UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-15816 Krupp Cash Plus-II Limited Partnership Massachusetts 04-2915326 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (617) 423-2233 (Registrant's telephone number, including area code) 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 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS KRUPP CASH PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS September 30, December 31, 1994 1993 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $3,563,144 and $3,240,614, respectively $ 6,501,638 $ 6,718,936 Retail centers, less accumulated depreciation of $10,533,515 and $9,437,948, respectively 38,811,394 39,719,536 Investment in joint venture (Note 2) 21,478,147 21,737,592 Mortgage-backed securities ("MBS") (Note 5) 10,368,687 12,752,190 Total real estate assets 77,159,866 80,928,254 Cash and cash equivalents 7,411,342 5,622,515 Other assets 462,169 697,856 Total assets $85,033,377 $87,248,625 LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 33,801 $ 162,516 Accrued expenses and other liabilities 769,781 586,197 Total liabilities 803,582 748,713 Partners' equity (Note 3) 84,229,795 86,499,912 Total liabilities and partners' equity $85,033,377 $87,248,625 The accompanying notes are an integral part of the financial statements. -2- KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Revenue: Rental $1,541,131 $1,604,378 $4,637,723 $4,730,292 Partnership's share of joint venture net income (Note 2) 133,861 167,906 414,555 410,948 Interest income - MBS 232,702 321,756 746,452 1,087,332 Interest income - other 82,575 93,367 197,280 248,922 Total revenue 1,990,269 2,187,407 5,996,010 6,477,494 Expenses: Operating (including reimbursements to affiliates of $56,692, $56,354, $172,070 and $168,523, respectively) 289,102 248,945 798,235 775,144 Maintenance 174,800 109,814 431,206 385,322 General and administrative (including reimbursements to affiliates of $86,377, $86,377, $259,271 and $256,559, respectively) 108,050 118,098 351,181 365,395 Real estate taxes (Note 4) 222,461 253,096 424,389 715,012 Management fees paid to affiliates 85,557 90,583 262,056 265,873 Depreciation 490,653 456,583 1,418,098 1,356,896 Total expenses 1,370,623 1,277,119 3,685,165 3,863,642 Net income $ 619,646 $ 910,288 $2,310,845 $2,613,852 Allocation of net income (Note 3): Net income per Unit of Depository Receipt (7,499,818 Units outstanding) $ .08 $ .12 $ .30 $ .34 Corporate Limited Partner $ 8 $ 12 $ 30 $ 34 General Partners $ 12,393 $ 18,206 $ 46,217 $ 52,277 The accompanying notes are an integral part of the financial statements. -3- KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1994 1993 Operating activities: Net income $2,310,845 $2,613,852 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,418,098 1,356,896 Partnership's share of joint venture net income (414,555) (410,948) Distributions received from joint venture 674,000 325,000 Amortization of MBS (discount)/premium, net (1,704) 2,084 Decrease in other assets 235,687 192,737 Decrease in accounts payable (128,715) (113,432) Increase in accrued expenses and other liabilities 183,584 157,138 Net cash provided by operating activities 4,277,240 4,123,327 Investing activities: Additions to fixed assets (292,658) (154,178) Principal collections on MBS 2,385,207 4,840,914 Net cash provided by investing activities 2,092,549 4,686,736 Financing activity: Distributions (4,580,962) (4,546,503) Net increase in cash and cash equivalents 1,788,827 4,263,560 Cash and cash equivalents, beginning of period 5,622,515 8,331,685 Cash and cash equivalents, end of period $7,411,342 $12,595,245 The accompanying notes are an integral part of the financial statements. -4- KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (1) Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. In the opinion of the General Partners of Krupp Cash Plus-II Limited Partnership (the "Partnership") the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1993 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 1994, its results of operations for the three and nine months ended September 30, 1994 and 1993 and its cash flows for the nine months ended September 30, 1994 and 1993. Certain prior year balances have been reclassified to conform with current year financial statement presentation. The results of operations for the three and nine months ended September 30, 