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