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 March 31, 1996 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 March 31, December 31, 1996 1995 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $4,254,765 and $4,137,678, respectively $ 6,011,755 $ 6,119,113 Retail centers, less accumulated depreciation of $12,887,373 and $12,489,601, respectively 37,275,666 37,613,542 Investment in Joint Venture (Note 2) 20,431,758 20,411,464 Mortgage-backed securities ("MBS"), net of accumulated amortization (Note 3) 8,140,186 8,501,911 Total real estate assets 71,859,365 72,646,030 Cash and cash equivalents 7,834,776 8,065,906 Other investments (Note 3) 490,725 - Other assets 651,085 711,172 Total assets $80,835,951 $81,423,108 LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 2,941 $ 23,879 Accrued expenses and other liabilities (Note 4) 652,931 657,032 Total liabilities 655,872 680,911 Commitments and contingencies (Note 2) Partners' equity (Note 5): Unitholders (7,499,718 Units outstanding) 80,532,934 81,088,463 Corporate Limited Partner (100 Units outstanding) 1,279 1,286 General Partners (354,134) (347,552) Total Partners' equity 80,180,079 80,742,197 Total liabilities and Partners' equity $80,835,951 $81,423,108 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 March 31, 1996 1995 Revenue: Rental $1,683,311 $1,639,328 Partnership's share of Joint Venture net income (Note 2) 190,294 189,780 Interest income - MBS (Note 3) 184,210 215,214 Interest income - other 114,163 107,045 Total revenue 2,171,978 2,151,367 Expenses: Operating (Note 6) 216,766 206,290 Maintenance 102,155 72,389 General and administrative (Note 6) 80,523 71,848 Real estate taxes 199,866 218,799 Management fees (Note 6) 94,107 91,143 Depreciation 514,859 494,853 Total expenses 1,208,276 1,155,322 Net income $ 963,702 $ 996,045 Allocation of net income (Note 5): Unitholders (7,499,718 Units outstanding) $ 944,415 $ 976,111 Net income per Unit of Depositary Receipt $ .13 $ .13 Corporate Limited Partner (100 Units outstanding) $ 13 $ 13 General Partners $ 19,274 $ 19,921 The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1996 1995 Operating activities: Net income $ 963,702 $ 996,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 514,859 494,853 Partnership's share of Joint Venture net income (190,294) (189,780) Distribution received from Joint Venture 170,000 189,780 Amortization of MBS discount, net (1,772) (1,420) Decrease in other assets 60,087 194,172 Decrease in accounts payable (20,938) (154,146) Increase (decrease) in accrued expenses and other liabilities (4,101) 22,401 Net cash provided by operating activities 1,491,543 1,551,905 Investing activities: Additions to fixed assets (69,600) (60,047) Settlement of land easement (25) (239) Principal collections on MBS 363,497 253,926 Increase in other investments (490,725) (2,386,995) Distributions received from Joint Venture in excess of its earnings - 60,220 Net cash used in investing activities (196,853) (2,133,135) Financing activity: Distributions (1,525,820) (1,518,461) Net decrease in cash and cash equivalents (231,130) (2,099,691) Cash and cash equivalents, beginning of period 8,065,906 7,072,127 Cash and cash equivalents, end of period $ 7,834,776 $ 4,972,436 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. See Notes to Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995 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 of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of March 31, 1996 and their results of operations and cash flows for the three months ended March 31, 1996 and 1995. Certain prior period balances have been reclassified to conform with current period financial statement presentation. The results of operations for the three months ended March 31, 1996 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 Brookwood Village Joint Venture (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. Condensed financial statements of the Joint Venture are as follows: Brookwood Village Joint Venture Condensed Balance Sheets ASSETS March 31, December 31, 1996 1995 Property, at cost $ 55,781,575 $ 55,478,818 Accumulated depreciation (15,657,011) (15,164,143) 40,124,564 40,314,675 Other assets 1,203,425 867,242 Total assets $ 41,327,989 $ 41,181,917 LIABILITIES AND PARTNERS' EQUITY Total liabilities $ 464,473 $ 358,989 Partners' equity The Partnership 20,431,758 20,411,464 Joint Venture Partner 20,431,758 20,411,464 Total Partners' equity 40,863,516 40,822,928 Total liabilities and Partners' equity $ 41,327,989 $ 41,181,917 Brookwood Village Joint Venture Condensed Statements of Operations For the Three Months Ended March 31, 1996 1995 Revenue $ 1,545,604 $ 1,585,868 Property operating expenses (672,148) (715,444) Depreciation (492,868) (490,864) Net income $ 380,588 $ 379,560 (3) Mortgage Backed Securities and Other Investments The MBS held by the Partnership are issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Government National Mortgage Association. Additional information on the MBS held is approximated as follows: March 31, December 31, 1996 1995 Face Value $8,131,475 $8,494,972 Amortized Cost $8,140,186 $8,501,911 Estimated Market Value $8,537,000 $9,004,000 Coupon rates of the MBS range from 8.0% to 10.0% per annum and mature in the years 2008 through 2017. The Partnership's MBS portfolio had gross unrealized gains of approximately $406,000 and $542,000 at March 31, 1996 and December 31, 1995, respectively and unrealized losses of approximately $9,000 and $0, respectively. The Partnership does not expect to realize these gains or losses as it has the intention and ability to hold the MBS until maturity. At March 31, 1996, the Partnership held investments in commercial paper maturing within one year. The cost approximates the market value. (4) Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following at: March 31, December 31, 1996 1995 Accrued real estate taxes $272,774 $264,996 Other accrued expenses 193,730 194,249 Tenant security deposits 174,259 186,242 Prepaid rent 12,168 11,545 $652,931 $657,032 (5) Changes in Partners' Equity A summary of changes in Partners' equity (deficit) for the three months ended March 31, 1996 is as follows: Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1995 $81,088,463 $ 1,286 $(347,552) $80,742,197 Net income 944,415 13 19,274 963,702 Distributions (1,499,944) (20) (25,856) (1,525,820) Balance