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 March 31, 1997 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 The total number of pages in this document is 13. 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 March 31, December 31, 1997 1996 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $4,750,118 and $4,626,130, respectively $ 5,729,819 $ 5,830,088 Retail centers, less accumulated depreciation of $14,541,194 and $14,132,636, respectively 36,020,513 36,399,653 Investment in Joint Venture (Note 2) 16,525,857 15,112,894 Mortgage-backed securities ("MBS"), net of accumulated amortization (Note 3) 6,839,069 7,134,203 Total real estate assets 65,115,258 64,476,838 Cash and cash equivalents 6,749,571 8,953,003 Other assets 602,572 633,585 Total assets $72,467,401 $74,063,426 LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable $ 8,197 $ 31,990 Accrued expenses and other liabilities (Note 4) 673,045 698,174 Due to affiliates (Note 6) 6,923 161,374 Total liabilities 688,165 891,538 Partners' equity (deficit) (Note 5): Unitholders (7,499,718 Units outstanding) 72,285,111 73,661,975 Corporate Limited Partner (100 Units outstanding) 1,169 1,187 General Partners (507,044) (491,274) Total Partners' equity 71,779,236 73,171,888 Total liabilities and Partners' equity $72,467,401 $74,063,426 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, 1997 1996 Revenue: Rental $1,738,839 $1,683,311 Partnership's share of Joint Venture net income (loss) (Note 2) (538,037) 190,294 Interest income - MBS (Note 3) 154,336 184,210 Interest income - other 109,360 114,163 Total revenue 1,464,498 2,171,978 Expenses: Operating (Note 6) 220,795 216,766 Maintenance 99,534 102,155 General and administrative (Note 6) 177,319 80,523 Real estate taxes 217,649 199,866 Management fees (Note 6) 91,061 94,107 Depreciation 532,546 514,859 Total expenses 1,338,904 1,208,276 Net income $ 125,594 $ 963,702 Allocation of net income (Note 5): Unitholders (7,499,718 Units outstanding) $ 123,080 $ 944,415 Net income per Unit of Depositary Receipt $ .02 $ .13 Corporate Limited Partner (100 Units outstanding) $ 2 $ 13 General Partners $ 2,512 $ 19,274 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, 1997 1996 Operating activities: Net income $ 125,594 $ 963,702 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 532,546 514,859 Amortization of MBS discount, net (539) (1,772) Partnership's share of Joint Venture net loss (income) 538,037 (190,294) Distributions received from Joint Venture - 170,000 Changes in assets and liabilities: Decrease in other assets 31,013 60,087 Decrease in accounts payable (24,977) (20,938) Increase (decrease) in due to affiliates (154,451) 646 Decrease in accrued expenses and other liabilities (25,129) (4,747) Net cash provided by operating activities 1,022,094 1,491,543 Investing activities: Additions to fixed assets (53,137) (69,600) Settlement of land easement - (25) Principal collections on MBS 295,673 363,497 Increase in other investments - (490,725) Capital contribution to Joint Venture (2,150,000) - Increase in accounts payable related to fixed asset additions 1,184 - Distributions received from Joint Venture in excess of its earnings 199,000 - Net cash used in investing activities (1,707,280) (196,853) Financing activity: Distributions (1,518,246) (1,525,820) Net decrease in cash and cash equivalents (2,203,432) (231,130) Cash and cash equivalents, beginning of period 8,953,003 8,065,906 Cash and cash equivalents, end of period $ 6,749,571 $ 7,834,776 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, 1996 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, 1997 and their results of operations and cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 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 (collectively referred to herein as the "Joint Venture Partners") 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 474,083 net leasable square feet located in Birmingham, Alabama. Under the purchase and sale agreement entered into by the Partnership, its affiliates and the seller, the seller retained a lien on the premises related to the future sale of the property or development of unimproved land at Brookwood Village. The lien entitled the seller to receive $5,000,000 of the proceeds from the sale of Brookwood Village and potentially additional amounts related to the expansion and development. On February 28, 1997, Brookwood Village paid the discounted amount of $4,300,000 to settle a lawsuit filed by the previous owner, thereby releasing the lien. The Partnership and its Joint Venture Partner each made capital contributions of $2,150,000 to fund the settlement payment. 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", the Joint Venture recorded valuation provisions for losses on its real estate asset of $1,472,096 and $9,000,000 at March 31, 1997 and December 31, 1996, respectively. 