<PAGE>
April 13, 1994
Operations Center
Attention: EDGAR Filer Support
U. S. Securities and Exchange Commission
Mail Stop 0-7, Room 1414
6432 General Green Way
Alexandria, Virginia 22312
Re: MGI Properties
Conforming Copy of Form 10-Q
File No. 1-6833
Dear Sir:
Pursuant to Rule 901(d) of Regulation S-T, enclosed please find the
conforming paper format of MGI Properties' Quarterly Report on Form
10-Q for the fiscal quarter ended February 28, 1994, as filed
electronically with the Securities and Exchange Commission.
Please acknowledge receipt of this document by date stamping the
enclosed copy of this letter and returning it to the undersigned
in the self-addressed, stamped envelope provided.
Sincerely,
Phillip C. Vitali
PCV/jac
Enclosures
cc: Gary Kaufman, Esq., Olshan Grundman Frome & Rosenzweig
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUMITTED
PURSUANT TO RULE 901(d) OF REGULATIONS S-T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended February 28, 1994 Commission File Number 1-6833
MGI PROPERTIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6268740
(State or other jurisdiction of incorporation (I.R.S. Employer
Identification No.)
or organization)
30 Rowes Wharf, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 330-5335
N/A
Former name, former address and former fiscal year, if changed since
last report.
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
Common shares outstanding as of April 1, 1994: 11,446,221
Page 1 of 14 pages
Exhibit Index appears on Page 13
<PAGE>
MGI PROPERTIES
INDEX
Part I -- Financial Information
Page No.
Item 1 -- Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2 -- Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Exhibit A -- Computation of Earnings Per Share 12
Part II -- Other Information 13
Signatures 14
<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, 1994 November 30, 1993
(unaudited)
<S> <C> <C>
ASSETS
Investments:
Real estate, at cost $263,627,000 $258,663,000
Accumulated depreciation and amortization (31,880,000) (29,992,000)
Net investments in real estate 231,747,000 228,671,000
Cash 1,667,000 1,564,000
Short-term investments, at cost 7,952,000 10,252,000
U.S. Government securities, at cost 749,000 837,000
Other assets 6,643,000 5,376,000
$248,758,000 $246,700,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 68,749,000 $ 66,949,000
Other liabilities 4,615,000 5,012,000
Total liabilities 73,364,000 71,961,000
Deferred gain -- real estate 3,700,000 3,700,000
Shareholders' equity:
Preferred shares -- $1 par value: 2,000,000 shares authorized;
none issued -- --
Common shares -- $1 par value: 15,000,000 shares authorized;
11,448,152 issued 11,448,000 11,448,000
Additional paid-in capital 165,711,000 165,673,000
Distributions in excess of net income (5,441,000) (5,935,000)
171,718,000 171,186,000
2,331 shares in treasury (14,431 at November 30,
1993), at cost (24,000) (147,000)
Total shareholders' equity 171,694,000 171,039,000
$248,758,000 $246,700,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1994 1993
<S> <C> <C>
INCOME
Rental and other income $10,726,000 $8,838,000
Interest 74,000 212,000
Other 16,000 43,000
Total income 10,816,000 9,093,000
EXPENSES
Property operating expenses 3,033,000 2,356,000
Real estate taxes 1,374,000 933,000
Depreciation and amortization 1,896,000 1,649,000
Interest 1,466,000 1,304,000
General and administrative 600,000 468,000
Total expenses 8,369,000 6,710,000
Income before net gain 2,447,000 2,383,000
Net gain 450,000 --
Net income $2,897,000 $2,383,000
PER SHARE DATA
Income before net gain $.21 $.25
Net gain .04 --
Net income $.25 $.25
Weighted average shares outstanding 11,441,250 9,419,713
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,897,000 $ 2,383,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 1,896,000 1,649,000
Net gain (450,000) --
Equity in losses of partnerships -- 25,000
Other (1,112,000) (361,000)
Net cash provided by operating activities 3,231,000 3,696,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of and additions to
real estate investments (6,910,000) (658,000)
Proceeds from sale of real estate interest 2,288,000 --
Capital distribution from real estate partnerships 100,000 --
Additions and advances on mortgage loans -- (79,000)
Decrease in U.S. Government securities, net 88,000 133,000
Other (99,000) 96,000
Net cash used in investing activities (4,533,000) (508,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of mortgage and other loans payable (362,000) (1,346,000)
