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 THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19244
Krupp Government Income Trust
Massachusetts 04-3089272
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 423-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
KRUPP GOVERNMENT INCOME TRUST
<PAGE>
<TABLE>
BALANCE SHEETS
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Participating Insured Mortgage Investments
("PIMIs") (Note 2):
PIMs $114,757,175 $115,131,611
Additional Loans 20,749,108 20,749,108
Participating Insured Mortgages ("PIMs")(Note 2) 48,562,091 57,691,223
Mortgage-Backed Securities and insured mortgage
("MBS") (Note 3) 27,001,747 31,394,259
Total mortgage investments 211,070,121 224,966,201
Cash and cash equivalents 18,991,047 8,914,295
Interest receivable and other assets 1,606,936 1,862,335
Prepaid acquisition fees and expenses, net of
accumulated amortization of $5,801,083 and
$4,909,201, respectively 7,672,276 8,564,158
Prepaid participation servicing fees, net of
accumulated amortization of $1,504,555 and
$1,177,984, respectively 2,986,450 3,313,021
Total assets $242,326,830 $247,620,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans(Note 4) $ 6,889,487 $ 5,920,957
Other liabilities 20,860 20,577
Total liabilities 6,910,347 5,941,534
Shareholders' equity (Note 5):
Common stock, no par value; 17,510,000
shares authorized and 15,053,135 shares
issued and outstanding 234,769,786 240,103,655
Unrealized gain on MBS 646,697 1,574,821
Total Shareholders' equity 235,416,483 241,678,476
Total liabilities and Shareholders'
equity $242,326,830 $247,620,010
</TABLE>
The accompanying notes are an integral
part of the financial statements
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Interest income - PIMs and PIMIs:
Base interest (Note 2) $3,141,595 $3,459,378 $ 9,751,102 $10,328,470
Participation income 12,905 200,000 159,161 290,540
<PAGE>
Interest income - MBS 562,753 659,529 1,765,401 1,973,203
Other interest income 243,792 122,140 639,279 404,227
Total revenues 3,961,045 4,441,047 12,314,943 12,996,440
Expenses:
Asset management fee to an affiliate 397,816 425,972 1,209,192 1,269,515
Expense reimbursements to affiliates 107,745 115,962 299,370 347,888
Amortization of prepaid expenses,
fees and organization costs 395,213 419,826 1,218,453 1,262,806
General and administrative 59,589 84,069 244,975 274,498
Total expenses 960,363 1,045,829 2,971,990 3,154,707
Net income $3,000,682 $3,395,218 $ 9,342,953 $ 9,841,733
Earnings per share $ .20 $ .22 $ .62 $ .65
Weighted average shares outstanding 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 9,342,953 $ 9,841,733
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of discounts and premiums (3,718) 7,273
Amortization of prepaid expenses, fees and
organization costs 1,218,453 1,262,806
Changes in assets and liabilities:
Decrease in interest receivable and other assets 255,399 507,063
Increase (decrease) in other liabilities 283 (15,350)
Net cash provided by operating
activities 10,813,370 11,603,525
Investing activities:
Principal collections on MBS 3,468,106 2,342,211
Principal collections on PIMs 641,118 640,728
Acquisition of MBS - (3,203,221)
PIM prepayment 8,862,450 -
Increase in deferred income on Additional
Loans 968,530 1,221,455
Net cash provided by investing
activities 13,940,204 1,001,173
<PAGE>
Financing activity:
Dividends (14,676,822) (14,676,822)
Net increase (decrease) in cash and
cash equivalents 10,076,752 (2,072,124)
Cash and cash equivalents, beginning of period 8,914,295 11,068,450
Cash and cash equivalents, end of period $18,991,047 $ 8,996,326
</TABLE>
The accompanying notes are an integral
part of the financial statements.
KRUPP GOVERNMENT INCOME TRUST
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. However, in the opinion of Berkshire Mortgage
Advisors Limited Partnership (the "Advisor") of Krupp Government Income
Trust (the "Trust"), the disclosures contained in this report are
adequate to make the information presented not misleading. See Notes
to Financial Statements included in the Trust's Form 10-K for the year
ended December 31, 1995 for additional information relevant to
significant accounting policies followed by the Trust.
In the opinion of the Advisor of the Trust, the accompanying unaudited
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Trust's financial
position as of September 30, 1996, the results of its operations for
the three and nine months ended September 30, 1996 and 1995 and its
cash flows for the nine months ended September 30, 1996 and 1995.
The results of operations for the three and nine months ended September
30, 1996 are not necessarily indicative of the results which may be
expected for the full year. See Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this
report.
