<PAGE>
(LETTERHEAD OF MGI PROPERTIES)
July 13, 1994
VIA EDGAR
Securites and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: MGI Properties ("Registrant")
Second Quarter Report on Form 10-Q for the
Second Quarter Ended May 31, 1994 ("Form 10-Q")
Commission File No. 1-6833
Dear Sir/Madam:
Enclosed please find a copy of the Registrant's Form 10-Q filed electronically,
with a conforming paper format of the Form 10-Q to the Securities and Exchange
Commission at the Alexandria, Virginia address via UPS Express.
Sincerely,
David P. Morency
Controller
DPM/jac
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
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: May 31, 1994 Commission File Number: 1-6833
------------ ------
MGI PROPERTIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6268740
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation 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 July 13, 1994: 11,453,221
Page 1 of 14 pages
Exhibit Index appears on Page 12
<PAGE>
MGI PROPERTIES
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page No.
<S> <C>
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
Financial Condition and Results of Operations 8
Exhibit A: Computation of Earnings Per Share 11
PART II: OTHER INFORMATION
Items 1 - 6 12
Signatures 13
Exhibit 99: Consolidated Statement of Earnings for the Twelve-Month
Period Ending April 30, 1994 14
</TABLE>
- 2 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1994 November 30, 1993
(unaudited)
ASSETS
<S> <C> <C>
Investments:
Real estate, at cost $270,751,000 $258,663,000
Accumulated depreciation and amortization (33,767,000) (29,992,000)
Net investments in real estate 236,984,000 228,671,000
Cash 1,627,000 1,564,000
Short-term investments, at cost 7,959,000 10,252,000
U.S. Government securities, at cost 717,000 837,000
Other assets 6,289,000 5,376,000
$253,576,000 $246,700,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $73,577,000 $66,949,000
Other liabilities 4,549,000 5,012,000
78,126,000 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;
11,452,221 issued (11,448,152 at November 30, 1993) 11,452,000 11,448,000
Additional paid-in capital 165,762,000 165,673,000
Distributions in excess of net income (5,464,000) (5,935,000)
171,750,000 171,186,000
At November 30, 1993, 14,431 shares in treasury, at cost -- (147,000)
Total shareholders' equity 171,750,000 171,039,000
$253,576,000 $246,700,000
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, 1994 May 31, 1993 May 31, 1994 May 31, 1993
<S> <C> <C> <C> <C>
INCOME
Rental and other income $10,844,000 $8,085,000 $21,570,000 $16,923,000
Interest 93,000 184,000 167,000 396,000
Other 16,000 16,000 32,000 59,000
Total Income 10,953,000 8,285,000 21,769,000 17,378,000
EXPENSES
Property operating expenses 3,087,000 2,486,000 6,120,000 4,842,000
Real estate taxes 1,333,000 943,000 2,707,000 1,876,000
Depreciation and amortization 2,011,000 1,778,000 3,907,000 3,427,000
Interest 1,466,000 1,285,000 2,932,000 2,589,000
General and administrative 676,000 549,000 1,276,000 1,017,000
Total expenses 8,573,000 7,041,000 16,942,000 13,751,000
Income before net gain 2,380,000 1,244,000 4,827,000 3,627,000
Net gain -- -- 450,000 --
Net income $ 2,380,000 $1,244,000 $ 5,277,000 $ 3,627,000
PER SHARE DATA
Income before gain from disposition of real estate $ 0.21 $ .12 $ 0.42 $ 0.37
Gain from disposition of real estate -- -- 0.04 --
Net income $ 0.21 $ 0.12 $ 0.46 $ 0.37
Weighted average shares outstanding 11,446,617 9,994,141 11,443,963 9,710,083
</TABLE>
See accompanying notes to consolidated financial statements.
- 4-
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1994 May 31, 1993
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $5,277,000 $3,627,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense 3,907,000 3,427,000
Net gain (450,000) --
Equity losses in partnerships -- 37,000
Other (1,140,000) (270,000)
Net cash provided by operating activities 7,594,000 6,821,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of and additions to real estate (14,020,000) (8,187,000)
Proceeds from disposition of real estate investments 2,286,000 --
Cash distribution from real estate partnerships 100,000 --
(Increase) decrease in U.S. Government securities, net 120,000 (553,000)
Other 126,000 (653,000)
Net cash used in investing activities (11,388,000) (9,393,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the sale of common shares -- 25,640,000
Repayments of mortgage and other loans payable (7,037,000) (1,597,000)
Additions to mortgage and other loans payable, net 13,328,000 --
Cash distributions (4,806,000) (3,771,000)
Treasury stock and stock option transactions 79,000 67,000
Net cash used in financing activities 1,564,000 20,339,000
Net increase (decrease) in cash and short-term investments (2,230,000) 17,767,000
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 11,816,000 16,131,000
End of period $9,586,000 $33,898,000
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Undistributed
Number of (Distributions Total
Common Common Additional in Excess of) Treasury Shareholders'
Shares Issued Shares Paid-in 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 -- -- -- 5,277,000 -- 5,277,000
Distributions -- -- -- (4,806,000) -- (4,806,000)
Options exercised and other 4,069 4,000 89,000 -- 147,000 240,000
Balance at May 31, 1994 11,452,221 $11,452,000 $165,762,000 ($5,464,000) -- $ 171,750,000
</TABLE>
- 6 -
<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 June 22, 1994, the Board of Trustees declared a cash
dividend of $.22 per share payable on July 14, 1994 to
shareholders of record on July 5, 1994. This dividend will
aggregate $2.5 million.