Additions to mortgage and other loans payable, net 1,870,000 --
Cash distributions paid (2,403,000) (1,884,000)
Net cash used in financing activities (895,000) (3,230,000)
Net decrease in cash and short-term investments (2,197,000) (42,000)
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 11,816,000 16,131,000
End of period $ 9,619,000 $16,089,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Undistributed
Number Additional (Distributions Total
of Common Common Paid-in in Excess of) Treasury Shareholders'
Shares Issued Shares Capital Net Income Shares Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1993 11,448,152 $11,448,000 $165,673,000 $(5,935,000) $(147,000) $171,039,000
Net income -- -- -- 2,897,000 -- 2,897,000
Distributions -- -- -- (2,403,000) -- (2,403,000)
Other -- -- 38,000 -- 123,000 161,000
Balance at February 28, 1994 11,448,152 $11,448,000 $165,711,000 $(5,441,000) $(24,000) $171,694,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: The results of the interim period are not necessarily
indicative of results to be expected for the entire fiscal year. The
figures contained in this interim report are unaudited and may be
subject to year-end adjustments. In the opinion of management, all
adjustments necessary for a fair presentation of financial position
and results of operations have been included, and such adjustments
include only the normal accruals.
Note 2: On March 16, 1994, the Board of Trustees declared a cash
dividend of $.21 per share payable on April 8, 1994 to shareholders
of record on March 30, 1994. This dividend will aggregate $2.4
million.
Note 3: At February 28, 1994, the market value of U.S. Government
securities was $0.8 million.
Note 4: Cash paid for interest amounted to $1.5 and $1.4 million for
the three-month periods ended February 28, 1994 and February 28, 1993,
respectively.
Note 5: At February 28, 1994, options to purchase an aggregate of
525,532 shares at exercise prices ranging from $7.375 to $15.375 per
share were outstanding under MGI's stock option plans for employees
and Trustees. All options outstanding at February 28, 1994 expire by
December 2003.
Note 6: In December 1993, MGI acquired two 100% leased industrial
research and development buildings, aggregating 156,300 square feet,
located in Billerica, Massachusetts for $6.4 million cash.
Note 7: MGI has agreed to acquire a 128,400 square-foot industrial
research and development building located in metropolitan Boston,
Massachusetts for a purchase price approximating $6.4 million, subject
to the satisfaction of certain conditions, including due diligence by
MGI and the execution of a definitive purchase agreement. If all of
the conditions are satisfied, the closing is anticipated to occur in
the second quarter of 1994.
Note 8: MGI intends to qualify for the year ended November 30, 1994
as a real estate investment trust under the provisions of Sections
856-860 of the Internal Revenue Code, as amended. Accordingly, no
provision has been made for Federal income taxes.
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At February 28, 1994, liquidity was provided by $10.4 million in cash
and investment securities and by an unused $10.0 million line of
credit. Shareholders' equity of $171.7 million at February 28, 1994,
when compared to $171.0 million at November 30, 1993, principally
reflects net income in excess of distributions.
Sources of funds in the first quarter of 1994 were primarily from
property operations, the sale of its interest in a partnership and
MGI's portfolio of investment securities. During the first quarter
of 1994, these resources were used to pay dividends of $2.4 million,
to repay $0.4 million of indebtedness, to fund $0.5 million of tenant
and capital improvements and to invest $6.4 million in connection with
the acquisition of two 100% leased and occupied industrial buildings
aggregating 156,300 square feet and located in Billerica,
Massachusetts.
Total mortgage and other loans payable aggregated $68.7 million at
February 28, 1994, a net increase of $1.8 million compared to
November 30, 1993. The increase resulted from the addition of $2.2
million of debt, as MGI received the balance of the proceeds of a loan
which closed in November 1993, and scheduled amortization payments of
$0.4 million. Mortgage and other loans payable are collateralized by
certain of MGI's real estate investments, by $3.2 million of
investment securities and by MGI's guarantees of $9.2 million.
