<PAGE>
(LETTERHEAD OF MGI PROPERTIES)
October 14, 1994
VIA EDGAR
***********
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: MGI Properties ("Registrant")
Quarterly Report on Form 10-Q for the
Third Quarter Ended August 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: August 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 of (I.R.S. Employer Identification No.)
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 October 11, 1994: 11,460,221
Page 1 of 14 pages
Exhibit Index appears on Page 12
<PAGE>
MGI PROPERTIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I: FINANCIAL INFORMATION
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 12
PART II: OTHER INFORMATION
Items 1 - 6 13
Signatures 14
</TABLE>
- 2 -
<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1994 November 30, 1993
(unaudited)
<S> <C> <C>
ASSETS
Investments:
Real estate, at cost $257,912,000 $258,663,000
Accumulated depreciation and amortization (33,469,000) (29,992,000)
Net investments in real estate 224,443,000 228,671,000
Cash 1,607,000 1,564,000
Short-term investments, at cost 12,834,000 10,252,000
U.S. Government securities, at cost 675,000 837,000
Other assets 6,263,000 5,376,000
$245,822,000 $246,700,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $62,960,000 $66,949,000
Other liabilities 4,633,000 5,012,000
67,593,000 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;
11,453,221 issued (11,448,152 at November 30, 1993) 11,453,000 11,448,000
Additional paid-in capital 165,774,000 165,673,000
Distributions in excess of net income (2,698,000) (5,935,000)
174,529,000 171,186,000
At November 30, 1993, 14,431 shares in treasury, at cost -- (147,000)
Total shareholders' equity 174,529,000 171,039,000
$245,822,000 $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 Nine Months Ended
------------------ -----------------
August 31, 1994 August 31, 1993 August 31, 1994 August 31, 1993
<S> <C> <C> <C> <C>
INCOME
Rental and other income $10,997,000 $9,098,000 $32,567,000 $26,021,000
Interest 104,000 225,000 271,000 621,000
Other 16,000 16,000 48,000 75,000
Total Income 11,117,000 9,339,000 32,886,000 26,717,000
EXPENSES
Property operating expenses 3,136,000 2,748,000 9,256,000 7,590,000
Real estate taxes 1,382,000 1,128,000 4,089,000 3,004,000
Depreciation and amortization 1,912,000 1,716,000 5,819,000 5,143,000
Interest 1,485,000 1,275,000 4,417,000 3,864,000
General and administrative 615,000 546,000 1,891,000 1,563,000
Total expenses 8,530,000 7,413,000 25,472,000 21,164,000
Income before net gains 2,587,000 1,926,000 7,414,000 5,553,000
Net gains 2,700,000 -- 3,150,000 --
Net income $5,287,000 $1,926,000 $10,564,000 $5,553,000
PER SHARE DATA
Income before net gains $0.22 $0.17 $0.65 $0.54
Net gains 0.24 -- 0.27 --
Net income $0.46 $0.17 $0.92 $0.54
Weighted average shares outstanding 11,452,895 11,433,091 11,446,962 10,288,611
</TABLE>
See accompanying notes to consolidated financial statements.
- 4-
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, 1994 August 31, 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $10,564,000 $5,553,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 5,819,000 5,143,000
Net gains (3,150,000) --
Equity losses in partnerships -- 44,000
Other (1,519,000) 226,000
Net cash provided by operating activities 11,714,000 10,966,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of and additions to real estate (14,927,000) (24,414,000)
Proceeds from disposition of real estate investments 6,631,000 --
Cash distribution from real estate partnerships 100,000 --
(Increase) decrease in U.S. Government securities, net 162,000 (420,000)
Other 167,000 (53,000)
Net cash used in investing activities (7,867,000) (24,887,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the sale of common shares -- 25,640,000
Repayments of mortgage and other loans payable (7,411,000) (1,862,000)
Additions to mortgage and other loans payable, net 13,425,000 --
Cash distributions (7,327,000) (6,058,000)
Treasury stock and stock option transactions 91,000 83,000
Net cash (used in) provided by financing activities (1,222,000) 17,803,000
Net increase in cash and short-term investments 2,625,000 3,882,000
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 11,816,000 16,131,000
End of period $14,441,000 $20,013,000
</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 -- -- -- 10,564,000 -- 10,564,000
Distributions -- -- -- (7,327,000) -- (7,327,000)
Options exercised and other 5,069 5,000 101,000 -- 147,000 253,000
Balance at August 31, 1994 11,453,221 $11,453,000 $165,774,000 ($2,698,000) -- $174,529,000
</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 September 21, 1994, the Board of Trustees declared a cash dividend
of $.22 per share payable on October 12, 1994 to shareholders of
record on October 3, 1994. This dividend will aggregate $2.5 million.