2. PIMs and PIMIs
At September 30, 1996, the Trust s PIMs and PIMIs have a fair value of
approximately $175,089,000 and gross unrealized gains and losses of
approximately $69,000 and $9,048,000, respectively. The PIMs and PIMIs
have maturities ranging from 2001 to 2034.
During August 1996, the Trust entered into a modification agreement
(the Agreement ) with the borrower of the Lifestyles Apartments PIMI
that reduces the interest paid monthly on the insured mortgage by 1%
per annum for a period of 24 months. The Agreement also extended the
prepayment lock out period by five years and postponed the date when
the Trust can accelerate the maturity date five years. The Agreement
modified the terms of the Additional Loan as follows: base interest
will only be payable from 50% of available surplus cash during each
fiscal year up to a maximum payment of $100,000; the Preferred Interest
rate will be 10%; and the Preferred Return will only be calculated on
the outstanding balance of the Additional Loan. The Agreement also
amended the participation features to increase the Participating Income
Interest percentage from 50% to 75% of surplus cash on available
surplus cash in excess of $200,000. In addition, the borrower agreed
<PAGE>
to contribute $150,000 to an escrow account controlled by the Trust to
fund operating deficits of the property and agreed to fund up to a
maximum of $50,000 per year for operating deficits at the property if
deemed necessary by GIT. Upon the sale, refinancing, maturity or
permitted prepayment, and following payment of the insured mortgage and
the Additional Loan principal, the Trust will be entitled to receive
the interest currently foregone on the insured mortgage. However, the
Trust and the borrower will share equally in the proceeds until the
borrower receives repayment of the $150,000 contributed to the escrow.
If there are still sufficient proceeds, the Trust will then be entitled
to payment for any Preferred Interest and will then receive 50% of the
remaining proceeds. Any amounts under the participation features or
the Preferred Return accumulated prior to the modification will be
foregone by the Trust.
On April 25, 1996, the Trust received a prepayment of the Canyon Ridge
Apartments PIM from the Federal National Mortgage Association ( FNMA )
for the outstanding principal balance of approximately $8.9 million.
The Trust intends to reinvest the principal received from this
prepayment and is currently looking at investment opportunities. The
borrower defaulted on its first mortgage loan and FNMA intended to
foreclose on the property, but the borrower filed for bankruptcy before
this happened. The Trust intends to pursue collection of all
participation interest income due from the borrower through a claim
with the bankruptcy court. Whether the Trust collects any
participation income interest will depend on the ultimate outcome of
the bankruptcy proceedings.
3. MBS
At September 30, 1996, the Trust s MBS portfolio has an amortized cost
of approximately $26,355,050 and unrealized gains and losses of
$698,572 and $51,875, respectively. The MBS portfolio has maturities
ranging from 2008 to 2029.
4. Related Party Transactions
During the three and nine months ended September 30, 1996, the Trust
earned $57,739 and $208,152, respectively, of interest payments on
Additional Loans from affiliates of the Advisor as compared to $150,412
and $300,825 during the three and nine months ended September 30, 1995,
respectively.
5. Changes in Shareholders' Equity
A summary of changes in shareholders' equity for the nine months ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Total
Common Retained Unrealized Shareholders'
Stock Earnings Gain Equity
<S> <C> <C> <C> <C>
Balance at December 31,
1995 $240,103,655 $ - $ 1,574,821 $241,678,476
Net income - 9,342,953 - 9,342,953
Dividends (5,333,869) (9,342,953) - (14,676,822)
Change in unrealized
gain on MBS - - (928,124) (928,124)
Balance at September 30,
1996 $234,769,786 $ - $ 646,697 $235,416,483
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<PAGE>
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 most significant demand on the Trust's liquidity is dividends paid
to investors of approximately $4.9 million per quarter. The Trust
currently has an annual dividend rate of $1.30 per share, paid in quarterly
installments of $.325 per share. Funds for dividends come from interest
income received on PIMs, PIMIs, MBS, cash and cash equivalents net of
operating expenses, and the principal collections received on PIMs, PIMIs
and MBS. The portion of dividends funded from principal collections
reduces the capital resources of the Trust. As the capital resources of
the Trust decrease, the total cash flows to the Trust will also decrease
which may result in periodic adjustments to the dividends paid to the
investors.
The Trust s investments in PIMs and the insured mortgages of the PIMIs
provide guaranteed or insured monthly principal and interest payments and
may provide the Trust with participation income depending on the operating
performance of the underlying property. For PIMIs, payment of Additional
Loan base interest, after escrows and reserves are exhausted, will depend
primarily on the operating performance of the underlying properties.
