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 September
30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
C CCommission 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
14.
<page<
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, December 31,
1997 1996
Real estate assets:
Multi-family apartment complex, less
accumulated depreciation of $5,013,844
and $4,626,130, respectively $ 5,678,467 $5,830,088
Retail centers, less accumulated
depreciation of $15,372,420 and
$14,132,636, respectively 35,336,584 36,399,653
Investment in Joint Venture (Note 3) 514,344 15,112,894
Mortgage-backed securities ("MBS"), net of
accumulated amortization (Note 4) 6,366,996 7,134,203
Total real estate assets 47,896,391 64,476,838
Cash and cash equivalents (Note 2) 5,815,959 8,953,003
Other assets 534,862 633,585
Total assets $54,247,212$74,063,426
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable $ 8,464 $ 31,990
Accrued expenses and other liabilities (Note 5)814,271 698,174
Due to affiliates (Note 7) 74,982 161,374
Total liabilities 897,717 891,538
Partners' equity (deficit)(Note 6):
Unitholders
(7,499,718 Units outstanding) 53,879,752 73,661,975
Corporate Limited Partner
(100 Units outstanding) 923 1,187
General Partners (531,180) (491,274)
Total Partners' equity 53,349,495 73,171,888
Total liabilities and Partners' equity $54,247,212$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 For the Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenue:
Rental $1,746,362 $1,656,759 $5,195,006 $4,957,993
Interest income - MBS
(Note 4) 142,170 165,957 443,181 527,149
Interest income - other 217,814 124,463 525,332 352,546
Total revenue 2,106,346 1,947,179 6,163,519 5,837,688
Expenses:
Operating (Note 7) 209,868 246,089 713,700 705,863
Maintenance 127,227 107,445 348,007 343,720
General and adminis-
trative (Note 7) 132,579 70,799 473,872 195,166
Real estate taxes 186,344 194,873 613,305 593,934
Management fees (Note 7) 98,939 95,534 287,286 286,934
Depreciation 556,217 545,832 1,627,498 1,583,692
Total expenses 1,311,174 1,260,572 4,063,668 3,709,309
Income from operations 795,172 686,607 2,099,851 2,128,379
Partnership's share of
Joint Venture net
income (loss) (Note 3) 14,887 162,661 (858,011) 420,606
Net income $ 810,059 $ 849,268 $1,241,840 $2,548,985
Allocation of net income
(Note 6):
Unitholders (7,499,718
Units outstanding)$ 793,848 $ 832,271 $1,216,987 $2,497,972
Net income per Unit of
Depositary Receipt$ .10 $ .11 $ .16 $ .33
Corporate Limited Partner
(100 Units
outstanding) $ 10 $ 11 $ 16 $ 33
General Partners $ 16,201 $ 16,986 $ 24,837 $ 50,980
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,
1997 1996
Operating activities:
Net income $ 1,241,840$ 2,548,985
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,627,498 1,583,692
Amortization of MBS discount, net (396) (2,009)
Partnership's share of Joint Venture
net loss (income) 858,011 (420,606)
Distributions received from Joint Venture
net income - 420,606
Changes in assets and liabilities:
Decrease in other assets 98,723 160,797
Decrease in accounts payable (23,526) (23,879)
Decrease in due to affiliates (86,392) -
Increase in accrued expenses and other
liabilities 116,097 84,443
Net cash provided by operating
activities 3,831,855 4,352,029
Investing activities:
Additions to fixed assets (412,808) (308,548)
Settlement of land easement - (25)
Principal collections on MBS 767,603 1,002,508
Capital contribution to Joint Venture (2,150,000) -
Distributions received from Joint Venture
in excess of its net income 199,000 586,894
Distribution received from Joint Venture sale
of property, net 15,691,539 -
Net cash provided by investing
activities 14,095,334 1,280,829
Financing activity:
Distributions (21,064,233)(4,585,183)
Net increase (decrease) in cash and cash
equivalents (3,137,044) 1,047,675
Cash and cash equivalents, beginning of period 8,953,003 8,065,906
Cash and cash equivalents, end of period $ 5,815,959 $ 9,113,581
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
necessary to present fairly the
Partnership's financial position as of
September 30, 1997, its results of
operations for the three and nine months
ended September 30, 1997 and 1996, and cash
flows for the nine months ended September
30, 1997 and 1996.
The results of operations for the three and
nine months ended September 30, 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)Cash and Cash Equivalents
Cash and cash equivalents consisted of the
following:
September 30,December 31,
1997 1996
Cash and money market accounts $ 1,224,593 $ 2,038,686
Commercial paper 4,591,366 6,914,317
$ 5,815,959 $ 8,953,003
At September 30, 1997, commercial paper
represents corporate issues maturing in the
fourth quarter of 1997. At September 30,
1997, the carrying value of the
Partnership's investment in commercial paper
approximates fair value.
