
1% to the General Partner, with the distribution being made between
the Investors and the John Hancock Limited Partner in proportion to
their respective Capital Contributions.
Cash from the sale of the last of the Partnership's properties is to
be distributed in the same manner as Cash from Sales or Financings,
except that before any other distribution is made to the Partners,
each Partner shall first receive from such cash, an amount equal to
the then positive balance, if any, in such Partner's Capital Account
after crediting 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 or Financings, as specified in the
previous paragraph.
Profits 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 from the normal operations of the Partnership 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.
Depreciation deductions are allocated 1% to the General Partner and
99% to the Investors, and not to the John Hancock Limited Partner.
10
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
3. The Partnership Agreement (continued)
-------------------------
Profits and Losses from Sales or Financings are generally allocated
99% to the Limited Partners and 1% to the General Partners. In
connection with the sale of the last of the Partnership's properties,
and therefore the dissolution of the Partnership, profits will be
allocated to any Partners having a deficit balance in their Capital
Account in an amount equal to the deficit balance. Any remaining
profits will be allocated in the same order as cash from the sale
would be distributed.
4. Investment in Property
----------------------
Investment in property at cost and reduced by write-downs consists of
managed, fully-operating, commercial real estate as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
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 6,844,991
Warner Plaza Shopping Center 6,473,889 6,473,889
----------- -----------
Total $31,605,222 $31,605,222
=========== ===========
</TABLE>
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.
11
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Deferred Expenses
-----------------
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Unamortized
Balance at Balance at
Description March 31, 1996 December 31, 1995
----------- -------------- -----------------
<S> <C> <C>
$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. $37,476 $42,829
$821,862 of tenant improvements. These amounts
are amortized over the terms of the leases to which
they relate. 341,521 256,271
$319,537 of lease commissions. These amounts
are amortized over the terms of the leases to which
they relate. 233,037 235,427
-------- --------
$612,034 $534,527
======== ========
</TABLE>
6. Transactions with the General Partner and Affiliates
----------------------------------------------------
Fees and expenses incurred or paid by the General Partner or its
affiliates on behalf of the Partnership and to which the General
Partner or its affiliates are entitled to reimbursement from the
Partnership were as follows:
Three Months Ended
March 31,
1996 1995
---- ----
Reimbursement for operating expenses $43,862 $36,832
Partnership management fee expense 19,910 20,985
------- -------
$63,772 $57,817
======= =======
These expenses are included in expenses on the Statements of
Operations.
12
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Transactions with the General Partner and Affiliates (continued)
----------------------------------------------------
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 three other
affiliated real estate limited partnerships.
7. Federal Income Taxes
--------------------
A reconciliation of the net income reported on the Statements of
Operations to the net income reported for federal income tax purposes
is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net income per Statements of Operations $338,096 $443,114
Add/(deduct): Excess of tax depreciation
over book depreciation (19,095) (12,134)
Excess of book amortization
over tax amortization 21,828 14,005
-------- --------
Net income for federal income tax purposes $340,829 $444,985
======== ========
</TABLE>
13
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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 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. The Partnership's properties are described
more fully in Note 4 to the Financial Statements included in Item 1 of this
Report.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1996, the Partnership had $3,073,269 in cash and cash
equivalents, $5,946 in restricted cash and $43,659 in long-term restricted
cash.
The Partnership has established a working capital reserve with a current
balance of approximately 5% of the Investors' Invested Capital (defined in
the Partnership Agreement). 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 three months ended March 31, 1996, cash from working capital
reserves was used for the payment of leasing costs in the amount of
$116,399 incurred at the Carnegie Center and Marlboro Square properties.
The General Partner estimates that the Partnership will incur approximately
$603,000 of additional leasing costs at its properties during the remainder
of 1996. Of this amount, approximately $242,000 and $212,000 are expected
to be incurred at the 1300 North Dutton Avenue and Carnegie Center
properties, respectively, in connection with the Partnership's continued
efforts to secure new tenants at these properties. The General Partner
anticipates that the current balance in the working capital reserve will be
sufficient to pay such costs.
During the three months ended March 31, 1996, approximately $22,000 of cash
from operations was used to fund non-recurring maintenance and repair
expenses incurred at the Marlboro Square, Carnegie Center and the Warner
Plaza Shopping Center properties. The General Partner estimates that the
Partnership will incur additional non-recurring repair and maintenance
expenses of approximately $132,000 at its properties during the remainder
of 1996. These additional 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.
