UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
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 (IRS employer identification no.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
<TABLE>
KRUPP GOVERNMENT INCOME TRUST
BALANCE SHEETS
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
Participating Insured Mortgage Investments
("PIMIs") (Note 2):
<S> <C> <C>
Insured Mortgages $ 75,175,715 $ 75,386,460
Additional loans, net of impairment provision of $2,114,346 11,243,862 11,243,862
Participating Insured Mortgages ("PIMs")
(Notes 2) 47,538,654 47,737,583
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 3) 19,349,413 22,132,858
Total mortgage investments 153,307,644 156,500,763
Cash and cash equivalents 7,475,528 9,004,397
Interest receivable and other assets 1,014,211 1,057,365
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,557,413
and $6,125,191, respectively 3,013,383 3,445,605
Prepaid participation servicing fees, net of
accumulated amortization of $1,936,134 and
$ 1,776,625, respectively 1,254,050 1,413,559
Total assets $ 166,064,816 $ 171,421,689
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans
(Note 5) $ 5,958,322 $ 5,773,669
Other liabilities 124,962 33,230
Total liabilities 6,083,284 5,806,899
Shareholders' equity (Note 4):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 159,392,153 164,742,014
Accumulated comprehensive income 589,379 872,776
Total Shareholders' equity 159,981,532 165,614,790
Total liabilities and Shareholders'
equity $ 166,064,816 $ 171,421,689
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Interest income - PIMs
<S> <C> <C> <C> <C>
and PIMIs:
Basic interest $ 2,288,267 $ 2,955,766 $ 4,634,107 $ 6,011,682
Additional Loan
Interest 79,398 2,754,049 187,665 2,862,316
Participation income 75,020 4,871,325 75,020 4,898,075
Interest income - MBS 390,263 498,604 800,295 1,018,248
Other interest income 97,134 257,217 205,164 385,637
Total revenues 2,930,082 11,336,961 5,902,251 15,175,958
Expenses:
Asset management fee
to an affiliate 290,685 359,209 580,287 730,797
Expense reimbursements
to affiliates 67,479 (27,525) 85,694 68,121
Amortization of prepaid
fees and expenses 295,865 1,259,126 591,731 1,638,720
General and
administrative 147,333 141,447 209,854 224,049
Total expenses 801,362 1,732,257 1,467,566 2,661,687
Net income 2,128,720 9,604,704 4,434,685 12,514,271
Other comprehensive income:
Net change in unrealized
gain on MBS (231,864) 25,408 (283,397) (64,285)
Total comprehensive income $ 1,896,856 $ 9,630,112 $ 4,151,288 $ 12,449,986
Basic earnings per Share $ .14 $ .64 $ .29 $ .83
Weighted average Shares
outstanding 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
Operating activities:
<S> <C> <C>
Net income $ 4,434,685 $ 12,514,271
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of net premium 2,194 -
Amortization of prepaid fees and expenses 591,731 1,638,720
Changes in assets and liabilities:
Decrease in interest receivable and other
assets 43,154 117,370
Increase (decrease) in other liabilities 91,732 (8,453)
Net cash provided by operating activities 5,163,496 14,261,908
Investing activities:
Principal collections on MBS 2,497,854 2,151,336
Insured mortgage prepayment - 16,752,295
Principal collections on PIMs 409,674 449,695
Collection of Additional Loan - 5,850,900
Increase (decrease) in deferred income on
Additional Loans 184,653 (2,293,297)
Net cash provided by investing activities 3,092,181 22,910,929
Financing activity:
Dividends (9,784,546) (9,784,546)
Net (decrease) increase in cash and cash equivalents (1,528,869) 27,388,291
Cash and cash equivalents, beginning of period 9,004,397 9,749,804
Cash and cash equivalents, end of period $ 7,475,528 $ 37,138,095
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<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"), 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, 1998 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, 1999, its results of operations for
the three and six months ended June 30, 1999 and 1998, and its cash flows for
the six months ended June 30, 1999 and 1998. The results of operations for the
three and six months ended June 30, 1999 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
In June 1999, the Trust entered into a second modification agreement (the
"Agreement") with the borrowers of the Mountain View Apartments PIMI reducing
the interest rate on the insured mortgage by 1.25% per annum beginning January
1, 1999 and continuing through December 31, 2004 and changing the participation
features. The Agreement eliminated the Preferred Interest required under the
Additional Loan and changed the Trust's participation in the surplus cash
generated by property. Under the Agreement, the Trust will receive 75% of the
first $130,667 of surplus cash and 50% of any remaining surplus cash on an
annual basis to pay the base interest on the Additional Loan. Unpaid Additional
Loan base interest will accrue and be payable if there are sufficient proceeds
from a sale or refinancing of the property except that $288,580 of existing
accruals related to the Additional Loan have been forgiven. In addition, the
borrower will repay $153,600 of the Additional Loan and fund approximately
$54,000 to a reserve for property improvements.
