-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JohvkdpYZkZPyh1iNtjqYucRhWkjPydnC2qGHbdKgQKPX3nYr7e7G6X+BQDNaM8r MroOw9Mseyqt2q6DNW/CxA== 0000872467-96-000005.txt : 19960813 0000872467-96-000005.hdr.sgml : 19960813 ACCESSION NUMBER: 0000872467-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP GOVERNMENT INCOME TRUST-II CENTRAL INDEX KEY: 0000872467 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043073045 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20164 FILM NUMBER: 96608666 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 STREET 2: ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 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 0-20164 Krupp Government Income Trust II Massachusetts 04-3073045 (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 II BALANCE SHEETS ASSETS
June 30, December 31, 1996 1995 Participating Insured Mortgage Investments ("PIMIs")(Note 2): Insured mortgages $150,115,142 $150,448,995 Additional loans 29,952,351 29,952,351 Participating Insured Mortgages ("PIMs") (Note 2) 49,018,231 45,436,663 Mortgage-Backed Securities and multi-family insured mortgage loan ( MBS") (Note 3) 42,450,107 48,851,858 Total mortgage investments 271,535,831 274,689,867 Cash and cash equivalents 9,748,862 11,675,494 Prepaid acquisition fees and expenses, net of accumulated amortization of $3,716,829 and $2,922,496, respectively 12,766,813 13,561,146 Prepaid participation servicing fees, net of accumulated amortization of $994,578 and $761,220, respectively 4,499,969 4,733,327 Interest receivable and other assets 2,254,580 2,305,349 Total assets $300,806,05 $306,965,183 LIABILITIES AND SHAREHOLDERS' EQUITY Deferred income on Additional Loans (Note 5) $ 1,304,338 $ 1,026,622 Other liabilities 21,774 20,576 Total liabilities 1,326,112 1,047,198 Commitments (Note 2) Shareholders' equity (Note 4): Common stock, no par value; 25,000,000 Shares authorized; 18,371,477 Shares issued and outstanding 300,688,497 304,530,460 Unrealized gain (loss) on MBS (1,208,554) 1,387,525 Total Shareholders' equity 299,479,943 305,917,985 Total liabilities and Shareholders' equity $300,806,055 $306,965,183
The accompanying notes are an integral part of the financial statements. KRUPP GOVERNMENT INCOME TRUST II STATEMENTS OF INCOME
For the Three Months For the Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Revenues: Interest income - PIMs and PIMIs: Base interest $3,484,128 $2,958,096 $ 6,978,745 $ 5,707,388 Additional loan interest 380,495 299,995 760,990 709,030 Participation interest 100,745 - 479,982 277,123 Interest income - MBS 782,112 1,222,393 1,615,212 2,835,756 Interest income - other 136,600 352,660 283,541 563,365 Total revenues 4,884,080 4,833,144 10,118,470 10,092,662 Expenses: Asset management fee to an affiliate 513,082 526,059 1,030,198 1,060,325 Expense reimbursements to affiliates 96,436 127,394 218,914 254,788 Amortization of prepaid expenses and fees, and organization costs 516,747 455,067 1,032,691 876,898 General and administrative 92,581 122,487 196,430 219,435 Loss on sale of MBS - (20,926) - 1,379,074 Total expenses 1,218,846 1,210,081 2,478,233 3,790,520 Net income $3,665,234 $3,623,063 $ 7,640,237 $ 6,302,142 Earnings per share $ .20 $ .19 $ .42 $ .34 Weighted average shares outstanding 18,371,477 18,371,477
The accompanying notes are an integral part of the financial statements. KRUPP GOVERNMENT INCOME TRUST II STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 1995 Operating activities: Net income $ 7,640,237 $ 6,302,142 Adjustments to reconcile net income to net cash provided by operating activities: Loss on sale of MBS - 1,379,074 Premium amortization 94,754 150,736 Amortization of prepaid expenses and fees, and organization costs 1,032,691 876,898 Changes in assets and liabilities: Decrease in interest receivable and other assets 45,769 369,061 Increase in other liabilities 1,198 15,070 Net cash provided by operating activities 8,814,649 9,092,981 Investing activities: Investment in PIMs and Insured Mortgages (4,018,711) (19,334,046) Investment in Additional Loans - (6,600,000) Investment in MBS (591,600) - Proceeds from the sale of MBS - 39,885,582 Principal collections on MBS 4,302,518 5,629,910 Principal collections on PIMs 770,996 609,607 Increase in deferred income on Additional Loans 277,716 268,365 Net cash provided by investing activities 740,919 20,459,418 Financing activity: Dividends (11,482,200) (11,482,201) Net (decrease) increase in cash and cash equivalents (1,926,632) 18,070,198 Cash and cash equivalents, beginning of period 11,675,494 19,649,192 Cash and cash equivalents, end of period $ 9,748,862 $37,719,390
