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, 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 This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. KRUPP CASH PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS September 30, December31, 1996 1995 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $4,494,847 and $4,137,678, respectively $ 5,844,931 $ 6,119,113 Retail centers, less accumulated depreciation of $13,716,124 and $12,489,601, respectively 36,612,605 37,613,542 Investment in Joint Venture (Note 2) 19,824,570 20,411,464 Mortgage-backed securities ("MBS"), net of accumulated amortization (Note 3) 7,501,412 8,501,911 Total real estate assets 69,783,518 72,646,030 Cash and cash equivalents 9,113,581 8,065,906 Other assets 550,375 711,172 Total assets $79,447,474 $81,423,108 LIABILITIES AND PARTNERS' EQUITY Accounts payable $ - $ 23,879 Accrued expenses and other liabilities (Note 4) 741,475 657,032 Total liabilities 741,475 680,911 Commitments and contingencies (Note 2) Partners' equity (Note 5): Unitholders (7,499,718 Units outstanding) 79,086,604 81,088,463 Corporate Limited Partner (100 Units outstanding) 1,259 1,286 General Partners (381,864) (347,552) Total Partners' equity 78,705,999 80,742,197 Total liabilities and Partners' equity $79,447,474 $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 For the Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Revenue: Rental $1,656,759 $1,672,313 $4,957,993 $4,918,479 Partnership's share of Joint Venture net income (Note 2) 162,661 138,241 420,606 443,024 Interest income - MBS (Note 3) 165,957 200,843 527,149 623,503 Interest income - other 124,463 122,907 352,546 345,962 Total revenue 2,109,840 2,134,304 6,258,294 6,330,968 Expenses: Operating (Note 6) 246,089 235,091 705,863 640,189 Maintenance 107,445 140,098 343,720 336,980 General and adminis- trative (Note 6) 70,799 87,646 195,166 248,492 Real estate taxes 194,873 218,509 593,934 646,943 Management fees (Note 6) 95,534 95,529 286,934 278,953 Depreciation 545,832 507,400 1,583,692 1,498,322 Total expenses 1,260,572 1,284,273 3,709,309 3,649,879 Net income $ 849,268 $ 850,031 $2,548,985 $2,681,089 Allocation of net income (Note 5): Unitholders (7,499,718 Units outstanding) $ 832,271 $ 833,019 $2,497,972 $2,627,432 Net income per Unit of Depositary Receipt $ .11 $ .11 $ .33 $ .35 Corporate Limited Partner (100 Units outstanding) $ 11 $ 11 $ 33 $ 35 General Partners $ 16,986 $ 17,001 $ 50,980 $ 53,622 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, 1996 1995 Operating activities: Net income $ 2,548,985 $ 2,681,089 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,583,692 1,498,322 Partnership's share of Joint Venture net income (420,606) (443,024) Distributions received from Joint Venture 420,606 443,024 Amortization of MBS discount, net (2,009) (2,003) Decrease in other assets 160,797 274,673 Decrease in accounts payable (23,879) (211,793) Increase in accrued expenses and other liabilities 84,443 296,808 Net cash provided by operating activities 4,352,029 4,537,096 Investing activities: Additions to fixed assets (308,548) (203,905) Settlement of land easement (25) (2,658) Principal collections on MBS 1,002,508 908,600 Distributions received from Joint Venture in excess of its earnings 586,894 601,976 Net cash provided by investing activities 1,280,829 1,304,013 Financing activity: Distributions (4,585,183) (4,579,940) Net increase in cash and cash equivalents 1,047,675 1,261,169 Cash and cash equivalents, beginning of period 8,065,906 7,072,127 Cash and cash equivalents, end of period $ 9,113,581 $ 8,333,296 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 September 30, 1996, its results of operations for the three and nine months ended September 30, 1996 and 1995, and cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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 September 30, December 31, 1996 1995 Property, at cost $ 55,896,913 $ 55,478,818 Accumulated depreciation (16,663,554) (15,164,143) 39,233,359 40,314,675 Other assets 1,065,064 867,242 Total assets $ 40,298,423 $ 41,181,917 LIABILITIES AND PARTNERS' EQUITY Total liabilities $ 649,283 $ 358,989 Partners' equity The Partnership 19,824,570 20,411,464 Joint Venture Partner 19,824,570 20,411,464 Total Partners' equity 39,649,140 40,822,928 Total liabilities and Partners' equity $ 40,298,423 $ 41,181,917 Brookwood Village Joint Venture Condensed Statements of Operations For the Three Months For the Nine Months Ended September 30, Ended September 30, 1996 1995 1996 1995 Revenue $1,557,553 $1,555,064 $ 4,505,010 $ 4,611,561 Property operating expenses (727,810) (687,205) (2,164,387) (2,133,784) Depreciation (504,421) (591,377) (1,499,411) (1,591,729) Net income $ 325,322 $ 276,482 $ 841,212 $ 886,048 (3) Mortgage Backed Securities 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 as follows: September 30, December 31, 1996 1995 Face Value $ 7,492,464 $ 8,494,972 Amortized Cost $ 7,501,412 $ 8,501,911 Estimated Market Value $ 7,817,000 $ 9,044,000 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 $339,000 and $542,000 at September 30, 1996 and December 31, 1995, respectively and unrealized losses of approximately $23,000 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. (4) Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following: September 30, December 31, 1996 1995 Accrued real estate taxes $318,434 $264,996 Other accrued expenses 219,536 194,249 Tenant security deposits 169,657 186,242 Prepaid rent 33,840 11,545 $741,467 $657,032 (5) Changes in Partners' Equity A summary of changes in Partners' equity (deficit) for the nine months ended September 30, 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 2,497,972 33 50,980 2,548,985 Distributions (4,499,831) (60) (85,292) (4,585,183) Balance at September 30, 1996 $79,086,604 $ 1,259 $(381,864) $78,705,999 (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 Partnership and its 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 are as follows: For the Three Months For the Nine Months Ended September 30, Ended September 30, 1996 1995 1996 1995 Property management fees $ 95,534 $ 95,529 $286,934 $278,953 Expense reimbursements 83,067 87,728 229,061 240,361 Charged to operations $178,601 $183,257 $515,995 $519,314 KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. 