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 March 31, December 31, 1997 1996 Real estate assets, at cost $ 60,534,867 $ 60,530,292 Accumulated depreciation and valuation provision (28,162,867) (26,190,274) Total real estate assets 32,372,000 34,340,018 Other assets 1,240,390 678,950 Total assets $ 33,612,390 $ 35,018,968 LIABILITIES AND PARTNERS' EQUITY Total liabilities $ 560,676 $ 4,793,180 Partners' equity: The Partnership 16,525,857 15,112,894 Joint Venture Partner 16,525,857 15,112,894 Total Partners' equity 33,051,714 30,225,788 Total liabilities and Partners' equity $ 33,612,390 $ 35,018,968 Brookwood Village Joint Venture Condensed Statements of Operations For the Three Months Ended March 31, 1997 1996 Revenue $ 1,583,382 $ 1,545,604 Property operating expenses (686,863) (672,148) Depreciation and provision for losses on real estate (1,972,593) (492,868) Net income (loss) $ (1,076,074) $ 380,588 Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Continued (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 as follows: March 31, December 31, 1997 1996 Face Value $6,829,384 $7,125,057 Amortized Cost $6,839,069 $7,134,203 Estimated Market Value $7,113,000 $7,476,000 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 $302,000 and $351,000 at March 31, 1997 and December 31, 1996, respectively and unrealized losses of approximately $28,000 and $9,000, 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 consisted of the following at: March 31, December 31, 1997 1996 Accrued real estate taxes $ 266,990 $ 245,000 Other accrued expenses 192,931 206,436 Tenant security deposits 179,756 169,849 Prepaid rent 15,086 76,889 Distributions payable 18,282 - $ 673,045 $ 698,174 (5)Changes in Partners' Equity A summary of changes in Partners' equity (deficit) for the three months ended March 31, 1997 is as follows: Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1996 $73,661,975 $ 1,187 $(491,274) $73,171,888 Net income 123,080 2 2,512 125,594 Distributions (1,499,944) (20) (18,282) (1,518,246) Balance at March 31, 1997 $72,285,111 $ 1,169 $(507,044) $71,779,236 The distributions payable to the General Partners totaled $18,282 and were included in accrued expenses and other liabilities at March 31, 1997. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Continued (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 paid to the General Partners or their affiliates were as follows: For the Three Months Ended March 31, 1997 1996 Property management fees $ 91,061 $ 94,107 Expense reimbursements 136,303 82,462 Charged to operations $227,364 $176,569 Due to affiliates consisted of expense reimbursements of $6,923 and $161,374 at March 31, 1997 and December 31, 1996, respectively. (7)Subsequent Event On April 25, 1997, the Partnership and its Joint Venture Partner entered into a Real Estate Exchange Contract to exchange Brookwood Village for cash and two multi-family apartment complexes totaling $32,372,220. Each Joint Venture Partner will receive 50% of the proceeds, with the Partnership receiving cash of $16,186,110, less 50% of the closing costs. The transaction is expected to be consummated during the second quarter of 1997. 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 principal 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 Partnership's management has found it necessary in recent years to pay a large share of tenant buildouts to attract quality tenants to its 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 1997. In order to remain competitive in their respective markets, the Partnership's properties are anticipated to spend approximately $821,000 for fixed assets in 1997, most of which are tenant buildouts at retail centers. In 1997, the Joint Venture Partners and Brookwood Village Joint Venture were named as defendants in a lawsuit filed by the previous owners of Brookwood Village Mall and Convenience Center related to a $5,000,000 lien retained by the seller. On February 28, 1997, Brookwood Village Joint Venture paid the discounted amount of $4,300,000 to the previous owner to release the lien and settle the lawsuit. The payment was funded by capital contributions of $2,150,000 from each of the Joint Venture Partners. As discussed in Note 7, subsequent to year end, the Joint Venture Partners entered into a Real Estate Exchange Contract with an unaffiliated third party. If the exchange is ultimately consummated, the Partnership's liquidity will be impacted as it will no longer receive distributions from its Joint Venture investment. Additionally, the Partnership will make a special distribution to the Unitholders from the net proceeds received from the exchange. This special distribution will be allocated in accordance with Section 8.3(a) of the Partnership Agreement. 