The Lincoln Green PIM and the Timber Ridge PIMI have had very strong
operating performances and in 1995 provided the Trust with significant
participation income, which should continue. In 1996, the Trust collected
participation income interest of $130,000 from the Lincoln Green PIM,
$160,000 from the Timber Ridge PIMI and $13,000 from Riverview Apartments
PIM. The Trust and the borrower of the Timber Ridge PIMI disagree on
whether the borrower owes the Trust additional participation income
interest and are trying to resolve this issue. The Trust believes there is
additional participation income interest owed and will aggressively pursue
collection of these amounts.
Lifestyles Apartments operating performance continues to be impeded by
competition from new apartment complexes and affordable single-family homes
in the area that limit its ability to raise rents. Overall, operations
have remained stable, but are not expected to improve significantly. As a
result the borrower of the Lifestyles Apartments PIMI requested some form
of debt service relief. During the third quarter the Advisor and the
borrower finalized an agreement that includes a 1% per annum reduction in
the interest paid monthly on the insured mortgage for a 24-month period.
The agreement also specifies that Additional Loan base interest payments
will be based on surplus cash and extends the prepayment lockout date by
five years. In addition, the borrower has contributed $150,000 to fund
current operating deficits of the property and has agreed to fund future
operating deficits of the property up to a maximum of $50,000 per year if
deemed necessary by GIT.
During the second quarter the borrower of the Windward Lakes Apartments
PIMI approached the Trust to obtain some form of debt service relief. The
Advisor is discussing possible arrangements with the borrower and should
conclude these discussions possibly in the fourth quarter. These
discussions will also determine the status of the unpaid Additional Loan
base interest payment due September 1.
The borrower of the Canyon Ridge Apartments PIM was delinquent on its
<PAGE>
debt service payments and the servicer and the Federal National Mortgage
Association ( FNMA ) intended to foreclose on the property. Prior to this
foreclosure the Trust received a prepayment from FNMA, and subsequently the
borrower filed for bankruptcy. The Trust intends to reinvest the principal
balance received of approximately $8.9 million in a new mortgage investment
and is currently looking at investment opportunities. In addition, the
Trust intends to pursue collection of all participation interest income due
from the borrower through a claim with the bankruptcy court. Whether the
Trust collects any participation income interest will depend on the
ultimate outcome of these proceedings.
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from prepaying. For the second five years, the borrowers can
prepay the loans and pay any outstanding Shared Income and Minimum
Additional Interest plus the greater of a prepayment penalty or the Shared
Appreciation Interest for PIMs, or by paying all amounts due under the
PIMIs and satisfying the required preferred return. The participation
features and Additional Loans are neither insured nor guaranteed and if
repayment of a PIM or PIMI results from foreclosure on the underlying
property or an insurance claim the Trust would not likely receive any
participation interest or any amounts due under the Additional Loan. The
Trust has the option of calling PIMs and PIMIs by accelerating their
maturity if the loans are not repaid by the tenth year after permanent
funding. The Trust will determine the merits of exercising the call option
for each PIM or PIMI as economic conditions warrant. Such factors as the
condition of the asset, local market conditions, interest rates and
available financing will have an impact on this decision.
<TABLE>
<CAPTION>
Nine months ended Inception through
September 30, 1996 September 30, 1996
(In thousands, except per Share amounts)
Distributable Cash Flow (a):
<S> <C> <C>
Net income $ 9,343 $ 81,597
Items providing or not requiring the use
of operating funds:
Amortization of prepaid fees and
expenses and organization costs 1,219 7,356
Additional Loan Interest 968 6,889
Total Distributable Cash Flow ("DCF") $11,530 $ 95,842
DCF per Share based on Shares outstanding at
September 30, 1996 $ .77 $ 6.37 (c)
Dividends:
Total dividends to Shareholders $14,677 (b) $131,788 (b)
Average dividend per Share based
on Shares outstanding at September 30, 1996 $ .97 (b) $ 8.75 (b)(c)
</TABLE>
(a) Distributable Cash Flow consists of income before amortization of
prepaid fees and expenses and organization costs and includes all
interest collections on Additional Loans. The Trust believes
Distributable Cash Flow is an appropriate supplemental measure of
operating performance, however, it should not be considered as a
substitute for net income as an indicator of operating performance
or cash flows as a measure of liquidity.
(b) Includes an estimate of the November 1996 distribution.
<PAGE>
(c) Shareholders average per Share return of capital as of November
1996 is $2.38 [$8.75 - $6.37]. Return of capital represents that
portion of the dividends which is not funded from DCF such as
principal collections received from MBS and PIMs.
Assessment of Credit Risk
The Trust's investments in mortgages are guaranteed or insured by the
Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"),
the Government National Mortgage Association ("GNMA") and the Department of
Housing and
Urban Development ("HUD") and therefore the certainty of their cash flows
and the risk
of material loss of the amounts invested depends on the creditworthiness
of these
entities.