At June 30, 1999, the Trust's PIMs and PIMIs have a fair value of
approximately $135,403,097 and gross unrealized gains and losses of
approximately $2,005,102 and $560,236 respectively. The PIMs and PIMIs
have maturities ranging from 2002 to 2034. At June 30, 1999, the Trust's six
participating insured mortgage loans were not delinquent of principal and
interest payments. Management believes that the impairment provision of
$2,114,346 is adequate based on its analysis of property operations underlying
the Additional Loans.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
3. MBS
At June 30, 1999, the Trust's MBS portfolio has an amortized cost of $18,760,034
and unrealized gains and losses of $608,216 and $18,837, respectively. The MBS
portfolio has maturities ranging from 2008 to 2035. At June 30, 1999, the
Trust's insured mortgage loan was not delinquent of principal and interest
payments.
4. Changes in Shareholders' Equity
A summary of changes in shareholders' equity for six months ended
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Total Accumulated
Common Retained Comprehensive Shareholders'
Stock Earnings Income Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 164,742,014 $ - $ 872,776 $ 165,614,790
Net income - 4,434,685 - 4,434,685
Dividends (5,349,861) (4,434,685) - (9,784,546)
Decrease in unrealized
gain on MBS - - (283,397) (283,397)
Balance at June 30, 1999 $ 159,392,153 $ - $ 589,379 $ 159,981,532
</TABLE>
5. Related Party Transactions
During the three months ended June 30, 1999 Additional Loan interest income from
an affiliate of the Advisor of $57,740 was received. During the six months ended
June 30, 1999 and 1998, Additional Loan interest income from an affiliate of the
Advisor of $144,348 and $86,609, respectively, was received. In addition, the
Trust received $75,020 of participation from an affiliate of the Advisor during
the second quarter and first half of 1999 and received $26,749 of participation
interest during the six months ended June 30, 1998.
<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.
The Advisor of the Trust has conducted an assessment of the Trust's core
internal and external computer information systems and has taken the further
necessary steps to understand the nature and extent of the work required to make
its systems Year 2000 ready in those situations in which it is required to do
so. The Year 2000 readiness issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations.
In this regard, the Advisor of the Trust, along with certain affiliates, began a
computer systems project in 1997 to significantly upgrade its existing hardware
and software. The Advisor completed the testing and conversion of the financial
accounting operating systems in February 1998. As a result, the Advisor has
generated operating efficiencies and believes its financial accounting operating
systems are Year 2000 ready. The Advisor incurred hardware costs as well as
consulting and other expenses related to the infrastructure and facilities
enhancements necessary to complete the upgrade and prepare for the Year 200.
There are no other significant internal systems or software that the Trust is
using at the present time.
The Advisor of the Trust surveyed the Trust's material third-party service
providers (including but not limited to its banks and telecommunications
providers) and significant vendors and received assurances that such service
providers and vendors are Year 2000 ready. The Trust does not anticipate any
problems with such providers and vendors that would materially impact its
results of operations, liquidity or capital resources. Nevertheless the Advisor
is developing contingency plans for all of its "mission-critical functions" to
insure business continuity.
