-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJS/Rjh3M8wzuWRM2mPhoKHJ49y7+QhkiH3nI01uZ+uhfMOaOg3ihsbN0qvln+Bt QRjtPGs/SNh+LmdiY9HdPg== 0000785988-97-000002.txt : 19970401 0000785988-97-000002.hdr.sgml : 19970401 ACCESSION NUMBER: 0000785988-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP CASH PLUS II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000785988 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042915326 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15816 FILM NUMBER: 97570965 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: C/O BERSHIRE REALTY AFFILIATES STREET 2: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year end December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-15816 Krupp Cash Plus-II Limited Partnership (Exact name of registrant as specified in its charter) 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) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:Depositary Receipts representing Units of Limited Partner Interests 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 11-15. The total number of pages in this document is 46. PART I This Form 10-K 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. ITEM 1. BUSINESS Krupp Cash Plus-II Limited Partnership (the "Partnership") was formed on December 18, 1985 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation and The Krupp Company Limited Partnership-IV are the General Partners of the Partnership. Krupp Depositary Corporation is the Corporate Limited Partner. For details, see Note A to Financial Statements included in Item 8 (Appendix A) of this report. On March 28, 1986 the Partnership commenced the marketing and sale of 7,500,000 units of Depositary Receipts ("Units") for a maximum offering of $150,000,000. The Partnership raised $149,845,812 from its public offering. The Partnership invested the net proceeds from the offering in a portfolio of unleveraged real estate (see Item 2 - Properties) and mortgage backed securities ("MBS") issued by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC") (see Note E to Financial Statements, included in Item 8 (Appendix A) of this report). The holding period for the portfolio of unleveraged real estate was anticipated to be 5 to 10 years from the date of acquisition. However, the holding period was to be aligned with the delivery of the Partnership's objectives, as defined in the Partnership's Prospectus, with the clear understanding that the Partnership must be dissolved by December 31, 2025. Unfortunately, due to the economic downturn in the retail segment, the objectives of the Partnership have not been achieved. The General Partners expect to sell each property when they believe they can best maximize the return to their investors. The Partnership considers itself to be engaged only in the industry segment of investment in real estate and related assets. The Partnership's real estate investments are subject to some seasonal fluctuations, resulting from changes in utility consumption, seasonal maintenance expenditures and changes in retail rental income based on the percentage of tenant gross receipts. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, the credit worthiness of GNMA, FNMA and FHLMC, interest rates, real estate taxes, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels, the financial failure of a tenant or the inability of retail tenants to achieve gross sales at a level sufficient to provide for additional rental income based on a percentage of sales, (iii) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment or adverse changes in real estate zoning laws, and the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (iv) other circumstances over which the Partnership may have little or no control. As of December 31, 1996, there were 5 full and part-time on-site personnel employed by the Partnership. ITEM 2. PROPERTIES As of December 31, 1996, the Partnership has unleveraged investments in four retail centers with an aggregate of 364,894 square feet of leasable space and one apartment complex with 222 units, all of which are wholly- owned by the Partnership. In addition, the Partnership has an unleveraged joint venture investment (the "Joint Venture") in a shopping center with 474,138 square feet of leasable space. Additional detailed information with respect to individual properties is contained in Note D to the Financial Statements, Schedule III and the Separate Financial Statements for Brookwood Village Joint Venture included in Item 8 (Appendix A) of this report. A summary of the Partnership's real estate investments is presented below.
Average Occupancy Current Leasable For the Year Ended Year of Square Footage/ December 31, Description Acquisition Units 1996 1995 1994 1993 1992 Commercial Encino Oaks Shopping Center Encino, California 1986 52,380 Sq. Ft. 96% 99% 100% 97% 97% Alderwood Towne Center Lynnwood, Washington 1986 105,346 Sq. Ft. 92% 100% 99% 100% 97% Canyon Place Shopping Center Portland, Oregon 1986 157,283 Sq. Ft. 95% 90% 82% 83% 87% Coral Plaza Shopping Center Oak Lawn, Illinois 1987 49,885 Sq. Ft. 85% 85% 87% 88% 90% Brookwood Village Mall and Convenience Center Birmingham, Alabama (1) 1986 474,138 Sq. Ft. 92% 94% 95% 91% 84% Residential Cumberland Glen Apartments Smyrna, Georgia 1987 222 units 94% 96% 97% 96% 92%
(1)The Partnership has a 50% joint venture interest in this property. The Partnership has no present plans for major improvements or developments of its unleveraged real estate. Only improvements necessary to keep the Partnership's properties competitive in their respective markets were completed in 1996 and are expected to be completed in the next year. There were 11 tenants which occupied 10% or more of their respective leasable space as of December 31, 1996. ITEM 3. LEGAL PROCEEDINGS As of December 31, 1996 there were no material pending legal proceedings to which the Partnership was a party or to which any of its property was the subject. Subsequent to year end, the Partnership, its Joint Venture Partner (collectively the "Joint Venture Partners"), and Brookwood Village Joint Venture, among others, were named as defendants in a lawsuit filed by the previous owner of Brookwood Village Mall and Convenience Center related to a $5,000,000 lien retained by the seller. On February 28, 1997, Brookwood Village paid the discounted amount of $4,300,000 to release the lien and settle the lawsuit. The Partnership and its Joint Venture Partner each made capital contributions of $2,150,000 to fund the settlement payment. See Note K to the Financial Statements included in Item 8 (Appendix A) of this report for further discussion of this matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no public market for the Units and it is not anticipated that any such public market will develop. The transfer of Units is subject to certain limitations contained in the Partnership Agreement. The number of Investor Limited Partners ("Unitholders") as of December 31, 1996 was approximately 9,600. The Partnership has made the following distributions to its Partners during the years ended December 31, 1996 and 1995:
Year Ended December 31, 1996 1995 Amount Per Unit Amount Per Unit Limited Partners: Unitholders (7,499,718 Units) $5,999,775 $.80 $5,999,775 $.80 Corporate Limited Partner (100 Units) 80 .80 80 .80 General Partners 114,605 109,044 $6,114,460 $6,108,899
One of the objectives of the Partnership is to make partially tax sheltered distributions of cash flow generated by the Partnership's properties and MBS. However, there is no assurance that future operations will continue to generate sufficient cash to maintain the current level of distributions and to provide sufficient liquidity for the Partnership. The Partnership made distributions of $.20 per Unit, per quarter to its investors and expects to increase the distribution rate to $.25 per Unit, per quarter, beginning with the distribution payable in May, 1997. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, and the Financial Statements and Supplementary Data, which are included in Items 7 and 8 (Appendix A) of this report, respectively.