<TABLE>
FNMA is a federally chartered private corporation that guarantees obligations
originated under its programs. FHLMC is a federally chartered corporation that
guarantees obligations originated under its programs and is wholly-owned by the
twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S.
Government or the Federal Home Loan Bank Board. GNMA guarantees the full and timely
payment of principal and basic interest on the securities it issues, which represents
interest in pooled mortgages insured by HUD. Obligations insured by HUD, an agency
of the U.S. Government, are backed by the full faith and credit of the U.S.
Government.
The Trust's Additional Loans have similar risks as those associated with higher
risk debt instruments, including: reliance on the owners operating skills, ability
to maintain occupancy levels, control operating expenses, ability to maintain the
properties and obtain adequate insurance coverage; adverse changes in general
economic conditions, adverse local conditions, and changes in governmental regula-
tions, real estate zoning laws, or tax laws; and other circumstances over which the
Trust may have little or no control.
Operations
The following discussion relates to the operations of the Trust during the three and
nine months ended September 30, 1996 and 1995 (dollars in thousands, except per Share
amounts):
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
Per Per Per Per
Amount Share Amount Share Amount Share Amount Share
Interest income on PIMs:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Base interest $3,141 $.21 $3,459 $.23 $ 9,751 $.65 $10,328 $.68
Participation income 13 - 200 .01 159 .01 291 .02
Additional loan interest
received including
income deferrals 239 .02 703 .05 968 .07 1,221 .08
Interest income on MBS 562 .04 659 .04 1,765 .12 1,973 .13
<PAGE>
Other interest income 244 .01 122 .01 639 .04 404 .03
Trust expenses (563) (.03) (625) (.04) (1,752) (.12) (1,891) (.13)
DCF 3,636 .25 4,518 .30 11,530 .77 12,326 .81
Reconciliation to net
income:
Amortization of prepaid
fees, expenses and
organization costs (396) (.03) (420) (.03) (1,219) (.08) (1,263) (.08)
Additional loan interest
deferred (239) (.02) (703) (.05) (968) (.07) (1,221) (.08)
Net income $3,001 $ .20 $3,395 $.22 $ 9,343 $.62 $ 9,842 $.65
Weighted average shares
outstanding 15,053,135 15,053,135
</TABLE>
The Trust's net income for the three and nine months ended September 30,
1996 decreased by approximately $394,000 and $499,000, respectively, as
compared to the corresponding periods in 1995 due primarily to decreases
in base interest on PIMs and Insured Mortgages and interest income on
MBS. Base interest on PIMs and Insured Mortgages decreased by
approximately $318,000 and $577,000, respectively, as compared to the
three and nine months ended September 30, 1996 due primarily to the
Canyon Ridge Apartments PIM prepayment. Base interest on PIMs and
Insured Mortgages also declined as a result of the interest rate
reductions given on the Insured Mortgages of the Lifestyles and Mountain
View Apartments PIMIs. Interest income on MBS will continue to decline
as principal collections reduce the outstanding balance of the MBS
portfolio. Expenses decreased in the three and nine months ended
September 30, 1996 as compared to the same periods of 1995 due in part to
lower asset management fees and amortization expenses resulting from the
Canyon Ridge Apartments PIM prepayment. The Trust also experienced lower
expense reimbursements to affiliates and general and administrative
expenses during the three and nine months ended September 30, 1996 as
compared to the corresponding periods in 1995.
KRUPP GOVERNMENT INCOME TRUST
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes 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
<PAGE>
(a) Exhibits
(10.1) Modification Agreement by and between Krupp
Government Income Trust and Lifestyles at Boot
Ranch and M&D Palm Harbor, and FL-Tampa Inc.
(10.2) Escrow Deposit Agreement by and between Krupp
Government Income Trust and M&D Palm Harbor,
and FL-Tampa Inc. the general partners of
Lifestyles at Boot Ranch.