In addition, the Trust is also subject to external forces that might generally
affect industry and commerce, such as utility and transportation company Year
2000 readiness failures and related service interruptions. However, the Trust
does not anticipate these would materially impact its results of operations,
liquidity or capital resources.
To date, the Trust has not incurred any cost associated with being Year 2000
ready. All costs have been incurred by the Advisor and it is estimated that any
future Year 2000 readiness costs will be borne by the Advisor.
Liquidity and Capital Resources
At June 30, 1999 the Trust has significant liquidity consisting of cash and cash
equivalents, of approximately $7.5 million as well as the cash inflows provided
by PIMs, PIMIs, MBS, cash and cash equivalents. The Trust may also receive
additional cash flow from the participation features of its PIMs and PIMIs. The
Trust anticipates that these sources will be adequate to provide the Trust with
sufficient liquidity to meet its obligations, including providing dividends to
its investors for the forseeable future.
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 Advisor of the Trust periodically reviews the dividend rate to determine
whether an adjustment to the dividend rate is necessary based on projected
future cash flows. Based on current projections, the Advisor believes the Trust
can maintain the current dividend rate for the remainder of the year. In
general, the Advisor tries to set a dividend rate that provides for level
quarterly distributions. To the extent quarterly dividends do not fully utilize
the cash available for distribution and cash balances increase, the Advisor may
adjust the dividend rate or distribute such funds through a special
distribution.
<PAGE>
The Trust's investments in PIMs and PIMIs, in addition to providing guaranteed
or insured monthly principal and interest payments on the MBS and insured
mortgages, 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 principal and 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.
The Advisor continues to monitor the operations of the Lifestyles and Windward
Lakes PIMIs that are operating under workout arrangements. Through the second
quarter of 1999 the operations of these properties have remained stable. The
Advisor expects the Audubon Villas PIMI to prepay during the third quarter of
1999 and anticipates the Trust will receive a substantial amount of
participation income. The Seasons PIMI continues to perform well and is
generating sufficient cash flow from property operations to make the Additional
Loan interest payments. The property underlying the Red Run PIMI is generating
cash flow from operations to fund a portion of its Additional Loan interest
payments and has sufficient escrows to make up any shortfalls during 1999.
In June 1999 the Trust entered into a second modification agreement with the
borrowers of the Mountain View Apartments PIMI reducing interest paid monthly on
the insured mortgage by 1.25% per annum from January 1, 1999 through December
31, 2004 and changing the participation features. Under the Agreement the Trust
will receive 75% of the first $130,667 of the surplus cash and 50% of any
remaining surplus cash on an annual basis to pay the Additional Loan interest
except that $288,580 of existing accruals related to the Additional Loan have
been forgiven. Unpaid Additional Loan interest shall accrue and be payable if
there are sufficient proceeds from a sale or refinancing of the property. In
addition, the borrower will pay down $153,600 of the Additional Loan and fund a
$54,000 reserve for property improvements.
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 MBS and insured mortgages are guaranteed or insured
by Fannie Mae, 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.
Fannie Mae 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 owner's operating skills,
ability to maintain occupancy levels, control operating expenses, maintain the
property 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 $7.4 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 statistical rating
organization.
Operations
Net income decreased $7.5 million and $8.1 million for the three and six months
ended June 30, 1999 as compared to the corresponding periods in 1998. Basic
interest on PIMs and PIMIs decreased $667,000 and $1,378,000 during the three
and six months ended June 30, 1999 and 1998, respectively, due to the Park
Highland and Coconut Club PIMI prepayments. Additional Loan interest and
Participation income were higher in 1998 versus 1999 due to the recognition of
previously deferred income on the Park Highland and Coconut Palm Additional
Loans and the participation interest received from these prepayments. Interest
income on MBS decreased $108,000 and $218,000 during the three and six months
ended June 30, 1999 due to the on-going principal collections reducing the
Trust's MBS investments.