(3)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. Brookwood Village was sold on
May 13, 1997 to an unaffiliated third party.
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - Continued
(3)Investment in Joint Venture - Continued
Under the original 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 Brookwood Village or
development of unimproved land at Brookwood
Village. The lien entitled the seller to
receive $5,000,000 of proceeds from the sale
of Brookwood Village and potentially
additional amounts related to 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, there by 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 had recorded cumulative
valuation provisions for losses on its real
estate asset of $10,472,096 and $9,000,000
as of May 13, 1997, the date Brookwood
Village was sold (see discussion below), and
December 31, 1996, respectively.
Based upon the Joint Venture Partners'
assessment of the current and future market
conditions, the capital improvements
necessary to remain competitive in its
market, its capital resources and the
differing strategies of the Joint Venture
Partners, the Joint Venture Partners
determined that it was in their best
interests, and that of their respective
investors, to sell Brookwood Village. On May
13, 1997, the Joint Venture Partners
exchanged Brookwood Village with an
unaffiliated third party for net
consideration totaling $32,422,220, which
included two multifamily properties and
cash. Each Joint Venture Partner was
allocated 50% of the net consideration
received. The Partnership has received cash
totaling $15,691,539, net of the
Partnership's share of prorations and
closing costs of $519,571. For financial
reporting purposes, the Joint Venture
realized a loss of $686,760 on the exchange.
The loss was calculated as the difference
between net consideration received less net
book value of the property and closing
costs. Upon the dissolution of the Joint
Venture, the Partnership will receive
additional cash proceeds representing its
share of the remaining Joint Venture net
assets.
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - Continued
(3) 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,
1997 1996
Real estate assets, at cost $ - $ 60,530,292
Accumulated depreciation and valuation
provision - (26,190,274)
Total real estate assets - 34,340,018
Other assets 1,210,122 678,950
Total assets $ 1,210,122$ 35,018,968
LIABILITIES AND PARTNERS' EQUITY
Total liabilities $ 181,434$ 4,793,180
Partners' equity
The Partnership 514,344 15,112,894
Joint Venture Partner 514,344 15,112,894
Total Partners' equity 1,028,688 30,225,788
Total liabilities and Partners'
equity $ 1,210,122$ 35,018,968
Brookwood Village Joint Venture
Condensed Statements of Operations
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Revenue $ 5,515 $1,557,553 $ 2,470,874 $4,505,010
Property operating
expenses 44,138 (727,810) (1,296,132)(2,164,387)
Depreciation and provision
for losses on real estate - (504,421) (2,204,004) (1,499,411)
Loss on sale of property (19,879) - (686,760) -
Net income (loss) $ 29,774 $325,322 $(1,716,022)$ 841,212
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - Continued
(4)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,
1997 1996
Face Value $ 6,357,454 $ 7,125,057
Amortized Cost $ 6,366,996 $ 7,134,203
Estimated Market Value $ 6,733,000 $ 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
$366,000 and $351,000 at September 30, 1997
and December 31, 1996, respectively and
unrealized losses of approximately $0 and
$9,000, respectively. The Partnership does
not expect to realize these gains or losses
in the near future as it has the intention
and ability to hold the MBS until maturity.
(5) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the
following:
September 30,December 31,
1997 1996
Accrued real estate taxes $ 412,455 $ 245,000
Other accrued expenses 209,673 206,436
Tenant security deposits 183,450 169,849
Prepaid rent 8,693 76,889
$ 814,271 $ 698,174
(6) Changes in Partners' Equity
A summary of changes in Partners' equity (deficit) for the
nine months ended September 30, 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 1,216,987 16 24,837 1,241,840
Distributions:
Operations (5,249,803) (70) (64,743) (5,314,616)
Capital
transaction (15,749,407) (210) - (15,749,617)
Balance at
September 30, 1997 $53,879,752 $ 923 $(531,180)$53,349,495
During the third quarter of 1997, the Partnership made a
special capital distribution of $15,749,617 based on the
proceeds received from the exchange of the Joint Venture on
May 13, 1997.
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - Continued
(7)Related Party Transactions
The Partnership pays property management fees
to an affiliate of the General Partners for
management services. Pursuant to the
management agreements, management fees are
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
residential management agreement was sold to
BRI Limited Partnership, a subsidiary of
Berkshire Realty Company Inc., a publicly
traded real estate investment trust and an
affiliate of the General Partners, on
February 28, 1997. 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 administrative expenses.