1996 1995 1994 1993 1992 Total revenue $ 3,764,199 $ 8,367,001 $ 8,022,513 $ 8,432,254 $ 8,719,084 Net income (loss) (1,455,849) 3,388,472 3,064,617 3,232,087 3,451,547 Net income (loss) allocated to Partners: Unitholders (1,426,713) 3,320,658 3,003,285 3,167,403 3,382,471 Per Unit (.19) .44 .40 .42 .45 Corporate Limited Partner (19) 44 40 42 45 General Partners (29,117) 67,770 61,292 64,642 69,031 Total assets at December 31 74,063,426 81,423,108 84,349,429 87,285,456 97,595,990 Distributions: Unitholders 5,999,775 5,999,775 6,012,096 13,495,370 6,003,028 Per Unit(a) .80 .80 .80 1.80 .80 Corporate Limited Partner 80 80 80 180 80 General Partners 114,605 109,044 89,729 89,558 116,273
(a)During the years ended December 31, 1996, 1995, 1994, 1993and 1992 the Limited Partners' average Per Unit return ofcapital was $.09, $.04, $.20, $1.21, and $.13, respectively. Prior performance of the Partnership is not necessarily indicative of future operations. ITEM 7. 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, 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. Management has found it necessary in recent years to have the Partnership 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 $850,000 for capital improvements in 1997, most of which are tenant buildouts at retail centers. Currently, the Joint Venture is pursuing leasing options to fill the space vacated by Yieldings, a 21,307 square foot tenant, on December 31, 1996. The Joint Venture is expected to spend approximately $884,000 for fixed assets in 1997, including tenant improvements, upgrades to the appearance of the exteriors of the buildings, parking garage lighting and bridge improvements. The Partnership holds MBS that are guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home 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. Principal collections on MBS have stabilized since 1994 because steady interest rates have slowed the pace of refinancings that were experienced in 1994. Subsequent to year end, 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. See Note K to the Financial Statements included in Item 8 (Appendix A) of this report for further discussion of this matter. 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 have increased the annual distribution rate from $.80 per Unit to $1.00 per Unit in 1997, beginning with the distribution payable in May, 1997. Distributable Cash Flow and Net Cash 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 year ended December 31, 1996 and the period from inception to December 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 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 Year Inception to Ended December 31, December 31, 1996 1996 Distributable Cash Flow: Net income (loss) for tax purposes $ 4,052 $ 49,128 Items providing/not requiring or (not providing) the use of operating funds: Tax basis depreciation and amortization 1,753 16,582 Acquisition expenses paid from offering proceeds charged to operations - 248 Partnership's share of Joint Venture taxable net loss (1,201) (7,265) Distributions from Joint Venture 1,376 9,908 Additions to fixed assets (629) (3,216) Amounts released from reserves for capital improvements - 1,020 Total Distributable Cash Flow ("DCF") $ 5,351 $ 66,405 Unitholders' Share of DCF $ 5,244 $ 65,077 Unitholders' Share of DCF per Unit $ .70 $ 8.68(c) General Partners' Share of DCF $ 107 $ 1,328 Net Proceeds from Capital Transactions: Principal collections on MBS, net $ 1,368 $ 38,000 Reinvestment of MBS principal collections - (3,687) Total Net Proceeds from Capital Transactions $ 1,368 $ 34,313 Distributions: Unitholders' $ 6,000(a) $ 99,818(b) Unitholders' Average per Unit $ .80(a) $ 13.31(b)(c) General Partners $ 107(a) $ 1,328(b) Total Distributions $ 6,107(a) $101,146(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 February, 1997. (b)Includes an estimate of the distribution to be paid in February, 1997. (c)Unitholders' average per Unit return of capital as of February, 1997 is $4.63 [$13.31 - $8.68]. Operations Partnership 1996 compared to 1995 Distributable Cash Flow decreased in 1996 as compared to 1995 primarily as a result of a decrease in MBS interest income, an increase in expenses and an increase in capital improvements at the Partnership's properties. Net income, net of the Partnership's share of Joint Venture net income (loss), also decreased in 1996 by approximately 15%. Total revenue, net of the Partnership's share of Joint Venture income (loss), decreased in 1996 as compared to 1995 primarily due to a decrease in MBS interest income as discussed below. Rental revenue remained stable as the decrease in occupancy at Alderwood Towne Center ("Alderwood") was offset by the increase in occupancy at Canyon Place ("Canyon"). Alderwood's decrease in average occupancy was the result of the eviction of Abodio, a 9,742 square foot tenant, in the second quarter of 1996. Additionally, Clothestime, a 3,265 square foot tenant, chose not to renew its lease in the third quarter. To offset this decrease, Jo-Ann Fabrics, a 14,833 square foot tenant, opened in the first quarter at Canyon, favorably impacting rental revenue in 1996. Although market conditions in Atlanta have somewhat declined, increased rental rates, instituted during the first half of 1996, increased revenue at Cumberland Glen. Total expenses in 1996 increased as compared to 1995, with increases in maintenance and general and administrative expenses more than offsetting the decrease in real estate taxes. Security increased at Encino Oaks ("Encino") in 1996 due to additional incidents reported at the property. This, as well as increased landscaping expenditures at Encino, Alderwood and Canyon, and a rise in snow removal costs at Alderwood and Canyon caused maintenance expense to increase. Additionally, at Cumberland Glen the interior of its buildings were enhanced, including wallpapering and cabinet repairs, to keep the property appealing and help maintain occupancy in a declining real estate market. The increase in general and administrative expense was the result of increased costs incurred in connection with the operation of the Partnership and its properties, including accounting, computer, insurance, travel, legal and payroll, and the preparation and mailing of reports and other communications to the Unitholders. Real estate taxes decreased as a result of the reassessment of Canyon and Coral's value in 1996. In conjunction with the higher number of capital improvements performed in 1996, depreciation expense increased in 1996 when compared to 1995. 1995 compared to 1994 Distributable Cash Flow increased due to decreased capital improvements, increased rental revenues and distributions received from the Joint Venture. Rental revenues in 1995 increased when compared to 1994 as a result of increased rental revenue at Canyon and Cumberland Glen. Canyon experienced an 8% increase in occupancy in 1995 as compared to 1994. This increase in occupancy was due to the opening of the 4,391 square foot Payless Shoes and the 10,592 square foot Petco Pet Food and Supplies stores in the fourth quarter of 1994 and to the expansion of several tenants between 1994 and 1995. At Cumberland Glen, the strong economic environment in the Atlanta, Georgia area has allowed management to increase rental rates on certain floor plans. All other properties have experienced relatively stable occupancies with minor rental increases during 1995. Total expenses as a whole remained relatively stable. However, individually, maintenance, operating, general and administrative, and real estate taxes all changed significantly in 1995 as compared to 1994. Operating and general and administrative expenses decreased as a result of lower reimbursable expenses throughout 1995. Maintenance expense decreased in 1995 as compared to the same period in 1994 due to preventive maintenance at Encino, roof repairs at Canyon, and improvements to the parking lot and building interiors at Cumberland Glen, all performed in 1994. The increase in real estate taxes is due primarily to a refund of approximately $270,000 recorded in the second quarter of 1994 for prior years' real estate taxes at Coral Plaza. MBS and Other Income MBS interest income decreased approximately $129,000 in 1996 from 1995, and $151,000 in 1995 from 1994 due to prepayments and repayments of principal which occurred between 1994 and 1996. The asset balance on which income is generated has decreased approximately 16% since December 31, 1995 and approximately 27% since December 31, 1994. Interest income on short-term investments remained relatively stable in 1996 when compared to 1995 as cash balances have leveled off. However, in 1995, higher average cash and cash equivalent balances, including investments in commercial paper, resulted in higher interest income on short-term investments