UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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, 1995 1994 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $4,017,837 and $3,670,683, respectively $ 6,212,423 $ 6,424,540 Retail centers, less accumulated depreciation of $12,082,691 and $10,931,523, respectively 37,779,118 38,858,760 Investment in Joint Venture (Note 2) 20,737,997 21,339,973 Mortgage-backed securities ("MBS") (Note 3) 8,908,526 9,815,123 Total real estate assets 73,638,064 76,438,396 Cash and cash equivalents 8,333,296 7,072,127 Other assets 444,503 766,734 Total assets $82,415,863 $84,277,257 LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 9,717 $ 221,510 Accrued expenses and other liabilities 842,373 593,123 Total liabilities 852,090 814,633 Partners' equity (Note 4): Unitholders (7,499,718 Units outstanding) 81,895,180 83,767,580 Corporate Limited Partner (100 Units outstanding) 1,297 1,322 General Partners (332,704) (306,278) Total Partners' equity 81,563,773 83,462,624 Total liabilities and Partners' equity $82,415,863 $84,277,257 The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Revenue: Rental $1,672,313 $1,541,131 $4,918,479 $4,637,723 Partnership's share of Joint Venture net income (Note 2) 138,241 133,861 443,024 414,555 Interest income - MBS 200,843 232,702 623,503 746,452 Interest income - other 122,907 82,575 345,962 197,280 Total revenue 2,134,304 1,990,269 6,330,968 5,996,010 Expenses: Operating (Note 5) 235,091 289,102 640,189 798,235 Maintenance 140,098 174,800 336,980 431,206 General and administrative (Note 5) 87,646 108,050 248,492 351,181 Real estate taxes 218,509 222,461 646,943 424,389 Management fees (Note 5) 95,529 85,557 278,953 262,056 Depreciation 507,400 490,653 1,498,322 1,418,098 Total expenses 1,284,273 1,370,623 3,649,879 3,685,165 Net income $ 850,031 $ 619,646 $2,681,089 $2,310,845 Allocation of net income (Note 4): Unitholders (7,499,718 Units outstanding) $ 833,019 $ 607,245 $2,627,432 $2,264,598 Net income per Unit of Depositary Receipt $ .11 $ .08 $ .35 $ .30 Corporate Limited Partner (100 Units outstanding) $ 11 $ 8 $ 35 $ 30 General Partners $ 17,001 $ 12,393 $ 53,622 $ 46,217 The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 1994 Operating activities: Net income $ 2,681,089 $ 2,310,845 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,498,322 1,418,098 Partnership's share of Joint Venture net income (443,024) (414,555) Distributions received from Joint Venture 1,045,000 674,000 Amortization of MBS discount, net (2,003) (1,704) Decrease in other assets 322,231 235,687 Decrease in accounts payable (211,793) (128,715) Increase in accrued expenses and other liabilities 249,250 183,584 Net cash provided by operating activities 5,139,072 4,277,240 Investing activities: Additions to fixed assets (206,563) (292,658) Principal collections on MBS 908,600 2,385,207 Purchase of short-term investments (3,222,357) - Maturity of short-term investments 3,222,357 - Net cash provided by investing activities 702,037 2,092,549 Financing activity: Distributions (4,579,940) (4,580,962) Net increase in cash and cash equivalents 1,261,169 1,788,827 Cash and cash equivalents, beginning of period 7,072,127 5,622,515 Cash and cash equivalents, end of period $ 8,333,296 $ 7,411,342 The accompanying notes are an integral part of the financial statements. 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. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a permanent impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are impaired. See Notes to Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994 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, 1995, its results of operations for the three and nine months ended September 30, 1995 and 1994 and its cash flows for the nine months ended September 30, 1995 and 1994. The results of operations for the three and nine months ended September 30, 1995 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 The Partnership and an affiliate of the Partnership each have a 50% interest in the Joint Venture. The express purpose of entering into the Joint Venture was to acquire and operate Brookwood Village Mall and Convenience Center ("Brookwood Village"). Brookwood Village is a shopping center containing 474,138 net leasable square feet located in Birmingham, Alabama. Under the purchase and sale agreement entered into by the Partnership, its affiliates and the previous owner, the previous owner retained an interest related to the future development at Brookwood Village. The seller is entitled to receive up to $5,000,000 of proceeds from the sale of Brookwood Village and potentially additional amounts related to expansion and development. The Joint Venture holds title to Brookwood Village free and clear from all other material liens or encumbrances. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (2) Investment in Joint Venture, Continued Condensed financial statements of the Joint Venture are as follows: Brookwood Village Joint Venture Condensed Balance Sheets ASSETS September 30, December 31, 1995 1994 Property, at cost $ 54,944,813 $ 54,898,470 Accumulated depreciation (14,446,117) (12,854,388) 40,498,696 42,044,082 Other assets 1,348,860 1,145,125 Total assets $ 41,847,556 $ 43,189,207 LIABILITIES AND PARTNERS' EQUITY Total liabilities $ 371,562 $ 509,261 Partners' equity The Partnership 20,737,997 21,339,973 Joint Venture Partner 20,737,997 21,339,973 Total Partners' equity 41,475,994 42,679,946 Total liabilities and Partners' equity $ 41,847,556 $ 43,189,207 Brookwood Village Joint Venture Condensed Statements of Operations For the Three Months For the Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Revenue $1,555,064 $1,537,758 $ 4,611,561 $ 4,466,644 Property operating expenses (687,205) (771,426) (2,133,784) (2,213,966) Depreciation (591,377) (498,611) (1,591,729) (1,423,569) Net income $ 276,482 $ 267,721 $ 886,048 $ 829,109 Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (3) MBS and Other Investments At September 30, 1995, the Partnership's MBS Portfolio had an approximate market value of $9,418,000 with unrealized gains of $513,000 and unrealized losses of $3,000. (4) Changes in Partners' Equity A summary of changes in partners' equity (deficit) for the nine months ended September 30, 1995 is as follows: Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1994 $83,767,580 $ 1,322 $(306,278) $83,462,624 Net income 2,627,432 35 53,622 2,681,089 Distributions (4,499,832) (60) (80,048) (4,579,940) Balance at September 30, 1995 $81,895,180 $ 1,297 $(332,704) $81,563,773 (5) Related Party Transactions Commencing with the date of acquisition of the Partnership's properties, the Partnership entered into agreements under which property management fees are paid to an affiliate of the General Partners for services as management agent. Such agreements provide for management fees payable monthly at the rate of up to 6% of the gross receipts, net of leasing commissions from commercial properties under management and up to 5% of the gross receipts from residential properties under management. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the properties including accounting, computer, insurance, travel, legal and payroll; and with the preparation and mailing of reports and other communications to the Unitholders. Amounts accrued or paid to the General Partners and/or their affiliates were as follows: For the Three Months For the Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Management fees $ 95,529 $ 85,557 $278,953 $262,056 Expense reimbursements 87,728 143,069 240,361 431,341 Charged to operations $183,257 $228,626 $519,314 $693,397 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 Towne, Canyon Place, Coral Plaza and Cumberland Glen), distributions from the Partnership's interest in Brookwood Village Joint Venture, earnings and collections on MBS, and interest earned on its short-term investments. The Partnership's investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a permanent impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are impaired. The Partnership's liquidity is utilized to pay operating costs and to fund distributions to the partners. Management has found it necessary in recent years to pay a large share of tenant buildouts to attract quality tenants to our retail centers. This policy has proven to be successful in attracting tenants and maintaining high occupancies at properties where it has been undertaken and is expected to continue through 1995. In order to remain competitive in their respective markets, the Partnership's properties are anticipated to spend approximately $690,000 for fixed assets in 1995, most of which are tenant buildouts at retail centers. The Joint Venture is expected to spend approximately $629,000 for capital improvements. The Partnership holds MBS that are guaranteed by Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Mortgage Corporation ("FHLMC"). The principal risks in respect to MBS are the credit worthiness of GNMA, FNMA, or FHLMC, and the risk that the current value of any MBS may decline as a result of changes in market interest rates. The General Partners believe the interest rate risk is minimal due to the fact that the Partnership has the ability to hold these securities to maturity. Principal collections on MBS have decreased significantly in the first nine months of 1995 because rising interest rates slowed the pace of refinancings that were experienced in 1994. The Partnership currently enjoys significant liquidity. The General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels of working capital the Partnership should maintain. Adjustments to distributions are made when appropriate to reflect such assessments. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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, 1995 and the period from inception to September 30, 1995. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Distributable Cash Flow and Net Cash Proceeds from Capital Transactions should not be considered by the reader as a substitute to net income as an indicator of the Partnership's operating performance or to cash flow as a measure of liquidity. (In $1,000 except per Unit amounts) For the Nine Months Inception to Ended September 30, September 30, 1995 1995 Distributable Cash Flow: Net income for tax purposes $3,244 $43,956 Items providing/not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 1,261 14,365 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of Joint Venture taxable net income (817) (5,661) Distributions from Joint Venture 1,045 8,152 Additions to fixed assets (207) (2,320) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $4,526 $59,760 Limited Partners' Share of DCF $4,435 $58,564 Limited Partners' Share of DCF per Unit $ .59 $ 7.81 General Partners' Share of DCF $ 91 $ 1,196 Net Proceeds from Capital Transactions: Principal collections on MBS $ 907 $36,226 Reinvestment of MBS principal collections - (3,687) Total Net Proceeds from Capital Transactions $ 907 $32,539 Distributions: Limited Partners $4,500(a) $ 92,318(b) Limited Partners' Average per Unit $ .60(a) $ 12.31(b) General Partners $ 91(a) $ 1,196(b) Total Distributions $4,591(a) $ 93,514(b) Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (a) Represents distributions paid in 1995, except the February, 1995 distribution, which relates to 1994 cash flows and includes an estimate of the distribution to be paid in November, 1995. (b) Includes an estimate of the distribution to be paid in November, 1995. (c) Limited Partners average per Unit return of capital as of November, 1995 is $4.50 [$12.31 - $7.81]. Operations Partnership Rental revenues for the three and nine months ended September 30, 1995 as compared to the same periods in 1994, have increased due mainly to increases in occupancy at Canyon Place and to a rise in rental rates at Cumberland Glen. Canyon Place experienced a 7% increase for the three months and an 8% increase for the nine months ended September 30, 1995 as compared to the same periods in 1994. The increase in occupancy at Canyon is due to the expansion of several tenants and to the opening of the 4,391 square foot Payless Shoes in the fourth quarter of 1994. The increase in rental rates at Cumberland Glen is due mainly to the strong economic environment in the Atlanta, Georgia area. MBS interest income decreased for the three and nine months ended September 30, 1995 as compared to the same period in 1994. Interest rates declined going into 1994 resulting in large prepayments of mortgages underlying the MBS throughout 1994 and the first half of 1995. However, during 1995, interest rates began to rise and inversely, prepayments of principal decreased. Currently, these prepayments have stabilized and the interest income on MBS has decreased compared to 1994. Interest income on other investments increased during these same periods due to higher average cash balances and higher interest rates. With the exception of real estate taxes, total expenses of the Partnership for the three and nine months ended September 30, 1995 as compared to the same periods in 1994 have decreased $82,000 and $258,000, respectively. The decrease in operating expenses is due to management's efforts to reduce reimbursable operating expenses and general and administrative expenses. Certain of these costs savings are anticipated to continue for the remainder of 1995. Maintenance expense decreased for the three months ended September 30, 1995 as compared to the same period in 1994 due to improvements made to Cumberland Glen's parking lot in the third quarter of 1994. The decrease in maintenance expense for the first nine months of 1995 as compared to the same period in 1994 is due to preventive maintenance at Encino Oaks, roof repairs at Canyon Place, and improvements to the parking lot and building interiors at Cumberland Glen, all performed in 1994. The increase in real estate taxes is due primarily to a refund of approximately $270,000 recorded in the second quarter of 1994 for the prior years' real estate taxes at Coral Plaza. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Operations - Continued Joint Venture Brookwood's revenues for the three and nine months ended September 30, 1995 as compared to the same periods in 1994 have increased due to an increase in reimbursable tenant billings. Total operating expenses for the three and nine months ended September 30, 1995 as compared to the same periods in 1994 have decreased as a result of an abatement of 1994 real estate taxes in the third quarter of 1995. This reduction is due to the revaluation of the Joint Venture by the local taxing authority. 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 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 and Chief Accounting Officer of The Krupp Corporation, a General Partner DATE: November 8, 1995