Amounts accrued or paid to the General
Partners's affiliates were as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Property management
fees $ 98,939 $ 95,534 $287,286 $286,934
Expense reimbursements 135,784 83,067 409,049 229,061
Charged to
operations $234,723 $178,601 $696,335 $515,995
Due to affiliates consisted of expense
reimbursements of $74,982 and $161,374 at
September 30, 1997 and December 31, 1996,
respectively.
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management' Discussion and Analysis of
Financial Condition and Results of Operations
contains forward-looking statements including
those concerning Management' 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 Plaza, Alderwood
Towne Center, Canyon Place, Coral Plaza and
Cumberland Glen Apartments), 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.
The Partnership 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 for the rest of 1997. In order
to remain competitive in their respective
markets, the Partnership's properties have
spent approximately $413,000 to date and are
anticipated to spend approximately $733,000
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 3 to the Financial
Statements included in this report, the Joint
Venture Partners exchanged Brookwood Village
with an unaffiliated third party on May 13,
1997 for net consideration totaling
$32,422,220. The Partnership received
approximately $15,692,000 of the proceeds
from the exchange net of its share of
prorations and closing costs. Upon the
dissolution of the Joint Venture, the
Partnership will receive additional cash
proceeds representing its share of the
remaining Joint Venture net assets. After
the dissolution of the Joint Venture, the
Partnership's future liquidity will be
impacted as it will no longer receive
distributions from its Joint Venture
investment.
Liquidity provided by the MBS is derived
primarily from interest income, scheduled
principal payments and prepayments of the
portfolio. The level of prepayments is
contingent upon the interest rate
environment, which in turn, affects the
Partnership' liquidity.
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.
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
Liquidity and Capital Resources - Continued
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. The
Partnership made a special distribution of
$2.10 per Unit in August, 1997 from the
Brookwood Village sales proceeds. However,
the sale of Brookwood Village has resulted in
a significant reduction of the Partnership's
assets which earn income and generate cash
flow. While the current distribution rate
was maintained for the August and November,
1997 distributions, the General Partners have
assessed the Partnership's current future
liquidity needs and determined $.80 per Unit
to be a sustainable distribution rate. The
reduced distribution rate will be effective
beginning with the distribution payable in
February, 1998.
Operations
Partnership
Net income, net of the Partnership's share of
the Joint Venture net income (loss),
increased for the three months ended
September 30, 1997 when compared to the same
period in 1996, as the increase in revenue
more than offset the increase in expenses.
Net income, net of the Partnership's share
of the Joint Venture net income (loss), remained
relatively stable for the nine months ended
September 30, 1997 when compared to the same
period in 1996, as the increase in revenue was
offset by an increase in expenses.
Total revenue, net of the Partnership's share
of Joint Venture net income (loss), increased
for the three and nine months ended September
30, 1997 as compared to the same periods in
1996 as a result of increases in occupancy at
the Partnership's properties. In the third
quarter of 1997, Alderwood Towne Center's
("Alderwood") occupancy increased 12% when
compared to 1996. The property currently
enjoys 100% occupancy as of September 30,
1997. Canyon Place ("Canyon") and Cumberland
Glen also had increases in occupancy in the
third quarter of 1997. Additionally, Payless
Shoes, a 4,391 square foot tenant at Canyon
Place, terminated their lease at the end of
June, 1996. The space was subsequently
released, however, as a result of this
termination, the Partnership recorded
approximately $60,000 of rental revenue in
February 1997, thereby contributing to the
rise in revenue for the nine months ended
September 30, 1997 when compared to the same
period in 1996. MBS interest income
decreased due to a decrease in prepayments of
principal. Interest income on cash and cash
equivalents increased due to higher average
balances maintained during 1997, primarily a
result of receiving approximately $15,692,000
of proceeds from the sale of Brookwood
Village in May, 1997.
Total expenses increased for the three and
nine month periods ended September 30, 1997
as compared to the same periods in 1996
primarily due to an increase in general and
administrative expense. This increase is
attributed to additional costs incurred in
connection with the operation of the
Partnership, including the preparation and
mailing of reports and other communications
to the Unitholders. Also, the Partnership
incurred additional legal costs related to
the settlement of the Brookwood Village Joint
Venture litigation, as discussed in Note 3,
and the unsolicited tender offers made to
purchase Units of Depositary Receipts.
Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP
Operations - Continued
Joint Venture
Net income, net of the valuation provision
for losses on real estate and the loss on the
sale of property, decreased for the three and
nine months ended September 30, 1997 when
compared to the same periods in 1996, as the
decrease in total revenue exceeded the decrease
in total expenses. These decreases are directly
related to the sale of Brookwood Village in the
second quarter of 1997.
Brookwood Village was sold on May 13, 1997 to
an unaffiliated third party. See Note 3 for
further discussion of this matter.
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: November 12, 1997