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 March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19244
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.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
BALANCE SHEETS
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
<S> <C> <C>
Participating Insured Mortgage Investments
("PIMIs") (Note 2):
Insured Mortgages $108,866,216 $114,625,179
Additional loans 19,209,108 20,749,108
Participating Insured Mortgages ("PIMs")
(Notes 2) 48,395,872 48,479,897
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 3) 29,168,014 26,754,326
Total mortgage investments 205,639,210 210,608,510
Cash and cash equivalents 23,826,862 19,053,931
Interest receivable and other assets 1,673,621 1,707,799
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,379,263
and $6,090,173, respectively 7,094,096 7,383,186
Prepaid participation servicing fees, net of
accumulated amortization of $ 1,716,800 and
$1,610,677, respectively 2,774,205 2,880,328
Total assets $241,007,994 $241,633,754
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note 5) $ 6,824,154 $ 7,325,414
Other liabilities 6,254 27,733
Total liabilities 6,830,408 7,353,147
Shareholders' equity (Note 4):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 233,015,255 233,015,255
Retained earnings 149,515 -
Unrealized gain on MBS 1,012,816 1,265,352
Total Shareholders equity 234,177,586 234,280,607
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<PAGE>
Total liabilities and Shareholders'
equity $241,007,994 $241,633,754
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
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<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three
Months
Ended March 31,
1997 1996
Revenue:
<S> <C> <C>
Interest income - PIMs and PIMIs:
Base interest $ 3,278,921 $ 3,387,606
Additional loan interest 633,120 -
Participation income 1,348,392 -
Interest income - MBS 526,231 611,716
Other interest income 270,394 121,101
Total revenue 6,057,058 4,120,423
Expenses:
Asset management fee to an affiliate 382,986 415,287
Expense reimbursements to affiliates 108,996 107,746
Amortization of prepaid fees and expenses 395,213 419,823
Other 128,074 99,965
Total expenses 1,015,269 1,042,821
Net income $ 5,041,789 $3,077,602
Earnings per Share $ .33 $ .20
Weighted average Shares outstanding 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
1997 1996
Operating activities:
<S> <C> <C>
Net income $ 5,041,789 $ 3,077,602
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of net premium 945 1,295
Amortization of prepaid fees and expenses 395,213 419,823
Changes in assets and liabilities:
Decrease in interest receivable and other
assets 34,178 147,044
Decrease in other liabilities (21,479) (12,215)
Net cash provided by operating activities 5,450,646 3,633,549
Investing activities:
Principal collections on MBS 698,831 1,147,422
Principal collections on PIMs and insured
mortgages 5,842,988 225,085
Collection of Additional loan 1,540,000 -
Acquisition of insured mortgage (3,366,000) -
Increase (decrease)in deferred
income on Additional Loans (501,260) 634,807
Net cash provided by investing activities 4,214,559 2,007,314
Financing activity:
Dividends (4,892,274) (4,892,274)
Net increase in cash and cash equivalents 4,772,931 748,589
Cash and cash equivalents, beginning of period 19,053,931 8,914,295
Cash and cash equivalents, end of period $23,826,862 $ 9,662,884
</TABLE>
The accompanying notes are an integral
part of the financial statements.
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<PAGE>
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 in the Trust's Form
10-K for the year ended December 31, 1996 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 March 31, 1997 and the results of
its operations and its cash flows for the three months ended March
31, 1997 and 1996.
The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results which may be expected
for the full year. See Management's Discussion and Analysis of
Financial Condition and Results of Operations included in this
report.