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 $635,000 for fixed assets in 1996, most of which are tenant buildouts at retail centers. The Joint Venture is expected to spend approximately $847,000 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 Proceeds from Capital Transactions Shown below is the calculation of Distributable Cash Flow and Net Proceeds from Capital Transactions, as defined by Section 17 of the Partnership Agreement for the nine months ended September 30, 1996 and the period from inception to September 30, 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 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 Nine Months Inception to Ended September 30, September 30, 1996 1996 Distributable Cash Flow: Net income for tax purposes $3,242 $48,318 Items providing/not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 1,294 16,123 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of Joint Venture taxable net income (797) (6,861) Distributions from Joint Venture 1,008 9,540 Additions to fixed assets (309) (2,896) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $4,438 $65,492 Unitholders' Share of DCF $4,349 $64,182 Unitholders' Share of DCF per Unit $ .58 $ 8.56 (c) General Partners' Share of DCF $ 89 $ 1,310 Net Proceeds from Capital Transactions: Principal collections on MBS $1,000 $37,632 Reinvestment of MBS principal collections - (3,687) Total Net Proceeds from Capital Transactions $1,000 $33,945 Distributions: Unitholders $4,500 (a) $98,318 (b) Unitholders' Average per Unit $ .60 (a) $ 13.11 (b)(c) General Partners $ 89 (a) $ 1,310 (b) Total Distributions $4,589 (a) $99,628 (b) (a) Represents distributions paid in 1996, except the February, 1996 distribution, which relates to 1995 cash flow and includes an estimate of the distribution to be paid in November, 1996. (b) Includes an estimate of the distribution to be paid in November, 1996. (c) Unitholders' average per Unit return of capital as of November, 1996 is $4.55 [$13.11 - $8.56]. Operations Partnership Distributable Cash Flow decreased $88,000 for the nine months ended September 30, 1996 as compared to the same period in 1995 as a result of decreased distributions received from the Joint Venture and an increase in capital improvements at the Partnership's properties. Although net income of the Partnership stayed relatively stable for the three months ended September 30, 1996 as compared to the same period in 1995, net income decreased between the two nine month periods by approximately 5%. Total revenue decreased for the three and nine months ending September 30, 1996 as compared to the same periods in 1995. Alderwood Towne Center ("Alderwood") and Canyon Place ("Canyon") experienced swings in occupancy during this time. Alderwood's decrease in occupancy was a result of the eviction of Abodio, a 9,742 square foot tenant, in the second quarter of 1996. Clothestime, a 3,265 square foot tenant chose not to renew their lease in the third quarter. At Canyon, the 14,833 square foot Jo-Ann Fabrics opened late in the first quarter of 1996, favorably impacting rental revenue for the remainder of 1996. Although market conditions in Atlanta have somewhat declined, relatively steady occupancy as well as increased rental rates instituted during the first half of 1996, increased revenue at Cumberland Glen. MBS interest income decreased for the three and nine months ended September 30, 1996 as compared to the same period in 1995, due to prepayments and repayments of principal. Interest income on short-term investments remained relatively stable during these same periods as cash balances have leveled off. Total expenses decreased for the three months ended September 30, 1996 as compared to the same period in 1995. The decrease in total expenses is primarily attributable to both lower maintenance expenditures and a decrease in real estate taxes. Maintenance decreased as a result of preventative maintenance work completed in 1995 on the parking lots at Cumberland Glen, Encino Oaks and Canyon as well as roofing repairs at Alderwood. Real estate taxes decreased due to the revaluation of Coral Plaza by the local taxing authority during 1996. This decrease is expected to make a positive impact for the remainder of 1996. Total expenses increased for the nine months ended September 30, 1996 as compared to the same period in 1995. Increases in operating and depreciation expenses more than offset the decreases in real estate taxes and general and administrative expenses. Operating expense increased as a result of prior years' insurance refunds received in the second quarter of 1995. Depreciation expense increased in conjunction with a higher number of capital improvements performed in 1996 to enhance the appearance of the Partnership's properties. Real estate taxes decreased as a result of the revaluation of Coral Plaza during 1996. Joint Venture Overall, net income, before depreciation, decreased for the three and nine months ended September 30, 1996 as compared to the same periods in 1995. Revenue for the third quarter of 1996 remained relatively stable when compared to the third quarter of 1995. However, for the two nine month periods, revenue decreased as a result of lower reimbursable tenant billings derived from a combination of lower occupancy and lower reimbursable operating expenses in 1996. Interest income on investments also decreased during the three and nine month periods due to lower average cash and cash equivalent balances in 1996. The increase in property expenses for the three and nine months ended September 30, 1996 as compared to the same periods in 1995 is primarily due to an increase in real estate taxes. The increase in real estate taxes is a result of an abatement of 1994 real estate taxes in the third quarter of 1995 as the Joint Venture was reassessed by the local taxing authority. General In accordance with Financial Accounting Standard 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: October 30, 1996