(b) 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 Government Income Trust
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Government Income Trust
DATE: October 28, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements
</LEGEND>
<CIK> 0000857264
<NAME> KRUPP GOVERNMENT INCOME TRUST
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,991,047
<SECURITIES> 211,070,121<F1>
<RECEIVABLES> 1,606,936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,658,726<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 242,326,830
<CURRENT-LIABILITIES> 6,910,347<F3>
<BONDS> 0
0
0
<COMMON> 234,769,786
<OTHER-SE> 646,697<F4>
<TOTAL-LIABILITY-AND-EQUITY> 242,326,830
<SALES> 0
<TOTAL-REVENUES> 12,314,943<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,971,990<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,342,953
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,342,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,342,953
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $114,757,175 and Additional Loans of $20,749,108), Participating
Insured Mortgages ("PIMs") of $48,562,091 and Mortgage-Backed Securities
("MBS") of $27,001,747
<F2>Includes prepaid acquisition fees and expenses of $13,473,359 net of
accumulated amortization of $5,801,083 and prepaid participating servicing of
$4,491,005 net of accumulated amortization of $1,504,555
<F3>Includes deferred income on Additional Loans of $6,889,487
<F4>Unrealized gain on MBS
<F5>Represents interest income on investments in mortgages and cash
<F6>Includes $1,218,453 of amortization for prepaid fees and expenses
</FN>
</TABLE>
MODIFICATION AGREEMENT
This Modification Agreement (the Agreement ) is made and entered
into as of the 1st day of August, 1996 by and among KRUPP GOVERNMENT INCOME
TRUST ( GIT ), BERKSHIRE MORTGAGE FINANCE CORPORATION (the First
Mortgagee ), LIFESTYLES AT BOOT RANCH, a Florida general partnership
( Partnership ) and M&D PALM HARBOR, INC. and FL-TAMPA INC., both Florida
corporations, (collectively, the Partners ).
W I T N E S S E T H:
WHEREAS, Krupp Mortgage Corporation, now known as Berkshire Mortgage
Finance Corporation (the First Mortgagee ) made a mortgage loan to the
Partnership in the principal sum of Ten Million Three Hundred Thousand One
Hundred and no/100 Dollars ($10,300,100.00) which loan was coinsured by the
U.S. Department of Housing and Urban Development (the Coinsured Loan );
WHEREAS, the Coinsured Loan was made with respect to Lifestyles at
Boot Ranch Apartments (the Project ) located on the land described in
Exhibit A (the Property ) and the terms of the following Coinsured Loan
documents:
A. The Coinsured Loan is evidenced by a certain Mortgage
Note (the Coinsured Note ) dated December 11, 1990 from the
Partnership to the First Mortgagee in the original principal
sum of $10,300,100.00;
B. The repayment of the indebtedness evidenced by the
Coinsured Note is secured by, among other things, (i) a
Mortgage dated December 11, 1990 and recorded in the Official
Records of Pinellas County, Florida in Book 7446, Page 1133
(the Coinsured Mortgage ); (ii) a Regulatory Agreement dated
December 11, 1992 (the Regulatory Agreement ) and recorded in
Book 7446, Page 1140 (the Coinsured Note, Coinsured Mortgage,
and Regulatory Agreement are collectively referred to as the
First Mortgage Loan Documents );
WHEREAS, the First Mortgagee obtained funding for the Coinsured Loan
through the purchase of a GNMA MBS by GIT. The interest rates on the
Coinsured Loan were below the then prevailing interest rates for comparable
loans and securities and GIT was unwilling to participate in the Coinsured
Loan, unless the Partnership agreed to pay additional interest to GIT;
WHEREAS, the Partnership agreed to pay additional interest to GIT
pursuant to a subordinated promissory note (the Subordinated Note ) made
by the Partnership in favor of GIT which is secured by a subordinated
multifamily mortgage (the Subordinated Mortgage ) dated December 11, 1990
recorded in the Official Record of Pinellas County, (collectively, the
Subordinated Loan Documents );
WAS: 8814_1/RE.27294.5 1
<PAGE>
WHEREAS, the Partners have executed an Additional Loan Agreement, and a
Additional Loan Note evidencing an Additional Loan amount of One Million
Eight Hundred Seventeen Thousand Six Hundred Sixty-Five and no/100 Dollars
(1,817,665.00) ( Additional Loan ) which Additional Loan is secured by
Pledge and Security Agreements and UCC financing statements with all
documents dated December 11, 1992 (collectively, the Additional Loan
Documents );
WHEREAS, the Project has experienced financial difficulties and the
Partnership and the Partners have requested assistance from GIT in regards
to their obligations under the Coinsured Loan Documents and the Additional
Loan Documents;
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have
agreed to modify the Subordinated Note, the Additional Loan Agreement and
the Additional Loan Note based upon GIT s providing the financial
assistance described herein; and
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have
reached an agreement the terms and conditions of which agreement are set
forth herein.
NOW THEREFORE, in consideration of the foregoing, Ten and no/100 Dollars
($10.00) in hand paid to GIT, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, intending to
be legally bound, the Partnership, the Partners, the First Mortgagee and
GIT hereby agree as follows:
1. Recitals Incorporated. The foregoing Recitals are hereby
incorporated herein to the same extent as if hereafter fully set forth.
2. GIT Funding. The Partnership shall continue to make monthly debt
service payments in accordance with the Coinsured Note. Effective January
1, 1996 and during a period of twenty-four (24) months thereafter, GIT will
rebate monthly to the Partnership the difference in the interest rate
(e.g., 8.5%) payable under the Coinsured Note (the Original Rate ), and
seven and one-half percent (7.5%), (collectively, the Modified Rate ).