Note 3: At May 31, 1994, the market value of U.S. Government securities
was $0.8 million.
Note 4: Cash paid for interest amounted to $2.7 and $2.8 million for
the six-month periods ended May 31, 1994 and May 31, 1993,
respectively.
Note 5: At May 31, 1994, options to purchase an aggregate of 559,132
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 May 31, 1994 expire by March
2004.
Note 6: In May 1994, MGI acquired an industrial research and
development building, aggregating 128,400 square feet, located in
Andover, Massachusetts for $6.4 million cash. The property is 100%
leased.
Note 7: 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.
- 7 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At May 31, 1994, liquidity was provided by $9.6 million in cash and investment
securities and by unused lines of credit totaling $25.0 million. Shareholders'
equity of $171.7 million at May 31, 1994, when compared to $171.0 million at
November 30, 1993, principally reflects net income in excess of distributions.
Principal sources of funds in the first half of fiscal 1994 included property
operations, mortgage loan proceeds and the sale of an interest in a partnership.
During the six months ended May 31, 1994, these resources were used to pay
dividends of $4.8 million, to repay $7.1 million of indebtedness, to fund $1.1
million of tenant and capital improvements and to acquire three Massachusetts
industrial buildings totaling 284,700 square feet for an aggregate price of
$12.9 million.
Total mortgage and other loans payable aggregated $73.6 million at May 31, 1994,
a net increase of $6.6 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. In addition, in April
1994, the Trust executed an $11.5 million mortgage loan, which has a
twenty-year, self-amortizing term and a fixed coupon interest rate of 7.7% per
annum. This loan is secured by the apartment complex that previously secured a
12.75%, $6.3 million mortgage loan which matured on April 10, 1994. Scheduled
amortization payments of $0.8 million were made during the six-month period.
Mortgage and other loans payable are collateralized by certain MGI real estate
investments, by $3.2 million of investment securities and by MGI's guarantees of
$9.2 million.
Loans payable due within twelve months or less totaled $13.0 million at May 31,
1994, including an $11.1 million floating rate loan with a September 1994
maturity. MGI has entered into discussions with the lender of the $11.1 million
loan about extending the maturity of this loan on generally similar terms and
conditions. In June 1994, MGI entered into a $15.0 million, two-year line of
credit facility, with the option to extend the term for five years at a fixed
rate. The line is secured by several Massachusetts commercial properties and
provides for interest with the option of a floating rate or the bank's prime
rate, currently 7.25%. MGI has an existing $10.0 million unused line, which also
remains available. 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. Principal
sources of funds in the future are expected to be from operations of properties,
including those acquired in the future, mortgaging or refinancing
- 8 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
existing mortgages on properties, the lines 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 lines 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 May 31, 1994 was $2.4 million, or $0.21 per
share on the greater number of shares outstanding, as compared to $1.2 million,
or $0.12 per share in the corresponding quarter of 1993. Net income for the six
months ended May 31, 1994 was $5.3 million, or $0.46 per share and included
$450,000, or $0.04 per share of gain recognized in connection with the sale of a
partnership interest. Net income for the six months ended May 31, 1993 was $3.6
million, or $0.37 per share.
Funds from operations totaled $4.4 million, or $0.38 per share in the 1994
second quarter on the greater number of shares outstanding, compared to $3.0
million, or $0.30 per share in the corresponding quarter of 1993. Funds from
operations in the six months ended May 31, 1994 and 1993 were $8.7 million, or
$0.76 per share on the greater number of shares outstanding, and $7.0 million,
or $0.73 per share, respectively. Included in funds from operations and net
income for the six months ended May 31, 1993 was $1.0 million of income received
in connection with the amendment and assignment of a lease at Yorkshire Plaza
located in Aurora, Illinois. 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.
In comparing the second quarter of 1994 to that of the previous year, the
increase in net income and in funds from operations resulted principally from
increases in properties owned. As a result, rental and other income, property
operating expenses, depreciation and amortization expense (which is a component
of income before net gains but not of funds from operations) and interest
expense increased. The $2.8 million increase in rental and other income in the
second quarter of 1994, when compared to the second quarter of 1993, was due
primarily to rental income from properties acquired since May 1993, which
totaled $2.7 million. The $1.0 million increase in the second quarter 1994
property operating expenses and real estate taxes, when compared to the 1993
second quarter, reflects primarily the same factors.