1994 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2) Investment in Joint Venture Condensed financial statements of the Joint Venture are as follows: Brookwood Village Joint Venture Condensed Balance Sheets ASSETS September 30, December 31, 1994 1993 Property, at cost $ 54,611,119 $53,961,916 Accumulated depreciation (12,167,340) (10,743,771) 42,443,779 43,218,145 Other assets 1,185,385 715,779 Total assets $ 43,629,164 $43,933,924 LIABILITIES AND PARTNERS' EQUITY Total liabilities $ 672,870 $ 458,740 Partners' equity: The Partnership 21,478,147 21,737,592 Joint venture partner 21,478,147 21,737,592 Total partners' equity 42,956,294 43,475,184 Total liabilities and partners' equity $ 43,629,164 $43,933,924 Continued -5- KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (2) Investment in Joint Venture, Continued Brookwood Village Joint Venture Condensed Statements of Operations For the Three Month For the Nine Months Ended September 30, Ended September 30, 1994 1993 1994 1993 Revenues $1,537,758 $1,560,356 $ 4,466,644 $ 4,357,353 Property operating expenses (771,426) (749,843) (2,213,966) (2,147,964) Income before depreciation 766,332 810,513 2,252,678 2,209,389 Depreciation (498,611) (474,700) (1,423,569) (1,387,493) Net income $ 267,721 $ 335,813 $ 829,109 $ 821,896 Allocation of net income: The Partnership $ 133,861 $ 167,907 $ 414,555 $ 410,948 Joint venture partner 133,860 167,906 414,554 410,948 $ 267,721 $ 335,813 $ 829,109 $ 821,896 (3) Changes in Partners' Equity A summary of changes in partners' equity (deficit) for the nine months ended September 30, 1994 is as follows: Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1993 $86,776,391 $ 1,362 $(277,841) $86,499,912 Net income 2,264,598 30 46,217 2,310,845 Distributions (4,512,153) (60) (68,749) (4,580,962) Balance at September 30, 1994 $84,528,836 $ 1,332 $(300,373) $84,229,795 (4) Real Estate Taxes During the second quarter of 1994, the Partnership successfully petitioned for the reassessment of prior years' real estate taxes on Coral Plaza. The Partnership received a tax refund for the 1987, 1988 and 1989 real estate tax years of approximately $270,000. (5) MBS At September 30, 1994, the Partnership's MBS portfolio had a market value of $10,638,224 and unrealized gains and losses of approximately $380,000 and $111,000, respectively and with maturity dates ranging from 2008 to 2017. The Partnership does not expect to realize these gains or losses as it has the intention and ability to hold the MBS until maturity. -6- KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership's liquidity is derived from the operations of the Partnership's properties (Encino Oaks, Alderwood, Canyon Place, Coral Plaza and Cumberland Glen), distributions from the Partnerships interest in Brookwood Village Joint Venture, and earnings and collections on MBS and interest earned on its short- term investments. The Partnership's liquidity is utilized to pay operating costs and to fund distributions to the partners. The source of future liquidity to pay operating costs and distributions to partners is expected to be cash flow generated by the Partnership's MBS and real estate investments. Management has found it necessary in recent years to pay a larger share of tenant buildouts to attract quality tenants to our retail centers. This policy has proven to be successful in increasing occupancy at properties where it has been undertaken and is expected to continue in 1994. In fact, two of the Partnership's real estate investments are currently at full capacity and are expected to remain so in 1994. In order to remain competitive in their respective markets the Partnership's properties are anticipated to spend $701,000 for capital improvements in 1994, while the Joint Venture is scheduled to perform $1 million for capital renovations this year. The present rise in interest rates have resulted in a reduction in principal collections on MBS in the third quarter of 1994. Currently, management considers there to be sufficient levels of working capital. Continued -7- KRUPP CASH PLUS-II LIMITED PARTNERSHIP Distributable Cash Flow and Net Cash Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Cash Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement for the nine months ended September 30, 1994 and the period from inception to September 30, 1994. (In $1,000's except per Unit amounts) For the