The difference in the Original Rate and Modified Rate for each such monthly
payment in the aggregate (hereinafter the Interest Advance ) shall be
repaid as provided in Section 8 below.
3. Partnership/Partners Funding. The Partnership and/or Partners
will provide upon execution of this Agreement an equity contribution of
$150,000 to be deposited in an interest bearing escrow account controlled
by GIT. Withdrawals from the escrow account may only be used to assist in
bringing the delinquent Coinsured Loan current, to help reduce trade
payables or as specified by GIT for other related Project costs.
WAS: 8814_1/RE.27294.5 2
<PAGE>
4. Payment of Base Interest and Participating Income Interest.
Section 2.A. of the Additional Loan Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
A. Base Interest shall be payable from available Surplus Cash;
provided that, for any fiscal year GIT shall be paid only 50% of available
Surplus Cash so long as the available Surplus Cash does not exceed $200,000
for that fiscal year.
Section 1.A. of the Subordinated Promissory Note is amended to delete
the period at the end of the first paragraph and add the following:
; provided that for any fiscal year where Surplus Cash exceeds
$200,000, the Holder shall receive 75% of the Surplus Cash
amount which exceeds $200,000.
5. Definition of an Payment of Preferred Interest. Section 1(n) of
the Additional Loan Agreement is deleted in its entirety and substituted in
lieu thereof is the following:
(n) Preferred Interest shall mean and refer to that amount
which, as of the time of calculation, would be equal to a cumulative,
preferred return to the Holder of ten percent (10%) per annum simple
interest from the date of Final Endorsement to the date of such calculation
on the outstanding balance of the Additional Loan, plus any other funds
advanced under the Additional Loan, less (A) the aggregate amount of any
prepayments of principal under the Additional Loan, (B) Participating
Income Interest as set forth in the Subordinated Note; and (C) Base
Interest payments made under the Additional Loan Note, provided, however,
that the portion of the reserve and escrow amounts described in subsection
2(B)(iii) below which are retained by the Holder, if any, shall be credited
towards Preferred Interest, and not towards principal on the Additional
Loan or the Coinsured Loan.
Section 2.B.(i) of the Additional Loan Agreement is deleted in its
entirety and the following is substituted in lieu thereof:
(i) ten percent (10%) per annum simple interest from January 1,
1996, to the date of calculation of such interest on the outstanding
balance of the Additional Loan and any other funds advanced by the Holder
under the Additional Loan, including but not limited to funds deposited in
the Project Reserve Account, and shall be reduced by the aggregate amount
of any permitted prepayments of principal under the Additional Loan, until
the Additional Loan has been paid in full, less (a) Participating Income
Interest made under the Subordinated Note, and (b) Base Interest payments
made under the Additional Loan Note.
6. Operating Deficits and Capital Call. Section 3.A. of the
Additional Loan Agreement is amended to delete the period at the end of the
WAS: 8814_1/RE.27294.5 3
<PAGE>
third sentence and to add the following provision at the end of the third
sentence:
; provided however, beginning January 1, 1997, the Partnership
and/or Partners (Borrowers) shall fund any operating deficit
i.e., payment shortfall for the Coinsured Loan or to fund other
related Project costs as deemed necessary by GIT up to a
maximum of $50,000 per year, with any deficit exceeding $50,000
to be funded as provided herein.
7. Acceleration of Maturity Date, the Maturity Date and Prepayment
Period Extended. Notwithstanding any provision to the contrary in the
Additional Loan Agreement, Additional Loan Note, the Subordinated
Promissory Note and the Coinsured Note, the undersigned parties hereby
agree that the Acceleration of Payment Date, the Payment Date and the
prepayment period including any lockout period as described in the
Coinsured Note for the Coinsured Loan are hereby extended for a period of
five (5) years from the date as specified for in those documents.
8. Participating Appreciation Interest and Payment Obligation
Priorities. Notwithstanding any provision to the contrary in the
Subordinated Promissory Note Additional Loan Agreement, and the Additional
Loan Note, the undersigned parties agree that the priority and payment of
the following shall occur upon the earlier of (i) Sale or Refinancing, (ii)
prepayment of the Additional Loan, (iii) prepayment of the Coinsured Loan,
(iv) the Accelerated Maturity Date, (v) the Payment Date or (vi) the
Maturity of the Coinsured Loan and shall be paid in the following order:
a. Payment of principal and interest of the
Coinsured Loan.
b. Payment of the principal of the Additional
Loan.
c. Repayment of the $150,000 deposit as provided
in section 2 above and any Capital Call advance made by
the Partners in accordance with Section 3 of the
Additional Loan Agreement as modified by this Agreement
pari-passu with the Interest Advance and any Capital Call
advance made by GIT.
d. Payment of any unpaid or accrued Preferred
Interest.
e. Any remaining proceeds shall be split 50% to
Partnership and/or Partners and 50% to GIT.
