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 June 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 ( I R S 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>
June 30, December 31,
1996 1995
Participating Insured Mortgage Investments
("PIMIs") (Note 2):
<S> <C> <C>
Insured Mortgages $114,889,685 $115,131,611
Additional loans 20,749,108 20,749,108
Participating Insured Mortgages ("PIMs")
(Notes 2) 48,643,027 57,691,223
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 3) 28,150,414 31,394,259
Total mortgage investments 212,432,234 224,966,201
Cash and cash equivalents 18,862,224 8,914,295
Interest receivable and other assets 1,650,127 1,862,335
Prepaid acquisition fees and expenses, net
of accumulated amortization of $5,511,992
and $4,909,201, respectively 7,961,367 8,564,158
Prepaid participation servicing fees, net of
accumulated amortization of $1,398,433 and
$1,177,984, respectively 3,092,572 3,313,021
Total assets $243,998,524 $247,620,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note 5) $ 6,649,949 $ 5,920,957
Other liabilities 13,497 20,577
Total liabilities 6,663,446 5,941,534
Shareholders' equity (Note 4):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 236,661,378 240,103,655
Unrealized gain on MBS 673,700 1,574,821
Total Shareholders equity 237,335,078 241,678,476
Total liabilities and Shareholders'
equity $243,998,524 $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 For the Six Months
Ended June 30, Ended June 30,
<PAGE>
1996 1995 1996 1995
Revenues:
Interest income - PIMs
and PIMIs:
<S> <C> <C> <C> <C>
Base interest $ 3,221,901 $ 3,416,291 $ 6,609,507 $ 6,869,092
Participation income 146,256 - 146,256 90,540
Interest income - MBS 590,932 666,843 1,202,648 1,313,674
Other interest income 274,386 133,191 395,487 282,087
Total revenues 4,233,475 4,216,325 8,353,898 8,555,393
Expenses:
Asset management fee to an
affiliate 396,089 423,317 811,376 843,543
Expense reimbursements to
affiliates 83,879 115,963 191,625 231,926
Amortization of prepaid
expenses, fees and
organization costs 403,417 420,655 823,240 842,980
General and
administrative 85,421 101,115 185,386 190,429
Total expenses 968,806 1,061,050 2,011,627 2,108,878
Net income $ 3,264,669 $ 3,155,275 $ 6,342,271 $ 6,446,515
Earning per Share $ .22 $ .21 $ .42 $ .43
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 Six Months
Ended June 30,
1996 1995
Operating activities:
<S> <C> <C>
Net income $ 6,342,271 $ 6,446,515
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of net premium - 1,422
Amortization of prepaid fees and expenses 823,240 842,980
Changes in assets and liabilities:
Decrease in interest receivable and other
assets 212,208 543,660
Increase (decrease) in other liabilities (7,080) 515
Net cash provided by operating activities 7,370,639 7,835,092
Investing activities:
PIM prepayment 8,862,450 -
Principal collections on PIMs 427,672 431,697
<PAGE>
Principal collections on MBS 2,342,724 1,500,199
Investment in MBS - (2,977,694)
Increase in deferred income on Additional Loans 728,992 518,487
Net cash provided by (used for)
investing activities 12,361,838 (527,311)
Financing activity:
Dividends (9,784,548) (9,784,548)
Net increase (decrease) in cash and
cash equivalents 9,947,929 (2,476,767)
Cash and cash equivalents, beginning of period 8,914,295 11,068,450
Cash and cash equivalents, end of period $18,862,224 $ 8,591,683
</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"), the Advisor to 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 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 June 30, 1996, its results of operations for the three
and six months ended June 30, 1996 and 1995, and its cash flows for the
six months ended June 30, 1996 and 1995.
The results of operations for the three and six months ended June 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 June 30, 1996, the Trust s PIMs and PIMIs have a fair value of
approximately $175,793,000 and gross unrealized gains and losses of
approximately $65,000 and $8,554,000, respectively. The PIMs and PIMIs
have maturities ranging from 2001 to 2034.