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 with 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 General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels of working capital the Partnership should maintain. As of December 31, 1996 the Partnership had significant liquid resources. Therefore, the General Partners increased the annual distribution rate from $.80 per Unit to $1.00 per Unit in 1997, beginning with the distribution payable in May, 1997. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP 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 three months ended March 31, 1997 and the period from inception to March 31, 1997. The General Partners provide 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 Three Months Inception to Ended March 31, March 31, 1997 1997 Distributable Cash Flow: Net income for tax purposes $1,037 $ 50,165 Items providing/not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 440 17,022 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of Joint Venture taxable net income (328) (7,593) Distributions from Joint Venture 199 10,107 Additions to fixed assets (53) (3,269) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $1,295 $ 67,700 Unitholders' Share of DCF $1,269 $ 66,346 Unitholders' Share of DCF per Unit $ .17 $ 8.85 (c) General Partners' Share of DCF $ 26 $ 1,354 Net Proceeds from Capital Transactions: Principal collections on MBS, net $ 295 $ 38,295 Reinvestment of MBS principal collections - (3,687) Total Net Proceeds from Capital Transactions $ 295 $ 34,608 Distributions: Unitholders $1,875(a) $101,693(b) Witholders' Average per Unit $ .25(a) $ 13.56(b)(c) General Partners $ 26(a) $ 1,354(b) Total Distributions $1,901(a) $103,047(b) (a)Represents an estimate of the distribution to be paid in May, 1997. (b)Includes an estimate of the distribution to be paid in May, 1997. (c)Unitholders average per Unit return of capital as of May, 1997 is $4.71 [$13.56 - $8.85]. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP Operations Partnership Distributable Cash Flow decreased for the three months ended March 31, 1997 as compared to the same period in 1996 as a result of a decrease in the Partnership's net income. Net income for the Partnership decreased as the increase in expenses was greater than the increase in revenue. Revenue, in total, remained relatively unchanged for the first quarter of 1997 when compared to the first quarter of 1996. However, at Canyon Place, Payless Shoes, a 4,391 square foot tenant, terminated their lease at the end of June, 1996. As a result of this termination, the Partnership recorded approximately $60,000 of rental revenue in February of 1997. MBS interest income decreased due to prepayments and repayments of principal. Interest income on cash and cash equivalents decreased due to lower average balances maintained during 1997. The decrease in cash and cash equivalents was primarily due to a $2,150,000 capital contribution to the Joint Venture in 1997. Total expenses increased for the three months ended March 31, 1997 as compared to the same period in 1996. Real estate tax, general and administrative and depreciation expenses all contributed to this increase. Real estate taxes increased due to a refund of approximately $9,000 received in the first quarter of 1996 as a result of a reassessment of the 1995 real estate taxes for Cumberland Glen. General and administrative expense increased as costs incurred in connection with the operation of the Partnership, including the preparation and mailing of reports and other communications to the Unitholders increased, as did legal costs relating to the recent unsolicited tender offer made to purchase Units of Depositary Receipts. Depreciation expense increased in the first three months of 1997 when compared to the same period in 1996 in conjunction with capital improvements made during 1996 and 1997. Joint Venture Overall, Joint Venture net income decreased for the three months ended March 31, 1997 when compared to the same period in 1996, as the increase in total revenue was offset by the increase in total expenses. The Joint Venture experienced a decrease in occupancy between the two periods, due mainly to the move-out of a 21,307 square foot tenant which was offset by an increase in reimbursable tenant billings. The increase in expenses is primarily due to a valuation provision for losses on real estate of $1,472,096 made to adjust the carrying value of the property to its estimated fair value as of March 31, 1997. Maintenance costs, such as security, sweeping and janitorial, as well as escalator repairs, increased the Joint Venture's property operating expenses during the first quarter of 1997 when compared to the first quarter of 1996. 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/Wayne H. Zarozny Wayne H. Zarozny Treasurer and Chief Accounting Officer of the Krupp Corporation, a General Partner. DATE: April , 1997