2. PIMs and PIMIs
On February 6, 1997, the Trust, with the knowledge of the
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<PAGE>
independent Trustees, agreed to a workout with the borrower of the
Windward Lakes Apartments PIMI, an affiliate of the Advisor of the
Trust. The terms are as follows: a) interest rate relief for 1997
of 2% per annum and 1% per annum for 1998 through 2000 on the
insured mortgage; b) the borrower, McNab KC-3 L.P.( McNab ), will
put in $133,036 of new equity into the property; c) the borrower
will cap the annual management fee paid to an affiliate to 3% of
revenues; d) the Trust s participation in current operations shall
be 50% of Surplus Cash as determined under HUD guidelines; e) Base
Interest on the Additional Loan is payable from Trust s share of
Surplus Cash and unpaid amounts accrue at 7.5% per annum; and f)the
Trust s participation in a sale or refinancing, after repayment of
the first mortgage and additional loans, interest rate relief and
accrued Base Interest and McNab s new equity, shall be 50% of any
remaining proceeds up to an amount which would result in the Trust
having received a cumulative, noncompounded preferred return of 10%
on its investment in the first mortgage and additional loans; any
remaining proceeds shall be distributed to McNab.
During the first quarter the Trust received proceeds from the
prepayment of The Timber Ridge Apartments PIMI as follows:
$1,540,000 to payoff the Additional loan; $1,045,961 representing
additional interest; $5,663,191 to payoff the outstanding first
mortgage principal balance. The Trust will seek alternate
investments for the reinvestment of the Timber Ridge proceeds.
At March 31, 1997, the Trust s PIMs and PIMIs have a fair value of
approximately $168,974,859 and gross unrealized gains and losses of
approximately $191,027 and $7,687,364, respectively. The PIMs and
PIMIs have maturities ranging from 2001 to 2034.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
3. MBS
During the first quarter of 1997, the Trust acquired a $3,400,000
face value insured multi-family mortgage for $3,366,000 having a
coupon rate of 7.625% per annum and a maturity of April 2032.
At March 31, 1997, the Trust s MBS portfolio has an amortized cost
of approximately $28,155,198 and unrealized gains and losses of
$1,064,070 and $51,254, respectively. The MBS portfolio has
maturities ranging from 2008 to 2029.
4. Changes in Shareholders' Equity
A summary of changes in shareholders' equity for three months ended
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
Total
Common Retained Unrealized Shareholders'
Stock Earnings Gain Equity
<S> <C> <C> <S> <C> <C>
Balance at December 31,
1996 $233,015,255 $ - $ 1,265,352 $234,280,607
Net income - 5,041,789 - 5,041,789
Dividends - (4,892,274) - (4,892,274)
Decrease in unrealized
gain on MBS - - (252,536) (252,536)
Balance at March 31, 1997 $233,015,255 $ 149,515 $ 1,012,816 $234,177,586
5. Related Party Transactions
During the three months ended March 31, 1997 and 1996, the Trust received
$77,484 and $150,413, respectively, of interest income on Additional
Loans from affiliates of the Advisor.
</TABLE>
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<PAGE>
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.
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 PIMIs, in addition to providing
guaranteed or insured monthly principal and interest payments, may
provide the Trust with additional income through participation in the
cash generated by the operations of the underlying properties and a
portion of the appreciation realized upon the sale or refinancing of the
underlying properties. The Trust's participation interests and the
interest payments on the Additional Loan portion of the PIMIs are
neither insured nor guaranteed and will depend primarily on the
successful operation of the underlying properties. Seven of the Trust's
nine PIMIs funded the construction of multi-family housing, which
require time to achieve stabilized operations following completion of
construction. With this in mind, the Trust required the borrowers to
establish reserves and escrows with Additional Loan proceeds to provide
funds for the Additional Loan base interest payments during the
construction and lease-up periods. As these reserves become depleted,
full payment of the Additional Loan base interest will depend primarily
on whether the underlying property can generate sufficient operating
cash flow. For 1997, Coconut Palm, Mountain View, Red Run and The
Seasons have sufficient escrows to make the required Additional Loan
base interest payments if operations can not support such payments.