nine months Inception to Ended September 30, September 30, 1994 1994 Distributable Cash Flow: Net income for tax purposes $ 2,635 $39,693 Items not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 1,250 12,672 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of joint venture taxable net income (609) (4,568) Distributions from Brookwood Village Joint Venture 674 6,882 Additions to fixed assets (293) (1,638) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $ 3,657 $54,309 Limited Partners' Share of DCF $ 3,584 $53,223 Limited Partners' Share of DCF per Unit $ .48 $ 7.10 (c) General Partners' Share of DCF $ 73 $ 1,086 Net Proceeds from Capital Transactions: Principal collections on MBS 2,383 34,765 Reinvestment of MBS principal collections $ - $(3,687) Total Net Proceeds from Capital Transactions $ 2,383 $31,078 Distributions: Limited Partners $ 4,512(a) $86,330(b) Limited Partners' Average per Unit $ .60(a) $ 11.51(b)(c) General Partners 73(a) 1,086(b) Total Distributions $ 4,585(a) $87,416(b) Continued -8- KRUPP CASH PLUS-II LIMITED PARTNERSHIP (a) Represents distributions paid in 1994, except the February 1994 distribution, which relates to 1993 cash flows and includes an estimate of the distribution to be paid in November, 1994. (b) Includes estimate of the distribution to be paid in November, 1994. (c) Limited Partners average per Unit return of capital as of November, 1994 is $4.41 [$11.51 - $7.10]. Operations A. Partnership Rental revenues for the three and nine months ended September 30, 1994 as compared to the same periods in 1993 have decreased slightly despite a promising performance by Cumberland Glen so far in 1994. The decrease in revenues is primarily due to a bankruptcy filing of a 15,000 square foot national tenant at Canyon Place in the third quarter of 1993 and a reduction in rental rates at Encino as market conditions have tightened. Management's plan of action for Canyon since the bankruptcy has been to rearrange some smaller tenants and allow the larger tenants to expand. As a result, occupancy at Canyon for the nine months ended September 30, 1994 as compared to the same period in 1993 has increased from 83% to 85%. Currently, both Alderwood and Encino are at full occupancy and are expected to stay at full occupancy for the remainder of the year. MBS interest income decreased for the three and nine months ended September 30, 1994 as compared to the same periods in 1993 due to large prepayments of principal which occurred throughout 1993 and 1994. These prepayments were due to a decline in interest rates in 1993 and through the first half of 1994. Interest earned on other investments has decreased due to lower average cash balances. Total expenses for the three months ended September 30, 1994 as compared to the same periods in 1993 have remained relatively stable with the exception of maintenance. The increase in maintenance is primarily due to the repair of damage caused by frozen pipes at Cumberland Glen and insurance deductibles for minor earthquake damage at Encino Oaks. Cumberland Glen has also made improvements in the third quarter to the parking lot in order to enhance the property's appearance and help the property remain competitive in a strong multi-family marketplace. Total expenses for the nine months ended September 30, 1994 as compared to the same period in 1993 have remained relatively stable with the exception of real estate taxes. Real estate taxes decreased due to a refund of prior years' real estate taxes at Coral Plaza of approximately $270,000 recorded in the second quarter of 1994. B. Joint Venture Brookwood's revenues and expenses have remained relatively stable for the three months ended September 30, 1994 as compared to the same periods in 1993. Brookwood's revenues for the nine months ended September 30, 1994 as compared to the same periods in 1993 have increased due to an increase in occupancy from 93% to 95%. Total expenses for the same period have remained relatively stable. -9- KRUPP CASH PLUS-II LIMITED PARTNERSHIP PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Change in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None -10- SIGNATURE 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. Krupp Cash Plus-II Limited Partnership (Registrant) BY: /s/Marianne Pritchard Marianne Pritchard Treasurer of The Krupp Corporation, a General Partner DATE: October 29, 1994 -11-