when compared to 1994. Joint Venture Net income, net of the valuation provision for losses on real estate, increased in 1996 when compared to 1995 as the decrease in total expenses more than offset the decrease in total revenue. Yeildings, a 21,307 square foot tenant, moved out on December 31, 1996. As a result of the move-out, the Joint Venture incurred additional amortization costs of approximately $39,000. Additionally, a credit adjustment of approximately $131,000, during the fourth quarter, for Eckerd Drugs's prior years' rent overpayment, based on a percentage of its sales, also attributed to the Joint Venture's decline in rental revenue. Interest income also decreased as the Joint Venture maintained lower average cash and cash equivalent balances in 1996. Total expenses, net of the provision for losses of real estate, decreased in 1996 when compared to 1995, a result of decreases in operating and depreciation expenses. Increased leasing and advertising efforts made in 1995, in an effort to maintain the Joint Venture's occupancy, accounted for the decrease in operating expense in 1996. Depreciation expense decreased as a result of an increase in fully depreciated assets in 1996 when compared to 1995. Net income in 1995 remained relatively stable when compared to 1994. Total revenues remained relatively stable as a result of steady occupancy throughout 1995. Total expenses in 1995 as compared to 1994 also remained relatively flat. Real estate taxes decreased as a result of an abatement in the third quarter of 1995 due to the revaluation of the Joint Venture by the local taxing authority. This reduction is offset by an increase in operating expense attributable to increased leasing efforts by management. Depreciation expense increased due to a large number of tenant buildouts and improvements completed in 1995 and 1994. 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 and the Joint Venture's investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a material impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income. As of December 31, 1996, the Joint Venture recorded a $9,000,000 valuation provision for losses on its real estate asset which represents the difference between carrying value and estimated fair value less costs to sell. The General Partners believe there are no other impairment adjustments necessary for the remainder of its real estate assets. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. .CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of both the Partnership and The Krupp Company Limited Partnership-IV, the other General Partner of the Partnership, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (50) Co-Chairman of the Board George Krupp (52) Co-Chairman of the Board Laurence Gerber (40) President Robert A. Barrows (39) Treasurer Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the Company. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of approximately 3,400 are responsible for the more than $4 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of both Berkshire Realty Company, Inc. (NYSE-BRI) and Harborside Healthcare (NYSE-HBR). George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of approximately 3,400 are responsible for more than $4 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also serves as Director of Berkshire Realty Company, Inc. (NYSE-BRI) and Harborside Healthcare Corporation (NYSE-HBR) as well as President and Trustee of Krupp Government Income Trust and President and Trustee of Krupp Government Income Trust II. Robert A. Barrows is Senior Vice President and Chief Financial Officer of The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1996, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's 7,499,818 outstanding Depositary Receipts. The only interests held by management or its affiliates consist of its General Partner and Corporate Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Additionally, as of December 31, 1996, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)1. Financial Statements - see Index to Financial Statements and Schedule included under Item 8 (Appendix A) on page F-2 of this report. 2. Financial Statement Schedule - see Index to Financial Statements and Schedule included under Item 8 (Appendix A) on page F-2 of this report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Financial Statements or the Notes thereto. 3. Separate Financial Statements - as required by Rule 3-09 of Regulation S-X. The separate financial statements and schedule for Brookwood Village Joint Venture (the "Joint Venture") are included under Item 8 (Appendix A) on pages F-17 to F-30 of this report. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: (4.1)Amended Agreement of Limited Partnership dated as of March 25, 1986 [Exhibit A to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated March 26, 1986 (File No. 33-2312)].* (4.2)Subscription Agreement Specimen [Exhibit D to Prospectus included in Amendment No. 1 of Registrant's Registration Statement on Form S-11 dated March 26, 1986 (File No. 33-2312)].* (4.3)Eleventh Amendment and Restatement of Certificate of Limited Partnership filed with the Massachusetts Secretary of State as of February 6, 1987. [Exhibit 4.3a to Registrant's Report on Form 10-K dated December 31, 1986 (File No. 33-2312)].* (10) Material Contracts: Encino Oaks Plaza (10.1) Krupp Standard Purchase Agreement dated July 16, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Cal-American Income Property Fund II, a California limited partnership. [Exhibit 1 to Registrant's Report on Form 8-K dated July 31, 1986 (File No. 33-2312)].* (10.2) Assignment of Contract between Krupp Realty and Development, Inc., a Massachusetts corporation and Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership dated July 28, 1986. [Exhibit 2 to Registrant's Report on Form 8-K dated July 31, 1986 (File No. 33-2312)].* (10.3) Partnership Grant Deed dated July 31, 1986 from Cal-American Income Property Fund II a California limited partnership, to Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership. [Exhibit 3 to Registrant's Report on Form 8-K dated July 31, 1986 (File No. 33-2312)].* (10.4) Management Agreement dated July 31, 1986 between Krupp Cash Plus- II Limited Partnership, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 10.4a to Registrant's Report on Form 10-K dated December 31, 1986 (File No. 33-2312)].* Alderwood Towne Center (10.5) Krupp Standard Option Agreement dated July 16, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Alderwood Towne Center, a Washington tenancy-in-common. [Exhibit 10.5 included in Registrant's Post Effective Amendment No. 2 to its Form S-11 Registration Statement dated September 3, 1986 (File No. 33-2312)].* (10.6) Escrow Agreement dated August 12, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Alderwood Towne Center, a Washington tenancy-in-common. [Exhibit 10.5 included in Registrant's Post Effective Amendment No. 2 to its Form S-11 Registration Statement dated September 3, 1986 (File No. 33- 2312)].* (10.7) Amendment to Option Agreement dated July 17, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Alderwood Towne Center, a Washington tenancy-in-common. [Exhibit 10.5 included in Registrant's Post Effective Amendment No. 2 to its Form S-11 Registration Statement dated September 3, 1986 (File No. 33-2312)].* (10.8) Assignment of Option Agreement between Krupp Realty and Development, Inc. a Massachusetts corporation and Krupp Cash Plus- II Limited Partnership, a Massachusetts limited partnership dated August 20, 1986. [Exhibit 4 to Registrant's Report on Form 8-K dated September 3, 1986 (File No. 33-2312)].* (10.9) Statutory Warranty Deed dated September 3, 1986 between Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership and Alderwood Towne Center Associates. [Exhibit 5 to Registrant's Report on Form 8-K dated September 3, 1986 (File No. 33-2312)].* (10.10) Property Management Agreement dated September 3, 1986 between Krupp Cash Plus-II Limited Partnership, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 6 to Registrant's Report on Form 8-K dated September 3, 1986 (File No. 33-2312)].* Brookwood Village Mall and Convenience Center (10.11) Purchase and Sale Agreement dated December 5, 1986 between Krupp Realty and Development Inc., a Massachusetts corporation and Everett Shepherd, Jr. et al as assigned to Brookwood Village Joint Venture. [Exhibit 1 to Registrant's Report on Form 8-K dated December 16, 1986 (File No. 33-2312)].* (10.12) Statutory Warranty Deed with Vendors' Lien dated December 16, 1986 between Brookwood Village Joint Venture and Everett Shepherd, Jr. et al. [Exhibit 2 to Registrant's Report on Form 8-K dated December 16, 1986 (File No. 33-2312)].* (10.13) Business Certificate dated December 11, 1986 establishing Brookwood Village Joint Venture. [Exhibit 3 to Registrant's Report on Form 8-K dated December 16, 1986 (File No. 33-2312)].