Management is closely monitoring the operating performances of the
remaining properties. Overall, the Trust's ability to meet its
objectives will depend primarily on the operating performance of the
properties underlying the PIMs and PIMIs. Lifestyles Apartments
operating performance has improved under new management operating the
property for the past 9 months. However stiff competition from new
apartment complexes and affordable single-family homes is still
prevalent in the market and affects the property s ability to achieve
rental increases. Overall, operations are stabilizing, but significant
improvement remains a long-term goal. The Trust has agreed to a
modification of the terms of the Windward Lakes PIMs including interest
rate relief on the first mortgage through the year 2000. In addition,
reserves set aside to fund Windward Lakes Apartments Additional Loan
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<PAGE>
base interest payments are depleted and the property operations may not
generate sufficient cash flow to meet the Additional Loan base interest
payments under the workout terms.
During the first quarter the Trust received a prepayment of The
Timber Ridge Apartments PIMI. On February 28,1997, the Trust received
$1,540,000 to payoff the Additional loan and $1,045,961 representing
additional interest. On March 6, 1997, the Trust received $5,663,191 to
payoff the outstanding first mortgage principal balance. The Trust is
presently seeking alternate investments for the 1996 Canyon Ridge PIM
prepayment and the Timber Ridge prepayment proceeds.
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from repaying. For the second five years, the borrowers can
repay the loans and pay the greater of a prepayment penalty or all
participation 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 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.
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 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 conventional real estate lending, 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.
The Trust includes in cash and cash equivalents approximately $7 million
of commercial paper, which is issued by entities with a credit rating
equal to one of the top two rating categories of a nationally recognized
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<PAGE>
statistical rating organization.
Operations
The following discussion relates to the operations of the Trust
during the three months ended March 31, 1997 and 1996 (dollars in
thousands, except per Share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Per Per
Amount Share Amount Share
<S> <C> <C> <C> <C>
Interest - PIMs and PIMIs:
Base interest income $3,279 $ .22 $3,388 $ .23
Participation income 1,348 .09 - -
Additional loan interest 633 .04 - -
Interest income on MB 526 .03 612 .04
Other interest income 270 .02 121 .01
Trust expenses (619) (.04) (623) (.04)
Amortization of prepaid fees and
expenses and organization costs (395) (.03) (420) (.04)
Net income $5,042 $ .33 $3,078 $ .20
Weighted average Shares 15,053,135 15,053,135
Net income for the first quarter of 1997 increased by approximately
$1,964,000 as compared to the first quarter of 1996 primarily is due to
amounts received from the Timber Ridge PIMI prepayment. The increases in
participation income and additional loan interest income are primarily
related to Timber Ridge PIMI. The Trust received $1,246,000 of
participation interest and reclassed $540,000 of interest previously
received and recorded in deferred income to interest income upon early
repayment of the PIMI. The Trust generally funds a portion of its dividends
with principal collections. To the extent this happens it will reduce the
asset base generating income for the Trust in the future.
</TABLE>
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<PAGE>
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
Response: None
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<PAGE>
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: April 23, 1997
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<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 it entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000857264
<NAME> KRUPP GOVERNMENT INCOME TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,826,862
<SECURITIES> 205,639,210<F1>
<RECEIVABLES> 1,673,621
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,868,301<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 241,007,994
<CURRENT-LIABILITIES> 6,830,408<F3>
<BONDS> 0
0
0
<COMMON> 233,164,770
<OTHER-SE> 1,012,816<F4>
<TOTAL-LIABILITY-AND-EQUITY> 241,007,994
<SALES> 0
<TOTAL-REVENUES> 6,057,058<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,015,269<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,041,789
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,041,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,041,789
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMs") (insured mortgages
of $108,866,216 and Additional Loans of $19,209,108), Participating Insured
Mortgages ("PIMs") of $48,395,872 and Mortgage-Backed Securities ("MBS") of
$29,168,014.
<F2>Includes prepaid acquisition fees and expenses of $13,473,359 net of
accumulated amortization of $6,379,263 and prepaid participating servicing of
$4,491,005 net of accumulated amortization of $1,716,800.
<F3>Includes deferred income on Additional Loans of $6,824,154.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $395,213 of amortization for prepaid fees and expenses.
</FN>
</TABLE>