Asset management fees declined $69,000 and $151,000 during the second quarter
and first half of 1999 as compared to the corresponding periods in 1998 due
primarily to the prepayments of the Park Highland and Coconut Club PIMIs.
Amortization expense was higher in the second quarter and first half of 1998 as
compared to 1999 due primarily to fully amortizing the prepaid fees and expenses
associated with the Park Highland PIMI in June of 1998.
The Trust generally funds a portion of its dividends with principal collections
which will continue to reduce the assets of the Trust thereby reducing the
income generated by the Trust in the future. Additionally, asset management fees
will decrease as the Trust's investments in MBS, PIMs and insured mortgages
continue to decline as a result of principal collections.
<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
(a) Exhibits
(10-1) Second modification agreement between
Krupp Government Income
Trust, Berkshire Mortgage Finance Corporation,
and Mountain View Ltd.
(b) Reports on Form 8-K
Response: None
<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: August 6, 1999
________________________________________________________________________________
SECOND MODIFICATION AGREEMENT
This document should be returned after recording to:
________________________________________________________________________________
Peggy DeMuth
Berkshire Mortgage Finance Corporation
One Beacon Street
14th Floor
Boston, MA 02108
________________________________________________________________________________
________________________________________________________________________________
SPACE ABOVE THIS LINE FOR RECORDER'S USE
Second Modification Agreement
This Second Modification Agreement (the "Agreement") is made and entered into as
of the __ day of May 1999 by and among KRUPP GOVERNMENT INCOME TRUST, a
Massachusetts business trust ("GIT"); BERKSHIRE MORTGAGE FINANCE CORPORATION, a
Massachusetts corporation (the "First Mortgagee"); MOUNTAIN VIEW, LTD., an
Alabama limited partnership (the "Partnership"); and Philip P. Mulkey, Henry V.
Bragg and Gregory V. Bragg (collectively, the "Partners").
W I T N E S S E T H:
WHEREAS, Krupp Mortgage Corporation, now known as Berkshire Mortgage Finance
Corporation, made a mortgage loan to the Partnership in the principal sum of
Nine Million Five Hundred Forty Seven Thousand Seven Hundred Dollars
($9,547,700) which loan was insured by the U.S. Department of Housing and Urban
Development (the "First Mortgage Loan");
WHEREAS, the First Mortgage Loan was made with respect to Mountain View
Apartments (the "Project") located on the land described in Exhibit A hereto
attached and the terms of the following First Mortgage Loan documents:
A. The First Mortgage Loan is evidenced by a certain Mortgage Note (the "First
Mortgage Note") dated April 21, 1992 from the Partnership to the First
Mortgagee in the original principal sum of $9,671,400 which principal
balance was reduced to $9,547,000 in the Allonge to Mortgage Note also
dated April 21, 1992;
B. The repayment of the indebtedness evidenced by the First Mortgage Note is
secured by, among other things, (i) a Mortgage dated April 21, 1992 and
recorded in the Probate Records of Madison County, Alabama in Book 1799,
Page 144 (the "First Mortgage"); (ii) a Regulatory Agreement dated April
21, 1992 (the "Regulatory Agreement") and recorded in the Probate Records
of Madison County, Alabama in Book 1799, Page 156 (the First Mortgage Note,
First Mortgage and Regulatory Agreement are collectively referred to as the
"First Mortgage Loan Documents");
WHEREAS, the security interest in the personal property referenced in the First
Mortgage is further perfected by original UC financing statements filed on April
23, 1992 as File Number 88-92-56261 for Madison County, Alabama and 92-14996-F6
for the Secretary of State of Alabama;
WHEREAS, the First Mortgagee obtained funding for the First Mortgage Loan
through a participation arrangement with GIT. The interest rates on the First
Mortgage Loan are below the then-prevailing interest rates for comparable loans
and securities and GIT was unwilling to participate in the First Mortgage 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 April 21, 1992 and recorded in the Probate Office
of Madison County, Alabama in Book 1799, Page 847 (the Subordinated Note and the
Subordinated Mortgage are collectively referred to as the "Participating Loan
Documents");