Loans payable within twelve months or less totaled $19.0 million at
February 28, 1994, including a $6.3 million, 12.75% loan with an April
10, 1994 maturity and an $11.1 million floating rate loan with a
September 1994 maturity. In March 1994, a mortgage loan commitment
was executed to borrow, subject to successful completion of certain
terms and conditions, $11.5 million for a twenty-year, self-amortizing
term at a fixed coupon interest rate of 7.7%. This loan will be
secured by the apartment complex presently securing the 12.75% loan
maturing on April 10, 1994. MGI is also engaged in discussions with
a commercial bank about entering into a $15.0 million, two-year line
of credit facility, which would be in addition to its current unused
line of credit. Despite the generally reduced availability of real
estate financing, MGI believes it will be successful extending or
refinancing maturing mortgage loans upon satisfactory terms, although
there can be no assurance thereof.
Cash requirements in 1994 include operations, distributions to
shareholders, capital and tenant improvements and other leasing
expenditures required to maintain MGI's occupancy levels, and new
investments undertakings. MGI has agreed to acquire an
industrial building located in Billerica, Massachusetts containing
128,400 square feet of space and having a purchase price of
approximately $6.4 million cash. MGI's offer to acquire this
industrial building has been accepted, subject to the satisfaction of
certain
<PAGE>
MGI PROPERTIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
conditions including due diligence by MGI and the execution of a
definitive purchase agreement. If all of the conditions are
satisfied, the closing is anticipated to occur in the second quarter
of 1994. The property is 100% leased to a single tenant for a
five-year lease term expiring in 1999.
Principal sources of funds in the future are expected to be from
operations of properties including those acquired in the future,
mortgaging or refinancing existing mortgages on properties, the line
of credit and MGI's portfolio of investment securities. Other
potential sources of funds may include the proceeds of offerings of
additional equity or debt securities or the sale of real estate
investments. The cost of new borrowings or issuances of equity
capital will be measured against the anticipated yields of investments
to be acquired with such funds. The purchase of additional properties
in 1994 may require the use of funds from MGI's line of credit, new
borrowings, the sale of properties currently owned or the issuance of
equity securities. MGI believes the combination of cash and
investment securities, the value of MGI's unencumbered properties, and
other resources are sufficient to meet its short and long term
liquidity requirements.
Results of Operations
Net income for the quarter ended February 28, 1994 was $2.9 million,
or $0.25 per share on the greater number shares outstanding, as
compared to $2.4 million, or $0.25 per share, in the first quarter of
1993. Funds from operations for the first quarter of 1994 were
$4,343,000, or $0.38 per share on the greater number of shares
outstanding, compared to $4,057,000, or $.43 per share, in the
comparable 1993 quarter.
Net income and funds from operations in the first quarter of 1993
included income of $1.0 million, or $.11 per share, received in
connection with a non-recurring amendment and assignment of a lease
at Yorkshire Plaza Shopping Center. Net income in the first quarter
of 1994 included a gain of $450,000, or $.04 per share, recognized in
connection with the sale of MGI's interest in a partnership owning a
Florida apartment complex.
MGI defines funds from operations as net income (computed in
accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring, sales of property and
similar non-cash items, depreciation and amortization charges, and
equity method partnership losses. MGI believes funds from operations
is an appropriate supplemental measure of operating performance. The
change in funds from operations is attributable to the same factors
that affected income before net gains with the exception of
depreciation and amortization expense.
<PAGE>
MGI PROPERTIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The increase in income before net gains when comparing the first
quarter of 1994 to the first quarter of 1993 resulted principally from
the increase in properties owned and the receipt of a non-recurring
fee in 1993. As a result, rental and other income, property operating
expenses, real estate tax expense and depreciation and amortization
expense increased. The $1.9 million increase in rental and other
income in the first quarter of 1994 compared to the first quarter of
1993 was the result of $2.4 million from the properties acquired in
1993, $0.2 million from the properties acquired in 1994 and $0.3
million from the balance of the portfolio which was offset by $1.0
million of non-recurring income received in 1993 in connection with
a lease assignment and amendment. Approximately 82% of the $0.7
million increase in property operating expenses and 86% of the $0.4
million increase in property taxes when comparing the 1994 first
quarter to the comparable 1993 period was attributable to the
properties acquired in 1993 and 1994. The $0.2 million increase in
depreciation and amortization expense is due to the properties
acquired in 1993 and 1994.