* (10.14) Brookwood Village Joint Venture Agreement dated December 15, 1986 between Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership and Krupp Cash Plus-III Limited Partnership, a Massachusetts limited partnership, now known as Berkshire Realty Company, Inc. [Exhibit 10.14 to Registrant's Report on Form 10-K dated December 31, 1986 (File No. 33-2312)].* (10.15) Property Management Agreement dated December 16, 1986 between Brookwood Village Joint Venture, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 4 to Registrant's Report on Form 8-K dated December 16, 1986 (File No. 33-2312)].* Canyon Place Shopping Center (10.16) Krupp Standard Option Agreement dated October 24, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Canyon Place Associates, a Washington tenancy-in-common. [Exhibit 1 to Registrant's Report on Form 8-K dated December 23, 1986 (File No. 33-2312)].* (10.17) Amendment to Option Agreement dated December 9, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Canyon Place Associates, a Washington tenancy-in-common. [Exhibit 2 to Registrant's Report on Form 8-K dated December 23, 1986 (File No. 33-2312)].* (10.18) Assignment of Option Agreement dated December 17, 1986 between Krupp Realty and Development, Inc., a Massachusetts corporation and Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership. [Exhibit 3 to Registrant's Report on Form 8-K dated December 23, 1986 (File No. 33-2312)].* (10.19) Warranty Deed dated December 23, 1986 between Canyon Place Associates, a Washington tenancy-in-common, as Grantor and Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership, as Grantee. [Exhibit 4 to Registrant's Report on Form 8-K dated December 23, 1986 (File No. 33-2312)].* (10.20) Property Management Agreement dated December 23, 1986 between Krupp Cash Plus-II Limited Partnership, as Owner and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 6 to Registrant's Report on Form 8- K dated December 23, 1986 (File No. 33-2312)].* Coral Plaza Shopping Center (10.21) Purchase and Sale Agreement dated May 8, 1987 between Harris Trust and Savings Bank, as trustee under Trust No. 42703, and Krupp Realty and Development, Inc., a Massachusetts corporation, as assigned to Krupp Cash Plus-II Limited Partnership. [Exhibit 19.1 to Registrant's Report on Form 10-Q dated June 30, 1987 (File No. 33-2312)].* (10.22) Assignment between Coral Plaza Limited Partnership and Harris Trust and Savings Bank, as Trustee under Trust No. 42703, collectively as "Assignor," and Krupp Cash Plus-II Limited Partnership, a Massachusetts limited partnership, as "Assignee" dated June 2, 1987. [Exhibit 19.2 to Registrant's Report on Form 10-Q dated June 30, 1987 (File No. 33-2312)].* (10.23) Trustee's Deed dated May 28, 1987 from Harris Trust and Savings Bank, as trustee under Trust No. 42703, to Krupp Cash Plus-II Limited Partnership. [Exhibit 19.3 to Registrant's Report on Form 10-Q dated June 30, 1987 (File No. 33-2312)].* (10.24) Property Management Agreement, dated June 1, 1987, between Krupp Cash Plus-II Limited Partnership, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 19.4 to Registrant's Report on Form 10-Q dated June 30, 1987 (File No. 33-2312)].* Cumberland Glen Apartments (10.25) Agreement of Purchase and Sale, dated August 24, 1987 between FNBC Properties, Inc., a Delaware corporation, as "Seller," and Krupp Realty and Development, Inc., a Massachusetts corporation, as "Purchaser." [Exhibit 19.5 to Registrant's Report on Form 10-Q dated September 30, 1987 (File No. 0-15816)].* (10.26) Assignment of Purchase and Sale Agreement, dated August 24, 1987 between Krupp Realty and Development, Inc., and Krupp Cash Plus- II Limited Partnership, a Massachusetts limited partnership. [Exhibit 19.6 to Registrant's Report on Form 10-Q dated September 30, 1987 (File No. 0-15816)].* (10.27) Quit Claim Deed, dated September 3, 1987, between The First National Bank of Chicago, and Krupp Cash Plus-II Limited Partnership. [Exhibit 19.7 to Registrant's Report on Form 10-Q dated September 30, 1987 (File No. 0-15816)].* (10.28) Property Management Agreement, dated September 3, 1987, between Krupp Cash Plus-II Limited Partnership, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM"), as Agent. [Exhibit 19.8 to Registrant's Report on Form 10-Q dated September 30, 1987 (File No. 0- 15816)].* * Incorporated by reference. (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1996 the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of March, 1997. KRUPP CASH PLUS-II LIMITED PARTNERSHIP By: The Krupp Corporation, a General Partner By: /s/Douglas Krupp Douglas Krupp, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 27th day of March, 1997. Signatures Titles /s/Douglas Krupp Co-Chairman (Principal Executive Officer) and Douglas Krupp Director of The Krupp Corporation, a General Partner of the Registrant. /s/George Krupp Co-Chairman (Principal Executive Officer) and George Krupp Director of The Krupp Corporation, a General Partner of the Registrant. /s/Laurence Gerber President of The Krupp Corporation, a General Laurence Gerber Partner of the Registrant. /s/Robert A. Barrows Treasurer of the Krupp Corporation, a General Robert A. Barrows Partner of the Registrant. APPENDIX A KRUPP CASH PLUS-II LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 of FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1996 KRUPP CASH PLUS-II LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Balance Sheets at December 31, 1996 and December 31, 1995 F-4 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-5 Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994 F-6 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-7 Notes to Financial Statements F-8 - F-14 Schedule III - Real Estate and Accumulated Depreciation F-15 - F-16 Separate Financial Statements - Brookwood Village Joint Venture F-17 - F-30 All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Cash Plus-II Limited Partnership: We have audited the financial statements and the financial statement schedule of Krupp Cash Plus-II Limited Partnership (the "Partnership") listed in the index on page F-2 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Cash Plus-II Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND L.L.P. January 31, 1997, except for the information disclosed in Note K, for which the date is February 28, 1997.
KRUPP CASH PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1996 and 1995 ASSETS 1996 1995 Real estate assets: Multi-family apartment complex, less accumulated depreciation of $4,626,130 and $4,137,678, respectively $ 5,830,088 $ 6,119,113 Retail centers, less accumulated depreciation of $14,132,636 and $12,489,601, respectively 36,399,653 37,613,542 Investment in Joint Venture (Note D) 15,112,894 20,411,464 Mortgage-backed securities ("MBS"), net of accumulated amortization (Note E) 7,134,203 8,501,911 Total real estate assets 64,476,838 72,646,030 Cash and cash equivalents (Note C) 8,953,003 8,065,906 Other assets 633,585 711,172 Total assets $ 74,063,426 $ 81,423,108 LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable $ 31,990 $ 23,879 Accrued expenses and other liabilities (Note F) 698,174 657,032 Due to affiliates (Note H) 161,374 - Total liabilities 891,538 680,911 Commitments and contingencies (Note D) Partners' equity (deficit) (Note G): Unitholders (7,499,718 Units outstanding) 73,661,975 81,088,463 Corporate Limited Partner (100 Units outstanding) 1,187 1,286 General Partners (491,274) (347,552) Total Partners' equity 73,171,888 80,742,197 Total liabilities and Partners' equity $ 74,063,426 $ 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 Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenue: Rental (Note I) $ 6,524,291 $ 6,588,018 $ 6,246,489 Partnership's share of Joint Venture net income (loss) (Note D) (3,923,070) 496,491 501,381 Interest income-MBS (Note E) 687,690 816,210 967,172 Interest income-other (Note C) 475,288 466,282 307,471 Total revenue 3,764,199 8,367,001 8,022,513 Expenses: Operating (Note H) 948,743 918,694 1,029,931 Maintenance 545,017 501,083 581,822 General and administrative (Note H) 440,178 343,761 442,987 Real estate taxes 779,921 815,364 630,923 Management fees (Note H) 374,702 374,554 348,589 Depreciation 2,131,487 2,025,073 1,923,644 Total expenses 5,220,048 4,978,529 4,957,896 Net income (loss) (Note J) $(1,455,849) $ 3,388,472 $ 3,064,617 Allocation of net income (loss) (Note G): Unitholders (7,499,718 Units outstanding) $(1,426,713) $ 3,320,658 $ 3,003,285 Net income (loss) per Unit of Depositary Receipt $ (.19) $ .44 $ .40 Corporate Limited Partner (100 Units outstanding) $ (19) $ 44 $ 40 General Partners $ (29,117) $ 67,770 $ 61,292
The accompanying notes are an integral part of the financial statements.
KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1996, 1995 and 1994 Corporate Total Limited General Partners' Unitholders Partner Partners Equity Balance at December 31, 1993 $86,776,391 $ 1,362 $(277,841) $86,499,912 Net income 3,003,285 40 61,292 3,064,617 Distributions (6,012,096) (80) (89,729) (6,101,905) Balance at December 31, 1994 83,767,580 1,322 (306,278) 83,462,624 Net income 3,320,658 44 67,770 3,388,472 Distributions (5,999,775) (80) (109,044) (6,108,899) Balance at December 31, 1995 81,088,463 1,286 (347,552) 80,742,197 Net loss (Note G) (1,426,713) (19) (29,117) (1,455,849) Distributions (Note G) (5,999,775) (80) (114,605) (6,114,460) Balance at December 31, 1996 $73,661,975 $ 1,187 $(491,274) $73,171,888
The per Unit distributions for the years ended December 31, 1996, 1995 and 1994 were $.80. The accompanying notes are an integral part of the financial statements.
KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Operating activities: Net income (loss) $(1,455,849) $ 3,388,472 $ 3,064,617 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,131,487 2,025,073 1,923,644 Partnership's share of Joint Venture net loss (income) 3,923,070 (496,491) (501,381) Distributions received from Joint Venture - 496,491 501,381 Amortization of MBS premium (discount),net (2,207) (3,943) 147 Decrease (increase) in other assets 77,587 127,734 (104,219) Increase (decrease) in accounts payable 8,111 (197,631) 62,689 Increase (decrease) in due to affiliates 161,374 - (3,695) Increase (decrease) in accrued expenses and other liabilities 41,142 (8,263) 42,267 Net cash provided by operating activities 4,884,715 5,331,442 4,985,450 Investing activities: Additions to fixed assets (628,548) (471,770) (821,536) Settlement of land easement (25) (2,658) 53,064 Principal collections on MBS 1,369,915 1,317,155 2,936,920 Distributions received from Joint Venture in excess of its earnings 1,375,500 928,509 397,619 Net cash provided by investing activities 2,116,842 1,771,236 2,566,067 Financing activity: Distributions (6,114,460) (6,108,899) (6,101,905) Net increase in cash and cash equivalents 887,097 993,779 1,449,612 Cash and cash equivalents, beginning of year 8,065,906 7,072,127 5,622,515 Cash and cash equivalents, end of year $ 8,953,003 $ 8,065,906 $ 7,072,127
The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS A.Organization Krupp Cash Plus-II Limited Partnership (the "Partnership") was formed on December 18, 1985 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership issued all of the General Partner Interests to The Krupp Corporation and The Krupp Company Limited Partnership-IV in exchange for capital contributions aggregating $3,000. Except under certain limited circumstances upon termination of the Partnership, the General Partners are not required to make any additional capital contributions. The Partnership will continue to exist until December 31, 2025, unless earlier terminated upon occurrence of certain events as set forth in the Partnership Agreement. The Partnership issued 100 Limited Partner Interests to Krupp Depositary Corporation (the "Corporate Limited Partner") in exchange for a capital contribution of $2,000. The Corporate Limited Partner, in turn, issued Depositary Receipts ("Units") to the investors and assigned all of its rights and interest in the Limited Partner Interests (except for its $2,000 Limited Partner's interest) to the holders of Depositary Receipts. As of January 21, 1987, the Partnership completed its public offering having sold 7,499,818 Units for $149,845,812, net of $150,548 of purchase volume discounts. B.Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note J). Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash equivalents are recorded at cost, which approximates current market values. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued Rental Revenues Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Commercial leases generally contain provisions for additional rent based on a percentage of tenant sales and other provisions which are also recorded on the accrual basis, but are billed in arrears. Minimum rental revenue for long term commercial leases is recognized on a straight-line basis over the life of the related lease. Leasing Commissions Leasing commissions on commercial properties are deferred and amortized over the life of the related lease. Depreciation Depreciation is provided for by the use of the straight-line method over the estimated useful lives of the related assets as follows: Buildings and improvements 2 to 25 years Appliances, carpeting and equipment 3 to 5 years Tenant improvements for commercial tenants are depreciated over the life of the related lease. Impairment of Long-Lived Assets 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 routinely performs market and growth studies along with yearly appraisals of its unleveraged real estate. The investments in properties are carried at cost less accumulated depreciation unless the General Partners believe there is a material impairment in value, in which case a provision to write down investments in properties to fair value will be charged against income (see Note D). Investment in Joint Venture The Partnership has a 50% interest in the Joint Venture. This investment is accounted for using the equity method of accounting as the Partnership Agreement requires a simple majority vote for all major decisions regarding the Joint Venture. As such, the Partnership does not have control of the operations of the underlying assets. Under the equity method of accounting, the Partnership's equity investment in the net income of the Joint Venture is included currently in the Partnership's net income. Cash distributions received from the Joint Venture reduce the Partnership's investment (see Note D). Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued MBS MBS are held for long-term investment and are carried at amortized cost. Premiums or discounts are amortized over the life of the underlying securities using the effective yield method. The market value of MBS is determined based on quoted market prices. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership income is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in the Partnership's taxable income, such change will be reported to the Partners. Reclassifications Certain prior year balances have been reclassified to conform with current year financial statement presentation. C.Cash and Cash Equivalents Cash and cash equivalents at December 31, 1996 and 1995 consist of the following:
December 31, 1996 1995 Cash and money market accounts $2,038,686 $ 710,395 Commercial paper 6,914,317 6,365,784 Bankers' acceptance - 989,727 $8,953,003 $8,065,906
At December 31, 1996, commercial paper represents corporate issues complying with Section 6.2(a) of the Partnership Agreement purchased through a corporate issuer maturing in the first quarter of 1997. At December 31, 1996, the carrying value of the Partnership's investment in commercial paper approximates fair value. D.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 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. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued D.Investment in Joint Venture - Continued 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 expansion and development. The Joint Venture holds title to Brookwood Village free and clear from all other material liens or encumbrances. Subsequent to year end, the Joint Venture Partners settled a lawsuit, which was filed by the previous owner, related to the lien. See Note K for further discussion of this matter. 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 a $9,000,000 provision for loss on its real estate asset which represents the difference between carrying value and estimated fair value less costs to sell at December 31, 1996. Financial statements for Brookwood Village Joint Venture are included on pages F-17 to F-30 of this report. E.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:
December 31, December 31, 1996 1995 Face Value $ 7,125,057 $ 8,494,972 Amortized Cost $ 7,134,203 $ 8,501,911 Estimated Market Value $ 7,476,000 $ 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 $351,000 and $542,000 and unrealized losses of approximately $9,000 and $0 at December 31, 1996 and December 31, 1995, 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. F.Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following at December 31, 1996 and 1995:
1996 1995 Accrued real estate taxes $ 245,000 $ 264,996 Tenant security deposits 169,849 186,242 Other accrued expenses 206,436 194,249 Prepaid rent 76,889 11,545 $ 698,174 $ 657,032
Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued G. Partners' Equity Profits or losses from Partnership operations and Distributable Cash Flow are allocated 98% to the Unitholders and Corporate Limited Partner (the "Limited Partners") (based on Units held) and 2% to the General Partners. Profits and net cash flow arising from capital transactions will be allocated in the manner described below. Losses from a capital transaction are allocated 98% to the Limited Partners and 2% to the General Partners. Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, proceeds will be applied to the payment of all debts and liabili ties of the Partnership then due and then fund any reserves for contingent liabilities. Remaining net cash proceeds will then be distributed first, to the Limited Partners until they have received a return of their total invested capital, second, to the General Partners until they have received a return of their total invested capital, third, to the Limited Partners until they have received any deficiency in the 12% cumulative return on invested capital through fiscal years prior to the date of the capital transaction, fourth, to the General Partners until they have received an amount necessary so that the amounts of net cash proceeds whenever allocated under number three and number four are in the ratio of 85 to 15, and fifth, 85% to the Limited Partners and 15% to the General Partners. As of December 31, 1996, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
Corporate Total Limited General Partners' Unitholders Partner Partners Equity Capital contributions $149,845,812 $ 2,000 $ 3,000 $149,850,812 Syndication costs (17,865,372) - - (17,865,372) Net income 39,998,513 558 816,308 40,815,379 Distributions (98,316,978) (1,371) (1,310,582) (99,628,931) Total at December 31, 1996 $ 73,661,975 $ 1,187 $ (491,274) $ 73,171,888
H. 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. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued H.Related Party Transactions - Continued Amounts paid to the General Partners or their affiliates were as follows:
1996 1995 1994 Property management fees $374,702 $374,554 $348,589 Expense reimbursements 462,290 322,733 537,516 Charged to operations $836,992 $697,287 $886,105
Due to affiliates consisted of expense reimbursements of $161,374 and $0 as of December 31, 1996 and 1995, respectively. I.Base Rents Due Under Commercial Operating Leases Future base rents due under commercial operating leases for the years 1997 through 2001 and thereafter are as follows: 1997 $3,861,000 1998 3,592,200 1999 3,285,600 2000 2,863,000 2001 2,001,200 Thereafter 4,364,500 J.Federal Income Taxes For federal income tax purposes, the Partnership is depreciating its property using the accelerated cost recovery system ("ACRS") and the modified accelerated cost recovery system ("MACRS") depending on which is applicable. The reconciliation of the net income (loss) for each year reported in the accompanying Statements of Operations with the net income reported in the Partnership's federal income tax return for the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 Net income (loss) per Statement of Operations $(1,455,849) $ 3,388,472 $ 3,064,617 Difference in book to tax depreciation 378,160 303,088 241,855 Difference in Joint Venture book to tax depreciation 505,859 833,854 524,957 Difference in Joint Venture book to tax valuation provision 4,500,000 - - Rental adjustment required by Generally Accepted Accounting Principles 5,881 (50,659) (35,343) Rental adjustment required by Generally Accepted Accounting Principles for Joint Venture 117,836 (110,747) (142,376) Net income for federal income tax purposes $ 4,051,887 $ 4,364,008 $ 3,653,710
Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued J. Federal Income Taxes - Continued The allocation of the net income for federal income tax purposes for 1996 is as follows:
Passive Portfolio Portfolio Income Income Expense Total Unitholders $2,817,665 $1,153,130 $ - $3,970,795 Corporate Limited Partner 38 15 - 53 General Partners 57,505 23,534 - 81,039 $2,875,208 $1,176,679 $ - $4,051,887
For the years ended December 31, 1996, 1995 and 1994 the average per Unit income to the Unitholders for federal income tax purposes was $.53, $.57, and $.48 respectively. The basis of the Partnership's assets for financial reporting purposes is less than its tax basis by approximately $3,929,000 and $2,927,000 at December 31, 1996 and 1995, respectively. The tax and book basis of the Partnership's liabilities are the same. K. Subsequent Event Subsequent to year end, the Partnership, its Joint Venture Partner (collectively the "Joint Venture Partners"), and Brookwood Village Joint Venture, among others, were named as defendants in a lawsuit filed by the previous owner of Brookwood Village Mall and Convenience Center related to a $5,000,000 lien retained by the seller. On February 28, 1997, Brookwood Village paid the discounted amount of $4,300,000 to release the lien and settle the lawsuit. The Partnership and its Joint Venture Partner each made capital contributions of $2,150,000 to fund the settlement payment.
KRUPP CASH PLUS-II LIMITED PARTNERSHIP SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 Costs Capitalized Subsequent to Initial Costs to Partnership Acquisition Buildings Buildings and and Description Land Improvements Improvements Encino Oaks Shopping Center Encino, California $ 6,331,972 $ 2,110,657 $ 806,132 Alderwood Towne Center Lynnwood, Washington 4,011,588 8,462,256 411,219 Canyon Place Shopping Center Portland, Oregon 4,175,701 15,684,340 927,139 Coral Plaza Shopping Center Oak Lawn, Illinois 1,296,760 6,027,818 337,088 Cumberland Glen Apartments Smyrna, Georgia 680,781 8,996,474 778,963 Total $16,496,802 $41,281,545 $ 3,260,541 Gross Amounts Carried at End of Year Buildings and Land Improvements Total (a) Encino Oaks Shopping Center Encino, California $ 6,331,972 $ 2,916,789 $ 9,248,761 Alderwood Towne Center Lynnwood, Washington 4,011,588 8,873,475 12,885,063 Canyon Place Shopping Center Portland, Oregon 4,125,320(b) 16,611,479 20,736,799 Coral Plaza Shopping Center Oak Lawn, Illinois 1,296,760 6,364,906 7,661,666 Cumberland Glen Apartments Smyrna, Georgia 680,781 9,775,437 10,456,218 Total $16,446,421 $44,542,086 $60,988,507
(a)The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The Partnership holds title to its properties free and clear from all mortgage indebtedness or other material liens or encumbrances. The aggregate cost for federal income tax purposes at December 31, 1996 is $61,129,208 and the aggregate accumulated depreciation for federal income tax purposes is $(16,536,509). (b)Canyon Place received a cash settlement of $50,381, net of legal costs, for the granting of a railroad easement in 1994. For financial reporting purposes, the carrying value of land has been reduced accordingly. Continued
KRUPP CASH PLUS-II LIMITED PARTNERSHIP SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION - Continued December 31, 1996 Year Accumulated Construction Date Depreciation Completed Acquired Depreciable Life Encino Oaks Shopping Center Encino, California $ 1,305,924 1974 07/31/86 2 to 25 Years Alderwood Towne Center Lynnwood, Washington 3,694,393 1985 09/03/86 2 to 25 Years Canyon Place Shopping Center Portland, Oregon 6,703,635 1986 12/23/86 2 to 25 Years Coral Plaza Shopping Center Oak Lawn, Illinois 2,428,684 1985 06/02/87 2 to 25 Years Cumberland Glen Apartments Smyrna, Georgia 4,626,130 1985 09/03/87 3 to 25 Years Total $18,758,766
Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1996:
1996 1995 1994 Real Estate Balance at beginning of year $ 60,359,934 $59,885,506 $59,117,034 Improvements 628,548 471,770 821,536 Settlement of land easement 25 2,658 (53,064) Balance at end of year $ 60,988,507 $60,359,934 $59,885,506 1996 1995 1994 Accumulated Depreciation Balance at beginning of year $ 16,627,279 $14,602,206 $12,678,562 Depreciation expense 2,131,487 2,025,073 1,923,644 Balance at end of year $ 18,758,766 $16,627,279 $14,602,206
BROOKWOOD VILLAGE JOINT VENTURE FINANCIAL STATEMENTS AND SCHEDULE For the Year Ended December 31, 1996 BROOKWOOD VILLAGE JOINT VENTURE INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-19 Balance Sheets at December 31, 1996 and December 31, 1995 F-20 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-21 Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994 F-22 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-23 Notes to Financial Statements F-24 - F-28 Schedule III - Real Estate and Accumulated Depreciation F-29 - F-30 All other schedules are omitted as they are not applicable or not required, or the information is provided in the financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Joint Venture Partners of Brookwood Village Joint Venture: We have audited the financial statements and financial statement schedule of Brookwood Village Joint Venture (the "Joint Venture") listed in the index on page F-18 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Joint Venture as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note B to the financial statements, the Partnership has adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective January 1, 1996. Boston, Massachusetts COOPERS & LYBRAND L.L.P. January 31, 1997, except for the information disclosed in Note I, for which the date is February 28, 1997.