9. All capitalized terms unless defined herein shall have the same
meaning as that term is defined in the Subordinated Promissory Note, the
Additional Loan Agreement and the Additional Loan Note.
10. Notice Requirements.
WAS: 8814_1/RE.27294.5 4
<PAGE>
a) All notices and other communications required or permitted
under this Agreement shall be in writing and, if mailed by prepaid United
States first-class, certified mail, return receipt requested, at any time
other than a general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to be received on the earlier of the
date shown on the return receipt or three (3) business days after the post-
marked day thereof. In addition, notices hereunder may be delivered by
hand or by overnight courier, in which event the notice shall be deemed
effective when delivered. All notices and other communications under this
Agreement shall be given to the parties hereto at the following addresses:
If to the Partnership:
c/o Forest City Enterprises
10800 Brookpark Road
Cleveland, Ohio 44130
Attn.: Edward Pelavin
If to the Partners:
M&D Palm Harbor, Inc.
c/o Florida Southwest Development
3816 West Linebaugh Avenue
Suite 105
Tampa, Florida 33624
Attn.: Kenneth Mamula
FL-Tampa, Inc.
c/o Forest City Enterprises
10800 Brookpark Road
Cleveland, Ohio 44130
Attn.: Edward Pelavin
If to the First Mortgagee:
Berkshire Mortgage Finance Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
Attn.: Connie Pemmerl
If to GIT:
c/o Berkshire Mortgage Finance Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
Attn.: Ronald Halpern
with a copy to:
Peabody & Brown
WAS: 8814_1/RE.27294.5 5
<PAGE>
Suite 800
1255 23rd Street, N.W.
Washington, D.C. 20037
Attn.: George L. Daves, Esq.
b) Any party hereto may change the address to which notices
shall be directed under this Paragraph 10 by giving ten (10) days written
notice of such change to the other parties.
11. Loan Documents Not Impaired. Except as expressly set forth herein
with respect to the Subordinated Note, the Additional Loan Agreement and
Additional Loan Note, the agreements set forth herein are not intended to
affect or alter the obligations of the Partnership and the Partners under
the First Mortgage Documents, Subordinate Loan Documents or Additional Loan
Documents and this Agreement shall not be construed as a novation,
renegotiation or release under any of these documents.
12. Representations of Borrower. The Partnership and Partners hereby
acknowledges and confirms with the First Mortgagee and GIT that:
a. They have no offset, counterclaim or defense
with respect to the obligations under the First Mortgage
Loan Document, the Subordinated Loan Documents or
Additional Loan Documents and to the extent that they
have any offset, counterclaim or defense with respect to
the obligations thereunder, they hereby waive and release
such offset, counterclaim and defense.
b. The Partnership and the Partners ratify and
affirm all obligations under the First Mortgage Loan
Documents and Subordinated Loan Documents and Additional
Loan Documents.
c. Except for the matters expressly set forth
herein, the Partnership and Partners hereby release and
forever discharge the First Mortgagee and GIT and all its
directors, officers, employees, administrators, agents,
subsidiaries, affiliates, appraisers, inspectors,
accountants, attorneys, successors and assigns from any
and all present existing causes of action, demands,
claims, debts, accounts, liabilities, costs, expenses,
contracts, promises, agreements and damages whatsoever
(hereinafter referred to individually and collectively as
the Claims ) which related to the First Mortgage Loan
Documents, the Subordinated Loan Documents, the
Additional Loan Documents and also including without
limitation any and all claims arising out of or relating
to the exercise by the First Mortgagee and GIT of any
rights pursuant thereto.
WAS: 8814_1/RE.27294.5 6
<PAGE>
13. Representation of the First Mortgagee and GIT. The First
Mortgagee and GIT hereby acknowledges that all payment obligations
identified in this Agreement, First Mortgage Loan Documents, the
Subordinated Loan Documents and Additional Loan Documents are nonrecourse.
14. Execution in Counterparts. This Agreement may be signed in
counterparts by the parties and shall be effective upon the signature of
the second party to sign the Agreement.
15. Binding Effect. The terms and provisions of this Agreement shall
be binding upon the parties hereto and their heirs, successors and assigns.
16. Time of Essence. Time is of the essence in this Agreement.
17. Governing Law. This Agreement shall be construed under the laws
of the State of Florida and if any provisions of this Agreement are held by
a court of competent jurisdiction to be illegal, invalid or unenforceable,
then such illegality, invalidity or unenforceability shall not affect the
legality, validity or enforceability of the other provisions of this
Agreement.