Three additional factors also contributed to the increase in income
before net gain and funds from operations when the 1994 first quarter
is compared to 1993. Interest income reflects a decrease in the
average balance of short-term investments and mortgage loan
receivable. General and administrative expenses increased, primarily
reflecting personnel and shareholder related items. Interest expense
increased reflecting a higher average level of debt outstanding.
Average occupancy in the first quarter of 1994 was 93.5%, as compared
to approximately 93% in the comparable 1993 quarter. Average
residential occupancy in the 1994 first quarter was 93% and 94% in the
1993 first quarter. Average occupancy levels for MGI's commercial
space of 94% in the 1994 first quarter were higher than the 92% for
the comparable 1993 quarter. This improvement reflects the increased
size of the industrial portfolio and the higher average industrial
occupancy in 1994 (99% versus 92% a year ago), which was partially
offset by decreased office occupancy in the 1994 first quarter (90%
in 1994 versus 93% in 1993), primarily at the suburban Chicago,
Illinois and Somerset, New Jersey buildings. Average retail occupancy
was comparable in both periods. At February 28, 1994 scheduled 1994
lease expirations approximate 277,000 square feet. Of the remaining
1994 expirations, 194,000 square feet is industrial, 73,000 is office
and 10,000 is retail.
Real estate investments and operations are subject to a number of
factors including changes in general economic climate, local
conditions (such as an oversupply of space, a decline in effective
rents or a reduction in the demand for real estate), competition from
other available space, the ability of the owner to provide adequate
maintenance, to fund
<PAGE>
MGI PROPERTIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
capital and tenant improvements required to maintain market position
and to control operating costs. In certain markets in which the
Trust owns real estate, overbuilding and local or national economic
conditions have combined to produce lower effective rents and/or
longer absorption periods for vacant space. As the Trust re-leases
space, certain effective rents may be less than those earned
previously. Management believes its diversification by region and
property type reduces the risks associated with these factors and
enhances opportunities for cash flow growth and capital gains
potential, although there can be no assurance thereof.
During the past three fiscal years, the impact of inflation on MGI's
operations and investment activity has not been significant.
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1994 1993
<S> <C> <C>
PRIMARY
Net income $2,897,000 $2,383,000
Weighted average number of shares outstanding during the period 11,441,250 9,419,713
Primary earnings per share $.25 $.25
ASSUMING FULL DILUTION
Net income $2,897,000 $2,383,000
Weighted average number of shares outstanding during the period 11,441,250 9,419,713
Earnings per share assuming full dilution $.25 $.25
Note: Outstanding stock options do not enter into the computation
of earnings per share as they are not materially dilutive.
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1 -Legal Proceedings: Not applicable.
Item 2 -Changes in Securities: Not applicable.
Item 3-Defaults upon Senior Securities: Not applicable.
Item 4 -Submission of Matters to a Vote of Security Holders: None.
Item 5 -Other Information: Not applicable.
Item 6 -Exhibits and Reports on Form 8-K:
a)Exhibits: Computation of Earnings Per Share (see page 12).
b)Reports on Form 8-K: A Form 8-K was filed on February 11, 1994.
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1 -Legal Proceedings: Not applicable.
Item 2 -Changes in Securities: Not applicable.
Item 3 -Defaults upon Senior Securities: Not applicable.
Item 4 -Submission of Matters to a Vote of Security Holders: None.
Item 5 -Other Information: Not applicable.
Item 6 -Exhibits and Reports on Form 8-K:
a) Exhibits: Computation of Earnings Per Share (see page 12).
b) Reports on Form 8-K: A Form 8-K was filed on February 11, 1994.
<PAGE>
MGI PROPERTIES
SIGNATURES
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.
MGI PROPERTIES
(Registrant)
Date: April 8, 1994 /s/ Phillip C. Vitali
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
</TABLE>