14
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
Cash in the aggregate amount of $5,894,105 was distributed to the Partners
during the first quarter of 1996. Of this amount, $578,579 was generated
from Distributable Cash from Operations (defined in the Partnership
Agreement), and $5,315,526 was generated from Distributable Cash from Sales
or Financings (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 Cash From
Operations Sales or Financings
---------- -------------------
Investors $572,794 $4,582,350
John Hancock Limited Partner - 733,176
General Partner 5,785 -
-------- ----------
Total $578,579 $5,315,526
======== ==========
The amount distributed to Investors from Distributable Cash from Operations
represented a 5% annualized return to all Investors of record at December
31, 1995. The General Partner anticipates that the Partnership will be
able to make comparable cash distributions from Distributable Cash from
Operations during the remaining three quarters of 1996.
15
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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 properties for the first quarter of 1996:
<TABLE>
<CAPTION>
1300 North Marlboro Sq. Crossroads Sq. Carnegie Warner PL.
Dutton Ave. Shopping Ctr. Shopping Ctr. Center Shopping Ctr.
----------- ------------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Square Feet 24,120 42,150 174,196 128,059 92,848
Occupancy at
January 1, 1996 0% 69% 93% 56% 100%
== === === === ====
New Leases 0% 9% 0% 3% 0%
Lease Renewals 0% 0% 1% 0% 0%
Leases Expired 0% 0% 0% 0% 0%
Occupancy at
March 31, 1996 0% 78% 93% 59% 100%
== === === === ====
Leases Scheduled to
Expire, Balance of 1996 0% 16% 5% 11% 0%
== === === === ====
Leases Scheduled to
Commence, Balance of 1996 0% 8% 0% 2% 0%
== === === === ====
</TABLE>
The tenant that had leased all of the rentable space at the 1300 North
Dutton Avenue property did not renew its lease and vacated its space when
its lease expired on January 31, 1995. The property has been vacant since
that time. Due to competitive market conditions and a lack of demand for
office space in the Santa Rosa real estate market, the General Partner has
not yet secured a replacement tenant, or tenants, for the property. Should
the vacant space not be leased in the near future, the Partnership's
liquidity would be adversely affected. The General Partner will continue
to aggressively market the property in an effort to secure a new tenant, or
tenants, to take occupancy of the available space. Should the vacant space
not be leased in the near future, the Partnership's liquidity would be
adversely affected.
16
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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 anticipates that absorption of existing retail space in
the Marlboro area will remain sluggish during 1996 due to both the lack of
demand and the pending increase in available retail space in the area due
to a new retail development near to Marlboro Square scheduled to be
completed during the Fall of 1996. However, the General Partner believes
that the extension of the anchor tenant's lease, secured during 1995, and
the expansion of the space occupied by an existing tenant at Marlboro
Square during 1996 may have a favorable impact on efforts to secure
additional tenants at the property. The General Partner will continue to
offer competitive rental rates and concessions in an effort to retain
existing tenants as well as to lease the remaining vacant space at the
property.
During 1994, a tenant that had occupied 45% of the Carnegie Center property
did not renew its leases upon their expirations and, as a result, the
property's occupancy declined to 35%. As of the date hereof, the
property's occupancy is 61%. The General Partner continues to actively
seek new tenants for the remaining vacant space. Should additional tenants
not be located to take occupancy of the remaining vacant space at the
Carnegie Center property, the Partnership's liquidity would be adversely
affected. Rental rates and concessions are priced competitively in an
effort to secure new tenants as well as retain existing tenants at the
property.
A tenant at the Crossroads Square property, with a lease for approximately
12,500 square feet, or 7% of the property, filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code in March 1996. This tenant
has not met its rental obligations since February 1996 and has requested a
reduction in its rental payments. Given the current favorable real estate
market conditions in the area where Crossroads Square is located, the
General Partner will not agree to a reduced rental amount and will pursue
full collection of all past due rental amounts owed by this tenant as well
as all future obligations due under the lease agreement, which expires in
October 2003. Due to the pending bankruptcy proceedings, however, there
can be no assurance that such amounts can be collected in full.