The accompanying notes are an integral part of the financial statements. KRUPP GOVERNMENT INCOME TRUST II 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 II (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 primarily of normal recurring accruals) necessary to present fairly the Trust's financial position as of June 30, 1996, the results of its 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 has commitments to fund approximately $2,809,000 on its closed PIMs and PIMIs. These commitments will be funded by cash on hand and future principal collections from the MBS, PIMs and insured mortgages. At June 30, 1996, the Partnership s PIMs and PIMIs have a fair value of approximately $217,233,000 and gross unrealized losses of approximately $11,852,000. The PIMs and PIMIs have maturities ranging from 2008 to 2036. 3. MBS At June 30, 1996, the Trust's MBS portfolio has an amortized cost of approximately $43,659,000 and gross unrealized gains and losses of approximately $77,000 and $1,286,000. The MBS portfolio has maturities ranging from 2008 to 2023. During May 1996, the Trust invested in a $591,600 face value Federal Housing Administration - insured first mortgage loan having an interest rate of 8.125% and maturing in 2031. The borrower may not prepay the first mortgage loan for a period of five years and thereafter may prepay the first mortgage loan subject to a 5% prepayment penalty that declines 1% annually during the following five years. There is no prepayment penalty after the tenth year. Continued KRUPP GOVERNMENT INCOME TRUST II NOTES TO FINANCIAL STATEMENTS, Continued 4. Changes in Shareholder's Equity A summary of changes in Shareholders' equity for the six months ended June 30, 1996 is as follows:
Total Common Retained Unrealized Shareholders' Stock Earnings Gain(Loss) Equity Balance at December 31, 1995 $304,530,460 $ - $ 1,387,525 $305,917,985 Net income - 7,640,237 - 7,640,237 Dividends (3,841,963) (7,640,237) - (11,482,200) Change in unrealized gain on MBS - - (2,596,079) (2,596,079) Balance at June 30, 1996 $300,688,497 $ - $(1,208,554) $299,479,943
. 5. Related Party Transactions During each of the six month periods ended June 30, 1996 and 1995, the Trust received $147,761 of interest on an Additional Loan with an affiliate 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. 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 are quarterly dividends paid to investors of approximately $5.7 million. Funds used for dividends come from interest received on the PIMs, PIMIs, MBS, cash and cash equivalents net of operating expenses, and certain principal collections received on the PIMs and MBS. The Trust funds a portion of the dividends from principal collections, as a result, the capital resources of the Trust will continually decrease. As the capital resources decrease, the total cash inflows to the Trust will also decrease which will result in periodic adjustments to the quarterly dividends paid to investors. In addition to funding its quarterly dividends paid to investors the Trust has commitments to fund $2,809,000 on its PIMs and PIMIs. These commitments will be funded by cash on hand and future principal collections from the MBS, PIMs and PIMIs. 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 foreseeable future. In general, the Advisor tries to set a dividend rate that provides for level quarterly distributions of cash available for distribution. To the extent quarterly dividends do not fully utilize the cash available for distribution and cash balances increase, the Advisor may reinvest the available proceeds, adjust the dividend rate or distribute such funds through a special distribution. 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 incurring a prepayment penalty for PIMs or paying all amounts due under the PIMIs and satisfying the required preferred return. The Trust has the option to call certain PIMs and all the PIMIs by accelerating their maturity if the loans are not prepaid 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. (Amounts in thousands, except per Share amounts)
Six Months Inception Ended Through 6/30/96 6/30/96 Distributable Cash Flow (a): Net income $ 7,640 $ 60,046 Items providing or not requiring the use of operating funds: Loss on sale of MBS - 1,379 Amortization of prepaid fees and expenses and organization costs 1,033 4,759 Additional loan interest received and deferred 278 1,305 Total Distributable Cash Flow ("DCF") $ 8,951 $ 67,489 DCF per Share based on Shares outstanding at June 30, 1996 $ .49 $ 3.68 (c) Dividends: Total dividends to Shareholders $11,482 (b) $106,903 (b) Average dividend per Share based on Shares outstanding at June 30, 1996 $ .62 (b) $ 5.81 (b)(c)
(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 August 1996 distribution. (c) Shareholders average per Share return of capital as of August 1996 is $2.13 [$5.81 - $3.68]. Return of capital represents that portion of 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 Partnership'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 United States 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. However, obligations of FNMA are not backed by the U.S. Government. FNMA is one of the largest corporations in the United States and the Secretary of the Treasury of the United States has discretionary authority to lend up to $2.25 billion to FNMA at any time. 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. HUD, an agency of the U.S. Government, insures the obligations originated under its programs which 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 and ability to maintain occupancy levels, control operating expenses, maintain 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.