WAS: 8814_1/RE.27294.5 7
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this instrument to
be executed as of the day, month and year first written above.
PARTNERSHIP:
Lifestyles at Boot Ranch, a Florida
general partnership
By: FL-Tampa, Inc., a Florida
corporation, general partner
By: _______________________________
Name:
Title:
By: M&D Palm Harbor, Inc., a Florida
corporation, general partner
By: ________________________________
Name:
Title:
PARTNERS:
FL-Tampa, Inc., a Florida corporation
By: ________________________________
Name:
Title:
M&D Palm Harbor, Inc., a Florida
corporation
By: ________________________________
Name:
Title:
GIT:
Krupp Government Income Trust, a
Massachusetts business trust
By: Berkshire Mortgage Advisors
Limited Partnership, its advisor
By: BRF Corporation, its general
WAS: 8814_1/RE.27294.5 8
<PAGE>
partner
By: ________________________________
Name:
Title:
FIRST MORTGAGEE:
Berkshire Mortgage Finance Corporation
By: ________________________________
Name:
Title:
WAS: 8814_1/RE.27294.5 9
<PAGE>
ESCROW DEPOSIT AGREEMENT
This Escrow Deposit Agreement (the Deposit Agreement ) is made and
entered as of the 1st day of August, 1996, by and between Krupp Government
Trust ( GIT ) and M&D Palm Harbor, Inc. and Fl-Tampa, Inc. the general
partners of Lifestyles at Boot Ranch, a Florida general partnership
(collectively the Partners ).
WHEREAS, GIT made a loan to the Partners in the amount of $1,817,665
(the Additional Loan ) which is evidenced by an Additional Loan Note and
Additional Loan Agreement;
WHEREAS, GIT purchased the GNMA MBS to fund a Coinsured Loan in the
amount of $10,300,100 made to Lifestyles at Boot Ranch at below the then
prevailing rates for similar loans to the benefit of the Partners;
WHEREAS, the Partners have requested assistance from GIT in regards
to its obligations under the Coinsured Loan documents and the Additional
Loan Note and Additional Loan Agreement and GIT has agreed to modify the
terms of those obligations and the Partners and GIT have entered into a
Modification Agreement dated as of August 1, 1996;
WHEREAS, pursuant to the Modification Agreement, the Partners have
agreed to deposit the sum of $150,000 in an escrow account to be used to
assist in bringing the delinquent Coinsured Loan current, to help reduce
trade payables or as specified by GIT for other related project costs;
WHEREAS, the parties hereto have reached an agreement regarding the
terms and conditions of the escrow deposit which are set forth herein.
NOW THEREFORE, in consideration of the foregoing, GIT and the
Partners hereby agree as follows:
1. The Partners have deposited in the form of cash the sum of
$ 1 5 0 , 0 0 0 ( t h e E s c r o w ) w i t h
______________________________________________________(the Depository )
which Depository is acceptable to GIT.
2. Disbursements from the Escrow shall be authorized monthly or
more frequently by GIT for any delinquency in the Coinsured Loan, to help
pay any trade payables deemed necessary to be paid by GIT and for other
related costs associated with the operations of the Lifestyles Apartments.
3. Said Escrow shall be in an interest bearing account and earned
interest shall be kept in the Escrow and may be expended for the purposes
specified in paragraph 2 above.
4. Said Escrow will be subject to immediate application to the
Coinsured Loan obligations in the event of any uncured default under the
Coinsured Loan documents.
5. Depository by its acceptance of the Escrow and acknowledgment
of this Deposit Agreement agrees to hold and disburse the funds in the
<PAGE>
Escrow at the sole direction of GIT and the Partners shall have no right to
withdraw any funds from the Escrow without the written consent of GIT.
6. At such date as GIT determines in its sole discretion that
there is no longer a need for the Escrow, any balance in the Escrow,
including any earned interest, will be deposited in the project
Replacement Reserve account established at the closing of the original
Coinsured Loan. Funds will then be disbursed in accordance with the
Replacement Reserve Agreement executed at the closing of the original
Coinsured Loan.
IN WITNESS WHEREOF, the undersigned parties have cause this Deposit
Agreement to be executed on the day, month and year first written above.
PARTNERS:
M&D Palm Harbor Inc., a Florida
corporation
BY: _____________________________
Name:
Title:
FL-Tampa, Inc., a Florida corporation
BY: _____________________________
Name:
Title:
GIT:
Krupp Government Income Trust, a
Massachusetts business trust
BY: Berkshire Mortgage Advisors
Limited Partnership, its advisor
BY: BRF Corporation, its general
partner
BY: ______________________________
Name:
Title:
DEPOSITORY ACKNOWLEDGMENT
DEPOSITORY:
<PAGE>