WHEREAS, the Partners have executed an Additional Loan Agreement and a
Additional Loan Note evidencing an Additional Loan in the principal sum of One
Million Five Hundred fifty Three Thousand Six Hundred and no/100 Dollars
($1,553,600.00) (the "Additional Loan"), which Additional Loan is secured by
Pledge and Security Agreements and UCC financing statements with all documents
dated April 21, 1992 (collectively, the "Additional Loan Documents");
WHEREAS, the Partners executed a Letter of Direction and Agreement directing the
Partnership to assign any of the Partners' distributions in Surplus Cash to GIT
to the extent that the Partners have any payment obligations to GIT under the
Additional Loan Documents;
WHEREAS, the Project experienced financial difficulties and the Partnership and
the Partners requested assistance from GIT in regards to their obligations under
the First Mortgage Loan Documents, the Participating Loan Documents and the
Additional Loan Documents;
WHEREAS, the Partnership, the Partners and GIT executed a Modification Agreement
dated July 1, 1995 (the "1995 Modification Agreement") that provided debt
service relief on the First Mortgage Loan and the Additional Loan ending
December 31, 1996;
WHEREAS, the Project has continued to experience financial difficulties and the
Partnership and the Partners have requested additional assistance from GIT in
regards to their obligations under the First Mortgage Loan Documents, the
Participating Loan Documents and the Additional Loan Documents;
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have agreed
to further modify the Subordinated Note, the Additional Loan Agreement and the
Additional Loan Note based on GIT's providing the financial assistance provided
herein; and
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have reached
an agreement to the terms and conditions of the financial assistance which is
set forth herein.
NOW THEREFORE, in consideration of the foregoing, Ten and No/100 ($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. Interest Rebate. The Partnership shall continue to make monthly debt
service payments in accordance with the First Mortgage Note. Retroactively
to January 1, 1999 and during the period of the next five years thereafter
until December 31, 2004 (the "Workout Term"), GIT will rebate monthly to
the Partnership an amount (the "Interest Rebate") equal to the difference
between the (i) the interest rate payable under the First Mortgage Note
(i.e. 8.25% per annum) and (ii) seven percent (7%) per annum (the "Modified
Rate"). The Interest Rebate will not be considered a loan to the
Partnership.
3. Partnership and/or Partner's New Equity Contribution. Prior to December 31,
1999, the Partnership and/or the Partners will provide sufficient equity
contributions to the extent necessary to ensure that the 1999 HUD-93486
shall not be less than $0 (the Surplus Cash calculation).
4. GIT Assignment Fee Escrow. The balance of funds held by GIT as an
Assignment Fee Escrow shall be released upon the execution of this
Agreement. The released funds will be used first to reduce the outstanding
principal balance of the Additional Loan to $1,400,000. Any funds remaining
after the reduction of the Additional Loan principal balance will be held
in escrow by GIT for Project improvements mutually agreed upon by GIT and
the Partnership.
5. Additional Interest under the Subordinated Note. Paragraph 1.A. of the
Subordinated Note is hereby deleted in its entirety. The following is
substituted in lieu thereof.
A. Shared Income Interest. Shared Income Interest shall be paid on an
annual basis and shall mean 75% of the first $130,667 and
50% of any amounts remaining from the following sources in
accordance with the Letter of Direction:
(i) All distributable Surplus Cash, as that term is
defined in the Regulatory Agreement, subject, however, to
the extent then applicable, to the provisions of
Paragraph 4 herein relating to Surplus Cash and the
requirement in the Regulatory Agreement that Surplus Cash
may only be distributed at the end of a semiannual or annual
fiscal year, (except for proceeds of a refinancing, casualty
insurance proceeds, and capital contributions to the
Maker from any Partner);
(ii) Any unrestricted cash of the Maker generated from the
operation of the Project; and
(iii) Any balance in reserve or escrow accounts not used
to satisfy closing prorations or paid to a third party for
the purpose of such escrow.