The General Partner believes that, based upon each property's current
occupancy and tenant mix as well as the current real estate market
conditions in the areas in which these properties are located, the
Crossroads Square and Warner Plaza properties should provide the
Partnership with stable income performance during the remainder of 1996.
The General Partner evaluated the carrying value of each of the
Partnership's properties as of December 31, 1995 by comparing such value to
the respective property's future undiscounted cash flows and the then most
recent internal appraisal. Based on such evaluations, the General Partner
determined that no permanent impairment in values existed with respect to
these properties and no write-downs were recorded as of December 31, 1995.
17
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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 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 three months ended March 31, 1996 was $338,096, as
compared to net income of $443,114 for the same period in 1995. This
decrease is primarily due to the sale of the J.C. Penney Credit Operations
Center property ("J.C. Penney") on December 29, 1995. Excluding the net
income generated by J.C. Penney, net income was consistent between the
periods.
Average occupancy for the Partnership's investments was as follows:
Three Months Ended
March 31,
1996 1995
---- ----
1300 North Dutton Avenue Office Complex 0% 33%
Marlboro Square Shopping Center 78% 75%
Crossroads Square Shopping Center 94% 97%
Carnegie Center Office/Warehouse 57% 39%
Warner Plaza Shopping Center 100% 98%
Rental income for the three months ended March 31, 1996 decreased by
$175,317, or 21%, as compared to the same period in 1995. This decrease is
primarily due to the sale of J.C. Penney. In addition, rental income
decreased by 100% at the 1300 North Dutton Avenue property during the three
months ended March 31, 1996 as compared to the same period in 1995 due to
the expiration on January 31, 1995 of the lease held by the sole tenant at
the property. Rental income at Marlboro Square decreased by 29% during the
three months ended March 31, 1996 as compared to the same period in 1995
primarily due to a significant reduction in the rental rate paid by the
anchor tenant at the property. Rental income also decreased at Marlboro
Square due to a reduction in rental rates on new and renewal leases
executed during 1995. Rental income at Crossroads Square decreased by 10%
between periods primarily due a tenant at the property who has not met its
rental obligations since February 1996. In addition, rental income at
Crossroads Square decreased due to a 3% decline in average occupancy at the
property between periods. These decreases in rental income were partially
offset by increases in rental income at the Carnegie Center and Warner
Plaza properties. Rental income increased at Carnegie Center by 140%
between periods primarily due to an increase in average occupancy. Rental
income increased at Warner Plaza by 3% between periods primarily due to an
increase in the annual percentage rent amount received from a tenant at the
property resulting from an increase in such tenant's sales during 1995.
18
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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)
- ---------------------
Interest income for the three months ended March 31, 1996 increased by
$40,742, or 99%, as compared to the same period in 1995. This increase was
primarily due to the interest earned on net sales proceeds received from
the sale of J.C. Penney on December 29, 1995. The Partnership distributed
the majority of such net sales proceeds in February 1996.
Depreciation expense for the three months ended March 31, 1996 decreased by
$42,282, or 18%, as compared to the same period 1995. This decrease is
primarily due to the sale of J.C. Penney.
The Partnership's share of property operating expenses for the three months
ended March 31, 1996 increased by $11,504, or 15%, as compared to the same
period in 1995. This increase is primarily due to increases in its share
of property operating expenses at the Marlboro Square and Carnegie Center
properties. The Partnership's share of property operating expenses at
Marlboro Square increased primarily due to a decrease in tenant
reimbursements collected for such expenses during the period in 1996. The
Partnership's share of expenses also increased at Marlboro Square due to
expenses incurred in connection with the General Partner's efforts to
expand the space of an existing tenant at the property. The Partnership's
share of expenses increased at Carnegie Center primarily due to non-
recurring maintenance and repair expenses incurred during the first quarter
of 1996 in order to better market vacant space at the property. These
increases were partially offset by a decrease in the Partnership's share of
property operating expenses at Crossroads Square, primarily due to non-
recurring maintenance and repair expenses incurred during the three months
ended March 31, 1995 relating to repairs made at the property to improve
its appearance and maintain its competitive position in the marketplace.
The Partnership's share of property operating expenses at the 1300 North
Dutton Avenue and Warner Plaza properties was consistent between periods.
General and administrative expenses for the three months ended March 31,
1996 decreased by $4,245, or 7%, as compared to the same period in 1995.