at March 31, 1996 $80,532,934 $ 1,279 $(354,134) $80,180,079 (6) 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 a rate 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 or their affiliates were as follows: For the Three Months Ended March 31, 1996 1995 Property management fees $ 94,107 $ 91,143 Expense reimbursements 82,462 69,814 Charged to operations $176,569 $160,957 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 Center, Canyon Place, Coral Plaza and Cumberland Glen), distributions from the Partnership's interest in the Joint Venture, 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. Management has found it necessary in recent years to have the Partnership 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 in 1996. In order to remain competitive in their respective markets, the Partnership's properties are anticipated to spend approximately $620,000 for fixed assets in 1996, most of which are tenant buildouts at retail centers. The Joint Venture is expected to spend approximately $306,000 for capital improvements. The Partnership holds MBS that are guaranteed by Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan 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. 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. 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 three months ended March 31, 1996 and the period from inception to March 31, 1996. 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's except per Unit amounts) For the Three Months Inception to Ended March 31, March 31, 1996 1996 Distributable Cash Flow: Net income for tax purposes $1,183 $46,259 Items providing/not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 431 15,260 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of Joint Venture taxable net income (315) (6,379) Distributions from Joint Venture 170 8,702 Additions to fixed assets (70) (2,657) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $1,399 $62,453 Limited Partners' Share of DCF $1,371 $61,204 Limited Partners' Share of DCF per Unit $ .18 $ 8.16 General Partners' Share of DCF $ 28 $ 1,249 Net Proceeds from Capital Transactions: Principal collections on MBS, net $ 362 $36,994 Reinvestment of MBS principal collections - (3,687) Total Net Proceeds from Capital Transactions $ 362 $33,307 Distributions: Limited Partners $1,500(a) $95,318(b) Limited Partners' Average per Unit $ .20(a) $ 12.71(b)(c) General Partners $ 28(a) $ 1,249(b) Total Distributions $1,528(a) $96,567(b) (a) Represents an estimate of the distribution to be paid in May, 1996. (b) Includes an estimate of the distribution to be paid in May, 1996. (c) Limited Partners average per Unit return of capital as of May, 1996 is $4.55 [$12.71 - $8.16]. Operations Partnership Distributable Cash Flow decreased $90,000 for the three months ended March 31, 1996 as compared to the same period in 1995 which was primarily attributable to the lower distributions received from the Joint Venture within these periods. Overall, net income for the Partnership decreased as the increase in total expenses more than offset the 2% increase in total revenues. The increase in revenue is due mainly to rental increases for tenants renewing their leases at the Partnership's retail centers in the first quarter of 1996. Cumberland Glen's excellent location in the Atlanta, Georgia area allowed management to increase rents an average of 4% on all units in a market where there is a strong demand for multi-family housing due to the upcoming Olympics. Canyon Place's occupancy increased 11% in the three months ended March 31, 1996 as compared to the same period in 1995 due to the opening of the 14,833 square foot Jo-Ann Fabrics late in the first quarter of 1996. The favorable impact from this opening and the rise in rents at Cumberland should help to improve the Partnership's rental revenue in the future. MBS interest income decreased for the three months ended March 31, 1996 as compared to the same period in 1995 due to the large prepayments of principal which took place from 1993 through the first half of 1995. As interest rates rose in 1995, these prepayments declined. However, interest income will continue to decrease as the principal balance of this portfolio continues to decline as a result of repayments and prepayments. Currently, the prepayments have stabilized and the interest income on the MBS has decreased compared to the same period in 1995. Interest income on short-term investments has increased during these same periods due to higher average cash and cash equivalent balances. Total expenses for the three months ended March 31, 1996 as compared to the same period in 1995 remained relatively flat with the exception of maintenance expense. Maintenance expense increased due to electrical repairs to install display lights at Alderwood. Additionally, landscaping work was done at Canyon, Encino and Alderwood to enhance their appearances, attract a greater number of customers and remain competitive in their respective markets. Joint Venture The Joint Venture's net income increased 10% for the three months ended March 31, 1996 as compared to the same period in 1995, as a decrease in property operating expenses more than offset a slight decrease in revenue. Although rental rates on lease renewals increased, a 2% decrease in occupancy coupled with a decrease in reimbursable tenant billings, derived from lower reimbursable operating expenses, resulted in the decrease in revenue. Property operating expenses decreased 12% for the three months ended March 31, 1996 as compared to the same period in 1995. This decrease is attributable to fees paid by the Joint Venture for an appraisal associated with a possible anchor tenant expansion in the first quarter of 1995. In addition, real estate taxes decreased as a result of a revaluation of the Joint Venture by the local taxing authority in the third quarter of 1995. General In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate assets. The Partnership's investments in properties and the Joint Venture are carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investments in properties and the Joint Venture to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired. 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/Robert A. Barrows Robert A. Barrows Treasurer and Chief Accounting officer of the Krupp Corporation, a General Partner DATE: April 30, 1996