On April 25, 1996, the Trust received a prepayment of the Canyon Ridge
Apartments PIM from the Federal National Mortgage Association ( FNMA )
of the outstanding principal balance of approximately $8.9 million.
<PAGE>
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 interest income will depend on the ultimate outcome of
the bankruptcy proceedings.
3. MBS
At June 30, 1996, the Trust s MBS portfolio has an amortized cost of
approximately $27,476,714 and unrealized gains and losses of $744,825
and $71,125, respectively. The MBS portfolio has maturities ranging
from 2008 to 2029.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Shareholders' Equity
A summary of changes in shareholders' equity for six months ended June
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 - 6,342,271 - 6,342,271
Dividends (3,442,277) (6,342,271) - (9,784,548)
Decrease in unrealized
gain on MBS - - (901,121) (901,121)
Balance at June 30, 1996 $236,661,378 $ - $ 673,700 $237,335,078
</TABLE>
5. Related Party Transactions
During each of the six month periods ended June 30, 1996 and 1995, the
Trust received $150,413 of interest income on Additional Loans from
affiliates of the Advisor.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
<PAGE>
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 and
$160,000 from the Timber Ridge PIMI. 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, however, they are not expected to improve
significantly this year. The Advisor and the borrower of the Lifestyles
Apartments PIMI are currently discussing arrangements that would provide
the borrower with some debt service relief and should finalize an agreement
in the third quarter. 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 in the third quarter.
The borrower of the Canyon Ridge Apartments PIM was delinquent on its
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 interest income 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
<PAGE>
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 to call 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>
(Amounts in thousands, except per Share amounts)
<CAPTION>
Period Ended Inception Through
6/30/96 6/30/96
Distributable Cash Flow (a):
<S> <C> <C>
Net income $ 6,342 $ 78,596
Items providing or not requiring the
use of operating funds:
Amortization of prepaid fees and
expenses and organization costs 823 6,960
Additional Loan Interest 729 6,650
Total Distributable Cash Flow $ 7,894 $ 92,206
DCF per Share based on Shares
outstanding at June 30, 1996 $ .52 $ 6.12 (c)
Dividends:
Total dividends to Shareholders $ 9,785 (b) $126,896 (b)
Average dividend per Share based
on Shares outstanding at
June 30, 1996 $ .65 $ 8.43 (b)(c)
</TABLE>
(a) Distributable Cash Flow consists of income before amortization of
prepaid fees and expenses and organization costs and before the effect
of any gains or losses from the sale of assets, and includes interest
collections on Additional Loans.
(b) Includes an estimate of the distribution to be paid in August 1996.
(c) Shareholders average per Share return of capital as of August 1996 is
$2.31 [$8.43 - $6.12]. Return of capital represents that portion of
the dividends which is not funded from DCF such as proceeds from the
sale of assets and substantially all of the principal collections
received from MBS and PIMs.
Assessment of Credit Risk
The Trust's investments in mortgages are guaranteed or insured by 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.