- 9 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Three additional factors also contributed to the change in income before net
gain and funds from operations when the 1994 second quarter is compared to 1993.
Interest income reflects a decrease in the average balance of short-term
investments. 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 second quarter of 1994 was 93.5%, as compared to 94% in
the comparable quarter of 1993. Average occupancy levels in the second quarter
of 1994 and 1993 for MGI's commercial space of was 93.3% and 93.8%,
respectively. While total commercial occupancy has not changed significantly,
the average occupancy of the industrial portfolio has increased to 100% , which
reflects the increased size of the industrial portfolio, as well as the result
of approximately 400,000 square feet of new and extended leases signed over the
prior four quarters. Retail average occupancy during the 1994 second quarter was
92% compared to 91.5% in the 1993 second quarter. These increases were partially
offset by decreased office occupancy in the 1994 second quarter (88% in 1994
versus 94% in 1993), primarily at the suburban Chicago, Illinois and Somerset,
New Jersey buildings. At May 31, 1994 scheduled commercial 1994 lease
expirations approximate 230,000 square feet. Of the remaining 1994 expirations,
187,000 square feet is industrial. Average residential occupancy was 94% in both
the second quarter of 1994 and of 1993.
Real estate investments 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 capital and tenant improvements required to
maintain market position and control of operating costs. In many markets in
which the Trust owns real estate, over building and local or national economic
conditions have combined to produce a trend of lower effective rents and longer
absorption periods for vacant space. As the Trust re-leases space, certain
effective rents may continue to be less than those earned previously. Management
believes its diversification by regional markets 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.
- 10 -
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, 1994 May 31, 1993 May 31, 1994 May 31, 1993
<S> <C> <C> <C> <C>
PRIMARY
Net income $ 2,380,000 $ 1,244,000 $ 5,277,000 $3,627,000
Weighted average number of shares outstanding during the period 11,446,617 9,994,141 11,443,963 9,710,083
Primary earnings per share $.21 $.12 $.46 $.37
ASSUMING FULL DILUTION
Net income $ 2,380,000 $ 1,244,000 $ 5,277,000 $3,627,000
Weighted average number of shares outstanding during the period 11,446,617 9,994,141 11,443,963 9,710,083
Earnings per share assuming full dilution $.21 $.12 $.46 $.37
</TABLE>
Note: Outstanding stock options are not taken into account
in the computation of earnings per share as they are
not materially dilutive.
- 11 -
<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:
At the Annual Meeting of Shareholders held March 16, 1994,
shareholders re-elected Rodger P. Nordblom (10,428,069 votes
affirmative and 94,623 votes negative) and Colin C. Hampton
(10,430,297 votes affirmative and 92,395 votes negative) as
Trustees for terms expiring on the date of the Annual Meeting
in 1997. Also, shareholders approved and ratified the 1994
Stock Option and Stock Appreciation Rights Plan for Key
Employees (9,858,466 votes affirmative, 363,081 votes negative,
301,145 votes abstaining) and approved and ratified the 1994
Stock Option Plan for Trustees (9,477,099 votes affirmative,
738,410 votes negative, 307,183 votes abstaining).
Item 5: Other Information: Not applicable.
Item 6: Exhibits and Reports on Form 8-K:
a) Exhibits:
Computation of Earnings Per Share (see page 11).
Exhibit 99 -- Twelve-Month Consolidated Statement of
Earnings Pursuant to Section 11(a) of the Securities Act of
1933 and Rule 158 promulgated thereunder, the Registrant
files herewith its Consolidated Statement of Earnings for
the Twelve Months Ended April 30, 1994, a period which
covers twelve months after the effective date of the
Registrant's registration statement on Form S-3 (File No.
33-59602) relating to its issuance of 2,000,000 common
shares.
b) Reports on Form 8-K: None.
- 12 -
<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to 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.
Date: July 13, 1994 /s/ Phillip C. Vitali
------------- ---------------------
Phillip C. Vitali
Executive Vice President
(Chief Financial Officer)
Date: July 13, 1994 /s/ David P. Morency
------------- --------------------
David P. Morency
Controller
(Principal Accounting
Officer)
- 13 -
Exhibit 99
MGI PROPERTIES
CONSOLIDATED STATEMENT OF EARNINGS
TWELVE MONTHS ENDED APRIL 30, 1994
(unaudited)
<TABLE>
<S> <C>
INCOME
Rental and other income $39,788,000
Interest 549,000
Other 64,000
Total income 40,401,000
EXPENSES
Property operating expenses 11,673,000
Real estate taxes 4,935,000
Depreciation and amortization 7,428,000
Interest 5,344,000
General and administrative 2,356,000
Total expenses 31,736,000
Income before net gain 8,665,000
Net gain 450,000
Net income $9,115,000
PER SHARE DATA
Income before gain from disposition of real estate $.76
Gain from disposition of real estate .04
Net income $.80
Weighted average shares outstanding 11,409,909
</TABLE>
14 -