During the three months ended March 31, 1995, the General Partner secured
an extension of the tenant's lease at the J.C. Penney Credit Operations
Center property resulting in a greater amount of the General Partner's time
allocated to the Partnership. The same amount of time was not required of
the General Partner during the same period in 1996.
Amortization of deferred expenses for the three months ended March 31, 1996
increased by $6,541, or 20%, as compared to the same period in 1995. This
increase is primarily due to leasing activity which occurred at the
Partnership's properties during both 1995 and the three month period ended
March 31, 1996, and the amortization of the leasing costs associated with
these new leases.
19
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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)
- ---------------------
Management fee expense for the three months ended March 31, 1996 decreased
by $1,075, or 5%, as compared to the same period in 1995. This decrease
was due to a decline in Cash from Operations (defined in the Partnership
Agreement) between periods which primarily resulted from the sale of J.C.
Penney.
The General Partner believes that inflation has had no significant impact
on the Partnership's operations during the three months ended March 31,
1996, and the General Partner anticipates that inflation will not have a
significant impact during the remainder of 1996.
20
<PAGE>
JOHN HANCOCK REALTY INCOME FUND 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:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities (a) $686,353 $765,464
Net change in operating assets and liabilities (a) (113,696) (52,048)
-------- --------
Cash provided by operations (a) 572,657 713,416
Increase in working capital reserves (23,701) (134,837)
Add: Accrual basis Partnership
management fee 19,910 20,985
-------- --------
Cash from operations (b) 568,866 599,564
Decrease in working capital reserves -
Less: Accrual basis Partnership
management fee (19,910) (20,985)
-------- --------
Distributable cash from operations (b) $548,956 $578,579
======== ========
Allocation to General Partner $5,489 $5,786
Allocation to John Hancock Limited Partner - -
Allocation to Investors 543,467 572,793
-------- --------
Distributable cash from operations (b) $548,956 $578,579
======== ========
</TABLE>
(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 Partnership Agreement. Distributable Cash from
Operations should not be considered as an alternative to net income
(i.e. not an indicator of performance) or to reflect cash flows or
availability of discretionary funds.
During the second quarter of 1996, the Partnership expects to make a cash
distribution of $543,467, representing a 5% annualized return, to all
Investors of record at March 31, 1996, based on Distributable Cash from
Operations for the quarter then ended. The General Partner anticipates
that the Partnership will make comparable cash distributions during each of
the remaining quarters of 1996.
21
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In February 1996, a putative class action complaint was filed in
the Superior Court in Essex County, New Jersey by a single
investor in a limited partnership affiliated with the Partnership.
The complaint named as defendants the Partnership, the General
Partner, certain other affiliates of the General Partner, and
certain unnamed officers, directors, employees and agents of the
named defendants.
The plaintiff sought unspecified damages stemming from alleged
misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited
partnerships affiliated with the Partnership. The complaint
alleged, among other things, that the marketing materials for the
Partnership and the affiliated limited partnerships did not
contain adequate risk disclosures.
The General Partner believes the allegations are totally without
merit and intends to vigorously contest the action.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the
Partnership, to which the Partnership is a party or to which any
of its properties is subject.
Item 2. Changes in Securities
There were no changes in securities during the first quarter of
1996.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the first
quarter of 1996.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of
the Partnership during the first quarter of 1996.
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits to this report.
(b) There were no Reports on Form 8-K filed during the first
quarter of 1996.
22
<PAGE>
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 15th day of May, 1996.
John Hancock Realty Income Fund
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)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795196
<NAME> JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,122,874
<SECURITIES> 0
<RECEIVABLES> 150,013
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,229,228
<PP&E> 31,605,222
<DEPRECIATION> 7,360,695
<TOTAL-ASSETS> 28,129,448
<CURRENT-LIABILITIES> 422,771
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,706,677
<TOTAL-LIABILITY-AND-EQUITY> 28,129,448
<SALES> 0
<TOTAL-REVENUES> 737,993
<CGS> 0
<TOTAL-COSTS> 165,336
<OTHER-EXPENSES> 234,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 338,096
<INCOME-TAX> 0
<INCOME-CONTINUING> 338,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,096
<EPS-PRIMARY> 3.84
<EPS-DILUTED> 3.84
</TABLE>