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
<PAGE>
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 owner's
operating skills, ability to maintain occupancy levels, control operating
expenses, maintain the properties and obtain adequate insurance coverage;
adverse changes in general economic conditions, adverse local conditions,
and changes in governmental regulations, 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 six months ended June 30, 1996 and 1995 (dollars in
thousands, except per Share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
Per Per
Amount Share Amount Share
Interest income on PIMs and PIMIs:
<S> <C> <C> <C> <C>
Base interest $3,222 $ .21 $3,417 $ .22
Participation income 146 .01 - -
Additional loan interest 94 .01 49 -
Interest income on MBS 591 .04 667 .05
Other interest income 274 .02 133 .01
Trust expenses (566) (.04) (640) (.04)
DCF 3,761 .25 3,626 .24
Reconciliation to net
income:
Amortization of prepaid
fees and expenses and
organization costs (403) (.02) (421) (.03)
Additional loan interest
deferred (94) (.01) (49) -
Net income $3,264 $ .22 $3,156 $ .21
Weighted average
Shares outstanding 15,053,135 15,053,135
Interest income on PIMs and PIMIs
Base interest $6,610 $ .44 $6,870 $ .45
Participation income 146 .01 90 .01
Additional loan interest 729 .05 518 .03
Interest income on MBS 1,203 .08 1,314 .09
Other interest income 395 .03 282 .02
Trust expenses (1,189) (.09) (1,266) (.08)
DCF 7,894 .52 7,808 .52
Reconciliation to net
income:
Amortization of prepaid
<PAGE>
fees and expenses and
organization costs (823) (.05) (843) (.06)
Additional loan interest
deferred (729) (.05) (518) (.03)
Net income $6,342 $ .42 $6,447 $ .43
Weighted average
Shares outstanding 15,053,135 15,053,135
</TABLE>
The Trust s net income for the three months ended June 30, 1996 increased
$108,000 as compared to the three months ended June 30, 1995 due to a
slight increase in interest income and lower expenses. Interest income
increased in the second quarter of 1996 as compared to the second quarter
of 1995 due primarily to an increase in participation income interest and
other interest income, which was a result of the Canyon Ridge Apartments
PIM prepayment increasing the investable dollars, net of a decrease in base
interest income on PIMs, also as a result of the prepayment, and a decrease
in interest income on MBS, which will continue to decline as principal
collections reduce the outstanding principal balance of the MBS portfolio.
Expenses decreased in the second quarter of 1996 as compared to the second
quarter of 1995 due in part to lower asset management fees and amortization
expenses resulting from the Canyon Ridge Apartments PIM prepayment, but
these expenses will increase when the Trust reinvests these funds in a new
mortgage investment. In addition, expense reimbursements to affiliates and
general and administrative expenses were lower during the three months
ended June 30, 1996 as compared to the corresponding period in 1995.
Net income decreased during the first half of 1996 as compared to the first
half of 1995 due to a $202,000 decrease in interest income that was offset
in part by a $97,000 decrease in expenses. Interest income on MBS
decreased by $111,000 during the first half of 1996 as compared to the
first half of 1995 and will continue to decline as principal collections
reduce the MBS portfolio. Also, as discussed above, the Canyon Ridge
Apartments PIM prepayment caused a decrease in base interest on PIMs and an
increase in other interest income during the six months ended June 30, 1996
as compared to the six months ended June 30, 1995. Asset management fees
and amortization expense decreased as a result of the prepayment, but will
increase when the Trust reinvests the prepayment proceeds in a new
mortgage investment. In addition, the Trust s expenses decreased because
expense reimbursements to affiliates were $40,000 lower in the first half
of 1996 versus the first half of 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
<PAGE>
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Krupp Government Income Trust
(Registrant)
BY: /s/ Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer o f
Krupp Government Income Trust
DATE: August 5, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,862,224
<SECURITIES> 212,432,234<F1>
<RECEIVABLES> 1,650,127
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,053,939<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 243,998,524
<CURRENT-LIABILITIES> 6,663,446<F3>
<BONDS> 0
0
0
<COMMON> 236,661,378
<OTHER-SE> 673,700<F4>
<TOTAL-LIABILITY-AND-EQUITY> 243,998,524
<SALES> 0
<TOTAL-REVENUES> 8,353,898<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,011,627<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,342,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,342,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,342,271
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $114,889,685 and Additional Loans of $20,749,108), Participating
Insured Mortgages ("PIMs") of $48,643,027 and Mortgage-Backed Securities
("MBS") of $28,150,414
<F2>Includes prepaid acquisition fees and expenses of $13,473,359 net of
accumulated amortization of $5,511,992 and prepaid participation servicing fees
of $4,491,005 net of accumulated amortization of $1,398,433
<F3>Includes deferred income on Additional Loans of $6,649,949
<F4>Unrealized gain on MBS
<F5>Represents interest income on investments in mortgages and cash
<F6>Includes $823,240 of amortization expense for prepaid fees and expenses
</FN>
</TABLE>