(Amounts in thousands, except per Share amounts): Three Months Ended June 30, Six Months Ended June 30, 1996 1995 1996 1995 Per Per Per Per Amount Share Amount Share Amount Share Amount Share Interest income on PIMs and PIMIs: Base interest $3,484 $ .19 $2,958 $ .16 $6,979 $ .38 $5,707 $ .31 Additional loan interest 381 .02 300 .01 761 .04 709 .04 Participation interest 101 .01 - - 480 .03 277 .01 Interest income on MBS 782 .04 1,223 .06 1,615 .09 2,836 .15 Other interest income 137 .01 352 .02 284 .02 563 .03 Trust expenses (703) (.04) (776) (.03) (1,446) (.08) (1,534) (.07) Loss on sale of MBS - - 21 - - - (1,379) (.08) Amortization of prepaid fees and expenses (517) (.03) (455) (.03) (1,033) (.06) (877) (.05) Net income 3,665 .20 3,623 .19 7,640 .42 6,302 .34 Reconciliation to DCF: Loss on sale of MBS - - (21) - - - 1,379 .08 Additional loan interest deferred - - - - 278 .01 268 .01 Amortization of prepaid fees and expenses and organization costs 517 .03 455 .03 1,033 .06 877 .05 DCF $4,182 $ .23 $4,057 $ .22 $8,951 $ .49 $8,826 $ .48 Weighted average Shares outstanding 18,371,477 18,371,477
The Trust s net income increased $42,000 during the second quarter of 1996 as compared to the second quarter of 1995 due primarily to higher interest income. Interest income on PIMs and PIMIs increased $708,000 in the second quarter of 1996 as compared to the second quarter of 1995 due to the investments in PIMs in PIMIs made during 1995, which the Trust funded primarily with the proceeds from the sale of MBS. As a result of the sale of approximately $40 million of MBS in the second quarter of 1995, interest income on MBS declined during the three months ended June 30, 1996 as compared to the three months ended June 30, 1995. Other interest income declined in 1996 as compared to 1995 due to lower cash balances available for short-term investment in 1996. Amortization expense increased in the second quarter of 1996 as compared to the second quarter of 1995, because the Trust began amortizing prepaid fees and expenses associated with newly acquired PIMs and PIMIs. However, the higher amortization expense was offset by lower Trust expenses resulting primarily from lower expense reimbursements to affiliates and general and administative expenses. The Trust s net income increased $1,338,000 for the six months ended June 30, 1996 as compared to the corresponding period in 1995, because in 1995 the Trust realized a $1,379,000 loss on the sale of MBS. Base interest on PIMs and PIMIs increased approximately $1,272,000 during the first half of 1996 as compared to the first half of 1995 as a result of investments in PIMs and insured mortgages made in 1995 of approximately $46 million with interest rates ranging from 6.875% to 7.875% per annum. The Trust also experienced a $203,000 increase in participation interest income during the six months ended June 30, 1996 as compared to the six months ended June 30, 1995. Interest income on MBS decreased $1,221,000 during the six months ended June 30, 1996 as compared to the six months ended June 30, 1995 as a result of the sale of approximately $40 million of MBS in April 1995. Other interest income declined approximately $279,000 during the first half of 1996 versus the first half of 1995 as a result of lower cash balances available for short-term investment. Amortization expense increased as the Trust began amortizing prepaid fees and expenses on newly acquired PIMs and PIMIs. KRUPP GOVERNMENT INCOME TRUST II 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 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 II (Registrant) BY: /s/Robert A. Barrows Robert A. Barrows Treasurer and Chief Accounting Officer of Krupp Government Income Trust II. DATE: August 5, 1996 EX-27 2
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualfied in its entirety by reference to such financial statements 0000872467 KRUPP GOVERNEMNT INCOME TRUST-II 6-MOS DEC-31-1996 JUN-30-1996 9,748,862 271,535,831 2,254,580 0 0 17,266,782 0 0 300,806,055 1,326,112 0 0 0 300,688,497 (1,208,554) 300,806,055 0 10,118,470 0 0 2,478,233 0 0 7,640,237 0 7,640,237 0 0 0 7,640,237 .42 0 Includes Participating Insured Mortgage Investments ("PIMIs") (insured mortgages of $150,115,142 and Additional Loans of $29,952,351), Participating Insured Mortgages ("PIMs") of $49,018,231 and Mortgage-Backed Securities ("MBS") of $42,450,107 Includes prepaid acquisition fees and expenses of $16,483,642 net of accumulated amortization of $3,716,829 and prepaid participation servicing fees of $5,494,547 net of accumulated amortization of $994,578 Includes deferred income on Additional Loans of $1,304,338 Unrealized loss on MBS Represents interest income on investments in mortgages and cash Includes $1,032,691 of amortization expense for prepaid fees and expenses
-----END PRIVACY-ENHANCED MESSAGE-----