Solely for the purposed of calculating Shared Income Interest, any management
fees in excess of 5% gross income, or such higher management fee as HUD or the
Lender may determine to be necessary in order to obtain property management of
the Project, shall not be recognized as a deduction from the Maker's
distributable Surplus Cash or unrestricted cash in determining Shared Income
Interest.
Shared Income Interest shall be deemed to be earned on an annual basis,
concurrent with the calculation period for Surplus Cash, beginning with the 2000
fiscal year. Shared Income Interest, to the extent it is earned, shall be
payable annually to the Holder within 90 days of the end of any fiscal year in
which Surplus Cash has been generated. In order to verify the accuracy of the
computation of Shared Income Interest, Holder may review the Makers' books and
records during normal business hours upon three (3) days' notice. Maker also
shall submit to the Holder monthly unaudited and annual audited financial
statements and shall submit to the Holder all financial statements submitted to
the Lender.
6. Outstanding Indebtedness. In Paragraph 1.B. of the
Subordinated Note, the defined term "Outstanding Indebtedness" is
amended to include the following provision:
(4) and, the unpaid balance of all accrued and unpaid Base
Interest owed by the Partners to the Holder pursuant to this
Agreement.
7. Subordinated Promissory Note Advances and Deferred Base Interest. The
debt service relief provided by GIT as a result of the 1995 Modification
Agreement, as specified below, shall be forgiven upon the execution of this
Agreement.
<TABLE>
<CAPTION>
<S> <C>
Deferred Base Interest $217,504
Subordinated Promissory Note Advances 71,076
Total $288,580
</TABLE>
8. General Provisions of Subordinated Note. The first sentence of
Paragraph 6.C. is hereby deleted in its entirety and the following substituted
in lieu thereof.
C. Notwithstanding anything to the contrary contained in the
Subordinated Note, payment of Shared Income Interest shall be
payable within 90 days of the end of any fiscal year in which Surplus
Cash was generated.
9. Additional Loan Interest. Section 1.(b) of the Additional Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof.
Additional Loan Interest shall mean Base Interest as described in
Section 1.(e).
10. Preferred Interest on Additional Loan. Section 1.(q) of the Additional
Loan Agreement is hereby deleted in its entirety. Any subsequent references to
Preferred Interest within the Additional Loan Agreement are hereby deleted as
well.
11. Payment of Additional Loan Interest. Section 2 of the Additional
Loan Agreement is deleted in its entirety and the following
substituted in lieu thereof.
Borrowers hereby jointly and severally covenant and agree to pay to the Holder
all obligations under the Additional Loan Note and this Agreement, including
without limitation, principal and Base Interest to the Holder in accordance
with the terms of the Additional Loan Note.
A. Base Interest shall be payable from any Surplus Cash received
by the Holder pursuant to the Subordinated Note and characterized
therein as Shared Income Interest but credited as Base Interest
under the Additional Loan Note. To the extent that the surplus
cash received by the Holder in any fiscal year is less than the Base
Interest due under the Additional Loan Agreement, that amount shall
remain an obligation of the Borrowers and accrue interest-free
and become payable in the manner set forth in the Additional Loan Note.
B. Principal shall be due and payable in the manner set forth in
the Additional Loan Note.
12. Payment Shortfalls/Capital Calls. Section 3 of the Additional Loan
Agreement is hereby deleted in its entirety.
13. Certain Definitions. All capitalized terms unless defined herein
shall have the same meaning as those terms are defined in the Subordinated Note,
the Additional Loan Agreement and the Additional Loan Note.
