-----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, CN/sxqi2fq5HPuaTeq3WZYCbyImg9oGjs0ia4dAAkojJhFduv8XedgjQvCQfsD4W ToXUXH0/VnoW0Mzmjqf0JA== 0000872467-97-000011.txt : 19970818 0000872467-97-000011.hdr.sgml : 19970818 ACCESSION NUMBER: 0000872467-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970815 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: 97664196 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, 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 0-20164 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, 1997 1996 Participating Insured Mortgage Investments ("PIMIs")(Note 2): Insured mortgages $149,762,792 $150,454,030 Additional loans 30,417,351 29,952,351 Participating Insured Mortgages ("PIMs") (Note 2) 49,424,899 49,622,337 Mortgage-Backed Securities and multi-family insured mortgage loan ( MBS") (Note 3) 38,108,620 40,581,650 Total mortgage investments 267,713,662 270,610,368 Cash and cash equivalents 9,715,995 9,214,592 Prepaid acquisition fees and expenses, net of accumulated amortization of $5,305,009 and $4,510,838, respectively 11,178,633 11,972,804 Prepaid participation servicing fees, net of accumulated amortization of $1,523,937 and $1,260,283, respectively 3,970,610 4,234,264 Interest receivable and other assets 1,965,538 2,264,687 Total assets $294,544,438 $298,296,715 LIABILITIES AND SHAREHOLDERS' EQUITY Deferred income on Additional Loans (Note 5) $ 1,698,819 $ 1,582,054 Other liabilities 16,040 27,085 Total liabilities 1,714,859 1,609,139 Commitments (Note 2) Shareholders' equity (Note 4): Common stock, no par value; 25,000,000 Shares authorized; 18,371,477 Shares issued and outstanding 292,918,122 296,565,241 Unrealized gain (loss) on MBS (88,543) 122,335 Total Shareholders' equity 292,829,579 296,687,576 Total liabilities and Shareholders' equity $294,544,438 $298,296,715
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STATEMENTS OF INCOME For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 Revenues: Interest income - PIMs and PIMIs: Base interest $3,636,543 $3,484,128 $ 6,990,634 $ 6,978,745 Additional loan interest 417,443 380,495 1,028,911 760,990 Participation interest 161,000 100,745 652,525 479,982 Interest income - MBS 706,558 782,112 1,435,740 1,615,212 Interest income - other 135,766 136,600 256,478 283,541 Total revenues 5,057,310 4,884,080 10,364,288 10,118,470 Expenses: Asset management fee to an affiliate 496,278 513,082 1,000,721 1,030,198 Expense reimbursements to affiliates 108,482 96,436 229,392 218,914 Amortization of prepaid expenses and fees, and organization costs 523,078 516,747 1,057,825 1,032,691 General and administrative 107,007 92,581 241,269 196,430 Total expenses 1,234,845 1,218,846 2,529,207 2,478,233 Net income $3,822,465 $3,665,234 $ 7,835,081 $ 7,640,237 Earnings per share $ .21 $ .20 $ .43 $ .42 Weighted average shares outstanding 18,371,477 18,371,477
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STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 1996 Operating activities: Net income $ 7,835,081 $ 7,640,237 Adjustments to reconcile net income to net cash provided by operating activities: Premium amortization 49,087 94,754 Amortization of prepaid expenses and fees, and organization costs 1,057,825 1,032,691 Changes in assets and liabilities: Decrease in interest receivable and other assets 299,149 45,769 Increase (decrease) in other liabilities (11,045) 1,198 Net cash provided by operating activities 9,230,097 8,814,649 Investing activities: Investment in PIMs and Insured Mortgages - (4,018,711) Investment in Additional Loans (465,000) - Investment in MBS - (591,600) Principal collections on MBS 2,213,065 4,302,518 Principal collections on PIMs 888,676 770,996 Increase in deferred income on Additional Loans 116,765 277,716 Net cash provided by investing activities 2,753,506 740,919 Financing activity: Dividends (11,482,200) (11,482,200) Net (decrease) increase in cash and cash equivalents 501,403 (1,926,632) Cash and cash equivalents, beginning of period 9,214,592 11,675,494 Cash and cash equivalents, end of period $ 9,715,995 $ 9,748,862
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. The Trust accounts for all of its investment in Mortgage Backed Securities, including those that are part of a PIM or PIMI investment in accordance with Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Federal Housing Administration Participating Insured Mortgages and all Additional Loans are carried at cost less principal payments unless the Advisor of the Trust believes there is an impairment in value, in which case a valuation allowance is established in accordance with Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, and Financial Accounting Standard No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. 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 primarily of normal recurring accruals) necessary to present fairly the Trust's financial position as of June 30, 1997, the results of its operations for the three and six months ended June 30, 1997 and 1996 and its cash flows for the six months ended June 30, 1997 and 1996. The results of operations for the three and six months ended June 30, 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 During the second quarter of 1997, the Trust funded an additional $465,000 to the present owner of the Willows Apartments increasing the Additional Loan amount to $1,265,000. At June 30, 1997, the Trust has commitments to fund approximately $1,006,000 on its closed PIMs and PIMIs. These commitments will be funded by cash on hand and future principal collections from the MBS, -7- PIMs and insured mortgages. At June 30, 1997, the Trust s PIMs and PIMIs have a fair value of $226,863,647 and gross unrealized gains and losses of $2,753 and $2,744,148, respectively. The PIMs and PIMIs have maturities ranging from 2008 to 2036. At June 30, 1997 there are no loans within the Trust s portfolio that are delinquent of principal or interest. KRUPP GOVERNMENT INCOME TRUST II NOTES TO FINANCIAL STATEMENTS, Continued 3. MBS At June 30, 1997, the Trust's MBS portfolio has an amortized cost of approximately $38,197,163 and gross unrealized gains and losses of approximately $330,961 and $419,504. The MBS portfolio has maturities ranging from 2008 to 2023. 4. Changes in Shareholder's Equity A summary of changes in Shareholders' equity for the six months ended June 30, 1997 is as follows:
Total Common Retained Unrealized Shareholders' Stock Earnings Gain(Loss) Equity Balance at December 31, 1996 $296,565,241 $ - $ 122,335 $296,687,576 Net income - 7,835,081 - 7,835,081 Dividends (3,647,119) (7,835,081) - (11,482,200) Change in unrealized gain on MBS - - (210,878) (210,878) Balance at June 30, 1997 $292,918,122 $ - $ (88,543) $292,829,579
5. Related Party Transactions During the three months ended June 30, 1997 and June 30, 1996 the Trust received $56,471 and $0 of interest income on Additional Loans from affiliates of the Advisor. During the six month ended June 30, 1997 and 1996, the Trust received $254,732 and $147,761 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 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 At June 30, 1997 the Trust has significant liquidity consisting of cash and cash equivalents, of approximately $9.7 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. The most significant demand on the Trust's liquidity are quarterly dividends paid to investors of approximately $5.7 million. Funds for dividends come from interest income received on PIMs, PIMIs, MBS and 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. During the second quarter of 1997, the Trust funded an additional $465,000 to the present owner of the Willows Apartments increasing the Additional Loan amount to $1,265,000. Subsequent to the funding, the present owner notified the Trust of its intention to sell the property to a third party during the third quarter. The Trust agreed to accept a prepayment of the Additional Loan and to allow the purchaser to assume the first mortgage, subject to certain conditions including a payment in full of all Preferred Interest due on the Trust s investment in the PIMI. Should this transaction take place, the Trust investment will convert from a PIMI to an insured mortgage. Windmill Lakes operating performance during the second quarter continued to be adversely affected by the highly competitive housing in Pembroke Pines, Florida. New construction in all housing sectors is being fueled by strong job and population growth in the area. Builders marketing concessions to fill new properties lowers the cost of renting a new apartment and makes it more difficult for older properties like Windmill Lakes to attract residents. The Advisor continues to monitor this property closely. In addition to funding its quarterly dividends paid to investors the Trust has a remaining commitment of approximately $1.0 million on a PIM in the construction phase. The Trust has sufficient cash reserves to fund this commitment. The Advisor of the Trust periodically reviews the dividend rate to determine whether an adjustment 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. 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 all amounts due under the PIMIs and satisfying the required preferred return. The Trust has the option of calling 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. 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 ), 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, 1997 and 1996. The Trust s net income increased slightly during the second quarter of 1997 as compared to the second quarter of 1996 due to increases in base interest, participation interest and additional loan interest of $153,000, $59,000 and $37,000, respectively. The increase in base interest is primarily due to the construction-in-process of the Fountains Apartments in 1996 as the property is nearing 100% completion during 1997. The Trust received participation income from Mequon Trail, Oasis at Springtree, Crossing Village and The Willows Apartments of $72,000, $43,000, $25,000 and $20,000. This was offset by decreases in MBS interest of $75,000. The Trust s net income increased slightly during the six months ended June 30, 1997 as compared to the six months ended June 30, 1996 due to increases in additional loan interest and participation interest of $268,000 and $172,000, respectively. The increase in additional loan interest is due to the Trust receiving and recognizing as interest income additional loan interest payments from The Seasons. The Trust received participation income from St. Germain, The Lakes, Oasis EX-27 2
5 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. 0000872467 KRUPP GOVERNMENT INCOME TRUST II 6-MOS DEC-31-1997 JUN-30-1997 9,715,995 267,713,662 1,965,538 0 0 15,149,423 0 0 294,544,438 1,714,859 0 0 0 298,918,122 (88,543) 294,544,438 0 10,364,288 0 0 2,529,207 0 0 7,835,081 0 7,835,081 0 0 0 7,835,081 0 0 Includes Partcipating Insured Mortgage Investments ("PIMIs") (insured mortgages of $149,762,792 and Additional Loans of $30,417,351), Participating Insured Mortgages ("PIMs") of $49,424,899 and Mortgage-Backed Securities ("MBS") of $38,108,620. Includes prepaid acquisition fees and expenses of $16,483,642 net of accumulated amortization of $5,305,009 and prepaid participating servicing of $5,494,457 net of accumulated amortization of $1,523,937. Includes deferred income on Additional Loans of $1,698,819. Unrealized gain on MBS. Represents interest income on investments in mortgages and cash. Includes $1,057,825 of amortization for prepaid fees and expenses.
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