BROOKWOOD VILLAGE JOINT VENTURE BALANCE SHEETS December 31, 1996 and 1995 ASSETS 1996 1995 Real estate assets: Land $ 15,895,139 $ 14,569,321 Building and improvements 44,635,153 40,909,497 Less accumulated depreciation and provision for loss (26,190,274) (15,164,143) Total real estate assets 34,340,018 40,314,675 Cash and cash equivalents 166,919 234,661 Other assets 512,031 632,581 Total assets $ 35,018,968 $ 41,181,917 LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable $ 44,762 $ 14,413 Accrued expenses and other liabilities (Note C) 440,067 332,008 Due to affiliates (Note F) 8,351 12,568 Accrued legal settlement (Note I) 4,300,000 - Total liabilities 4,793,180 358,989 Partners' equity (Note D) 30,225,788 40,822,928 Total liabilities and Partners' equity $ 35,018,968 $ 41,181,917
The accompanying notes are an integral part of the financial statements.
BROOKWOOD VILLAGE JOINT VENTURE STATEMENTS OF OPERATIONS For the Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenue: Rental (Note E) $ 6,118,192 $ 6,243,206 $ 6,108,361 Interest income 28,503 50,656 20,666 Total revenue 6,146,695 6,293,862 6,129,027 Expenses: Operating (Note F) 1,586,415 1,689,116 1,631,195 Maintenance 631,241 590,110 588,747 Real estate taxes 373,856 335,475 439,676 Management fees (Note F) 375,192 376,424 356,030 Depreciation 2,026,131 2,309,755 2,110,617 Provision for loss on real estate (Note G) 9,000,000 - - Total expenses 13,992,835 5,300,880 5,126,265 Net income (loss) (Note H) $(7,846,140) $ 992,982 $ 1,002,762 Allocation of net income (loss): (Note D) Krupp Cash Plus-II Limited Partnership $(3,923,070) $ 496,491 $ 501,381 BRI Texas Apartments Limited Partnership $(3,923,070) $ 496,491 $ 501,381
The accompanying notes are an integral part of the financial statements.
BROOKWOOD VILLAGE JOINT VENTURE STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended December 31, 1996, 1995 and 1994 BRI Krupp Texas Cash Plus-II Apartments Total Limited Limited Partners' Partnership Partnership Equity Balance at December 31, 1993 $21,737,592 $21,737,592 $43,475,184 Net income 501,381 501,381 1,002,762 Distributions (899,000) (899,000) (1,798,000) Balance at December 31, 1994 21,339,973 21,339,973 42,679,946 Net income 496,491 496,491 992,982 Distributions (1,425,000) (1,425,000) (2,850,000) Balance at December 31, 1995 20,411,464 20,411,464 40,822,928 Net loss (Note D) (3,923,070) (3,923,070) (7,846,140) Distributions (Note D) (1,375,500) (1,375,500) (2,751,000) Balance at December 31, 1996 $15,112,894 $15,112,894 $30,225,788
The accompanying notes are an integral part of the financial statements. BROOKWOOD VILLAGE JOINT VENTURE STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 Operating activities: Net income (loss) $ (7,846,140) $ 992,982 $ 1,002,762 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,026,131 2,309,755 2,110,617 Provision for loss on real estate 9,000,000 - - Decrease (increase) in other assets 120,550 177,170 (158,935) Increase (decrease) in accounts payable 30,349 (14,741) (270,459) Increase (decrease) in due to affiliates (4,217) 12,568 - Increase (decrease) in accrued expenses and other liabilities 108,059 (432,851) 473,289 Net cash provided by operating activities 3,434,732 3,044,883 3,157,274 Investing activity: Additions to fixed assets (751,474) (580,348) (936,554) Financing activity: Distributions (2,751,000) (2,850,000) (1,798,000) Net increase (decrease) in cash and cash equivalents (67,742) (385,465) 422,720 Cash and cash equivalents, beginning of year 234,661 620,126 197,406 Cash and cash equivalents, end of year $ 166,919 $ 234,661 $ 620,126 Supplemental schedule of noncash investing and financing activities: Adjustment to real estate asset basis for release of lien (Note I) $ 4,300,000 $ - $ - Accrued legal settlement (Note I) $ (4,300,000) $ - $ -
The accompanying notes are an integral part of the financial statements. BROOKWOOD VILLAGE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS A.Organization On December 16, 1986 Brookwood Village Joint Venture (the "Joint Venture") acquired Brookwood Village Mall and Convenience Center ("Brookwood Village"), a retail development located in Birmingham, Alabama. Brookwood Village consists of a covered mall, a covered garage and a detached strip shopping center with an aggregate net leasable square footage of 474,138. The Joint Venture is 50% owned by Krupp Cash Plus-II Limited Partnership and Texas Apartments Limited Partnership (the "Joint Venture Partners"), both with similar investment objectives. The express purpose of entering into the Joint Venture was to purchase, own, manage and operate Brookwood Village. The Joint Venture shall exist until December 16, 2006 unless earlier terminated upon occurrence of certain events as set forth in the Brookwood Village Joint Venture Agreement. 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 expansion and development. The Joint Venture holds title to Brookwood Village free and clear from all other material liens or encumbrances. Subsequent to year end, the Joint Venture Partners settled a lawsuit, which was filed by the previous owner, related to the lien. See Note I for further discussion of this matter. B.Significant Accounting Policies The Joint Venture uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note H): Risks and Uncertainties The Joint Venture invests its cash primarily in deposits and money market funds with commercial banks. The Joint Venture has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities, and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Joint Venture includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. Cash equivalents are recorded at cost, which approximates current market value. Rental Revenues Commercial leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Commercial leases generally contain provisions for additional rent based on a percentage of tenant sales and other provisions which are recorded as income when received. Minimum rental revenue from long-term commercial leases is recognized on a straight-line basis over the life of the related lease. Continued BROOKWOOD VILLAGE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies - Continued Depreciation Depreciation of building and improvements is provided for by the use of the straight-line method over estimated useful lives of 3 to 25 years. Tenant improvements are depreciated over the life of the lease. Impairment of Long-Lived Assets 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 Joint Venture has implemented policies and practices for assessing impairment of its real estate assets. The Joint Venture Partners routinely perform market and growth studies along with yearly appraisals of their unleveraged real estate. The property is carried at cost less accumulated depreciation unless the Joint Venture Partners believe there is a material impairment in value, in which case a provision to write down investments in property to fair value will be charged against income (see Note G). Leasing Commissions Leasing commissions are deferred and amortized over the life of the related lease. Income Taxes The Joint Venture is not liable for federal or state income taxes because Joint Venture income or loss is allocated to the Joint Venture Partners for income tax purposes. In the event the Joint Venture's tax returns are examined by the Internal Revenue Service or state taxing authority and such an examination results in a change in the Joint Venture taxable income or loss, such change will be reported to the Joint Venture Partners. C.Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following at December 31, 1996 and 1995:
1996 1995 Accrued real estate taxes $ 95,932 $ 95,934 Tenant security deposits 34,890 24,523 Other accrued expenses 211,834 211,551 Prepaid rent 97,411 - $440,067 $332,008
Continued BROOKWOOD VILLAGE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS, Continued D.Partners' Equity Under the terms of the Brookwood Village Joint Venture Agreement, profits, losses and distributions are allocated 50% to each Joint Venture Partner. As of December 31, 1996, the following cumulative Joint Venture Partner contributions and allocations had been made since inception of the Joint Venture:
Krupp Texas Cash Plus-II Apartments Total Limited Limited Partners' Partnership Partnership Equity Capital contributions $ 23,843,095 $ 23,843,095 $ 47,686,190 Net income 1,176,946 1,176,946 2,353,892 Distributions (9,907,147) (9,907,147) (19,814,294) Total at December 31, 1996 $ 15,112,894 $ 15,112,894 $ 30,225,788
E.Base Rents Due Under Commercial Operating Leases Future base rents due under commercial operating leases in the five years 1997 through 2001 and thereafter are as follows: 1997 $ 3,978,000 1998 3,604,100 1999 3,230,800 2000 2,603,400 2001 2,193,600 Thereafter 11,002,800 Contingent rental revenue, based on a percentage of tenant sales and other provisions contained in tenant leases, totalled $421,665, $388,387 and $382,687 for the years ended December 31, 1996, 1995 and 1994, respectively. F.Related Party Transactions Commencing with the date of acquisition of Brookwood Village, the Joint Venture entered into agreements under which property management fees are paid to an affiliate of the Joint Venture Partners for services as management agent. Such agreements provide for management fees payable monthly at the rate of up to 6% of the gross receipts net of leasing commissions. The Joint Venture also reimburses affiliates of the Joint Venture Partners for certain expenses incurred in connection with the operation of Brookwood Village including accounting, computer, insurance, travel, legal and payroll. Amounts accrued or paid to affiliates of the Joint Venture Partners during the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 Property management fees $ 375,192 $376,424 $356,030 Expense reimbursements 165,611 137,455 224,200 Charged to operations $ 540,803 $513,879 $580,230
Continued BROOKWOOD VILLAGE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS, Continued F. Related Party Transactions - Continued Due to affiliates consists of the following as of December 31, 1996 and 1995: 1996 1995 Expense reimbursements $ 8,351 $ 12,568 G. Provision for Losses on Real Estate 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 a $9,000,000 valuation provision for losses on its real estate asset which represents the difference between carrying value and estimated fair value at December 31, 1996. H. Federal Income Taxes The reconciliation of the net income (loss) for each year reported in the accompanying Statement of Operations with the net income reported in the Joint Venture's 1996, 1995 and 1994 federal income tax return follows:
1996 1995 1994 Net income (loss) per Statement of Operations $(7,846,140) $ 992,982 $ 1,002,762 Difference in book to tax depreciation 1,011,716 1,299,910 801,340 Difference in book to tax valuation provision 9,000,000 - - Rental adjustment required by Generally Accepted Accounting Principles 141,808 63,257 (152,321) Difference in book to tax bad debt 15,534 - - Net income for federal income tax purposes $ 2,322,918 $ 2,356,149 $ 1,651,781
BROOKWOOD VILLAGE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS, Continued H. Federal Income Taxes - Continued The allocation of the 1996 net income for federal income tax purposes is as follows:
Passive Portfolio Income Income Total Krupp Cash Plus-II Limited Partnership $ 1,186,373 $ 14,252 $ 1,200,625 BRI Texas Apartments Limited Partnership 1,108,041 14,252 1,122,293 $ 2,294,414 $ 28,504 $ 2,322,918
Passive income differs due to individual Joint Venture Partner depreciation elections. The basis of the Joint Venture's assets for financial reporting purposes is less than its tax basis by approximately $7,689,000 and $6,653,000 at December 31, 1996 and 1995, respectively. The tax and book basis of the Joint Venture's liabilities are the same. I. Subsequent Event In accordance with the purchase and sale agreement related to the original acquisition of Brookwood Village, the previous owner was entitled to receive $5,000,000 of the proceeds from the sale of Brookwood Village and certain other amounts in connection with the development or expansion of Brookwood Village. On January 24, 1997, the previous owner filed suit in the Circuit Court of Jefferson County, Alabama against the Joint Venture Partners and Brookwood Village Joint Venture, among others. In the suit, the plaintiff claimed that the defendants had effectively sold Brookwood Village on June 27, 1991 when one of the original Joint Venture Partners exchanged its assets for an ownership interest in an affiliated real estate investment trust. The defendants sought damages of approximately $7,200,000, which included the $5,000,000 payment stipulated in the original purchase and sale agreement and interest accrued thereon from the date of the exchange. On February 28, 1997, the Joint Venture Partners 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. For financial reporting purposes, the settlement payment of $4,300,000 related to the release of the previous owner's lien was included in the asset basis of the property and was reflected as an accrued liability as of December 31, 1996.
BROOKWOOD VILLAGE JOINT VENTURE SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 Costs Capitalized Subsequent Initial Costs to Joint Venture to Acquisition(c) Buildings Buildings and and Description Land Improvements Improvements Land Brookwood Village Mall and Convenience Center Birmingham, Alabama $14,569,321 $32,713,684 $11,921,469 $1,325,819
Gross Amounts Carried at End of Year Buildings and Land Improvements Total (a) Brookwood Village Mall and Convenience Center Birmingham, Alabama $15,895,139 (c) $44,635,153 (c) $60,530,292
Accumulated Depreciation and Year Valuation Construction Date Depreciable Provision Completed Acquired Life Brookwood Village Mall and Convenience Center Birmingham, Alabama $26,190,274 (b) 1973 12/16/86 3 to 25 Years
(a)The Joint Venture uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost for federal income tax purposes at December 31, 1996 is $48,341,614 and aggregate accumulated depreciation for federal income tax purposes is $(1,636,615). (b)Includes accumulated depreciation of $17,190,274 and a valuation provision of $9,000,000 at December 31, 1996. (c)For financial reporting purposes, the carrying value of the properties has been increased ($1,325,819 to land and $2,974,181 to buildings and improvements), based on the settlement of the previous owner's lien for $4,300,000 (see Note I). Continued BROOKWOOD VILLAGE JOINT VENTURE SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION - Continued December 31, 1996 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1996:
1996 1995 1994 Real Estate Balance at beginning of year $55,478,818 $54,898,470 $53,961,916 Adjustment to basis based on previous owner's lien 4,300,000 - - Improvements 751,474 580,348 936,554 Balance at end of year $60,530,292 $55,478,818 $54,898,470 1996 1995 1994 Accumulated Depreciation and Valuation Provision Balance at beginning of year $15,164,143 $12,854,388 $10,743,771 Depreciation expense 2,026,131 2,309,755 2,110,617 Provision for losses of real estate 9,000,000 - - Balance at end of year $26,190,274 $15,164,143 $12,854,388
EX-27 2
5 This schedule contains summary financial information extracted from Cash Plus II financial statements for the year ended December 31, 1996 and is qualified in its entirety to such financial statements. 12-MOS DEC-31-1996 DEC-31-1996 8,953,003 7,134,203 287,564 0 0 346,021 76,101,401 (18,758,766) 74,063,426 891,538 0 0 0 73,171,888 0 74,063,426 0 3,764,199 0 0 5,220,048 0 0 0 0 0 0 0 0 (1,455,849) 0 0 Includes ll receivables included in other assets on the balance sheet. Multi-family complex of $10,456,218, retail centers of $50,532,289 and investment in J.V. of $15,112,894. Deficit of the General Partners of ($491,274) and equity of Limited Partners $73,663,162. Includes all revenue of the Partnership. Includes all expenses of the Partnership. Net loss allocated ($29,117) to the General Partners and (1,426,732) to the Limited Partners.
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