14. Notice Requirements.
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 postmarked 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 at the
following addresses:
If to the Partnership or Partners:
Philip P. Mulkey
200 Union Hill Drive, Suite 300
Birmingham, AL 35209
Henry V. Bragg
908 North Memorial Parkway
Huntsville, AL 35801
Gregory V. Bragg
908 North Memorial Parkway
Huntsville, AL 35801
If to the Owner:
Mountain View, Ltd
200 Union Hill Drive, Suite 300
Birmingham, AL 35209
If to the Holder:
Krupp Government Income Trust
In care of Berkshire Mortgage Finance
One Beacon Street, 14th Floor
Boston, MA 02108
If to the First Mortgagee:
Berkshire Mortgage Finance
One Beacon Street, 14th Floor
Boston, MA 02108
Any party hereto may change the address to which notices shall be directed
under this paragraph by giving ten (10) days written notice of such change to
the other parties.
15. Loan Documents Not Impaired. Except as expressly set forth herein
with respect to the Subordinated Note, the Additional Loan Agreement and
the 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, the Subordinated Loan Documents or the
Additional Loan Documents and this Agreement shall not be construed as a
novation, renegotiation or release of any of these documents.
16. Representations of Borrower. The Partnership and Partners hereby
acknowledge and confirm with the First Mortgagee and GIT that:
(i) They have no offset, counterclaim or defense with respect
to the obligations under the First Mortgage Loan Documents, 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.
(ii) The Partnership and Partners ratify and affirm all obligations
under the First Mortgage Loan Documents and the Subordinated Loan
Documents and the Additional Loan Documents.
(iii) Except for 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.
17. Representations of the First Mortgagee and GIT. The First Mortgagee
and GIT hereby acknowledge that all payment obligations identified in this
Agreement, First Mortgage Loan Documents, the Subordinated Loan Documents and
the Additional Loan Documents are nonrecourse.
18. 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.
19. Binding Effect. The terms and provisions of this Agreement shall be
binding upon the parities hereto and their heirs successors and assigns.
20. Time is of the Essence. Time is of the essence in this Agreement.
21. Governing Law. This Agreement shall be construed under the laws of
the State of Alabama 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.
IN WITNESS WHEREOF, the undersigned parties have caused this instrument to be
executed as of the day, month and year first written.
PARTNERSHIP:
Mountain View LTD. an Alabama limited partnership
By:
Name: Philip P. Mulkey
Title: Developer General Partner
<PAGE>
PARTNERS:
Philip P. Mulkey
Henry V. Bragg
Gregory V. Bragg
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: Carol J.C. Mills
Title: Vice President
FIRST MORTGAGEE:
Berkshire Mortgage Finance Corporation
By:
Name: Carol J.C. Mills
Title: Vice President
<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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,475,528
<SECURITIES> 153,307,644<F1>
<RECEIVABLES> 1,014,211
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,267,433<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,064,816
<CURRENT-LIABILITIES> 6,083,284<F3>
<BONDS> 0
0
0
<COMMON> 159,392,153
<OTHER-SE> 589,379<F4>
<TOTAL-LIABILITY-AND-EQUITY> 166,064,816
<SALES> 0
<TOTAL-REVENUES> 5,902,251<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,467,566<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,434,685
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,434,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,434,685
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes Participating Insured Mortgage Investments ("PIMIs")
(insured mortgages of $75,175,715 and Additional Loans of $11,243,862),
Participating Insured Mortgages ("PIMs") of $47,538,654 and
Mortgage-backed Securities ("MBS") of $19,349,413.
<F2> Includes prepaid acquisition fees and expenses of $9,570,796 net of
accumulated amortization of $6,557,413 and prepaid participation
servicing fees of $3,190,184 net of accumulated amortization of $1,936,134.
<F3> Includes deferred income on Additional Loans of $5,958,322.
<F4> Unrealized gain on MBS.
<F5> Represents interest income on investments in mortgages and cash.
<F6> Includes $591,731 of amortization of prepaid fees and expenses.
</FN>
</TABLE>