Note 3: Effective August 23, 1994, a Dividend Reinvestment and Share Purchase
Plan was implemented. Under this Plan, Shareholders of record who own
100 shares or more will have the option of electing to receive, in
full or in part, dividends in the form of MGI shares in lieu of cash.
The price of shares purchased with reinvested dividends will be at a
three percent (3%) discount in the case of newly issued shares
purchased for the Plan. If MGI purchases shares in the open market for
the Plan, the price for such shares will be 100% of the average
purchase prices paid. A Prospectus dated August 23, 1994, describing
the terms of the Dividend Reinvestment and Share Purchase Plan has
been mailed to shareholders of record.
Note 4: At August 31, 1994, the market value of U.S.Government securities was
$0.7 million.
Note 5: Cash paid for interest amounted to $4.5 And $3.8 Million for the
nine-month periods ended August 31, 1994 and August 31, 1993,
respectively.
Note 6: At August 31, 1994, options to purchase an aggregate of 558,132
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 August 31, 1994 expire by March
2004.
Note 7: In August 1994, MGI sold its seven industrial buildings in
Minneapolis, Minnesota for $14,925,000 resulting in a net gain of
$2,700,000 for financial reporting purposes. The buildings,
aggregating 626,000 square feet, secured a $10,240,000 mortgage that
was assumed by the buyer. The net sales proceeds have been placed in
escrow with the intention of effecting a tax-deferred exchange.
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.
- 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 August 31, 1994, liquidity was provided by $14.4 million in cash and
investment securities and by unused lines of credit totaling $25.0 million.
Shareholders' equity of $174.5 million at August 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 fiscal 1994 include property operations, mortgage
loan proceeds, the sale of an interest in a partnership and the sale of
industrial properties located in Minneapolis, Minnesota. During the nine months
ended August 31, 1994, these resources were used to pay dividends of $7.3
million, to repay $7.4 million of indebtedness, to fund $2.0 million of tenant
and capital improvements and to acquire three Massachusetts industrial buildings
totaling 284,700 square feet for an aggregate purchase price of $12.9 million.
In the fourth quarter of 1994, the Trust expects additional funds will be
generated from the sale of properties which are currently under agreement. The
closing of these sales is contingent upon the completion of due diligence by the
buyers. The sale properties include an apartment complex and two industrial
buildings. All of the properties, assuming they are closed in accordance with
the terms of their respective agreements, will be sold at a gain and will
generate aggregate proceeds of approximately $13.1 million. In addition, the
Trust has entered into a sales agreement related to a 40,200 square-foot retail
center which, if finalized, is anticipated to close in the first quarter of
1995. As the pending sales close, their proceeds will be placed into escrows
with the intention of effecting a tax deferred exchange. The Trust has entered
into agreements to purchase three industrial buildings in Massachusetts and one
in St. Louis, Missouri, totaling 490,000 square feet, that have been identified
as replacement properties for the purpose of a tax deferred exchange. These
purchases are expected to close, pending completion of due diligence, in the
fourth quarter.
In October 1994, the Trust signed a commitment to acquire a newly constructed
department store of approximately 100,000 square feet located in Peabody,
Massachusetts for a price of $11.1 million. The facility to be constructed will
be funded by MGI subject to a construction loan agreement which requires
interest at 9.0 % per annum and is secured by a first mortgage on the property
and improvements, an assignment of the lease and guarantees of the borrower. The
building will be leased in its entirety by Bradlees, which is traded on the New
York Stock Exchange, under a twenty year lease. The purchase is anticipated to
occur in the third quarter of 1995 upon satisfactory completion of construction
of the building. It is anticipated that the first advance under the construction
loan in the amount of $5.5 million, will be funded mid-October 1994. In
accordance with generally accepted accounting principles, the loan draws will be
accounted for as construction in progress. Accordingly, interest income related
to the loan will be recorded as a reduction in the Trust's cost of the building.
- 8 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total mortgage and other loans payable aggregated $63.0 million at August 31,
1994, a net decrease of $4.0 million compared to November 30, 1993. The decrease
resulted from, among other items, the assumption of $10.2 million in debt
secured by the Minnesota properties by the buyer. Of this loan amount, $2.2 was
received in the first quarter. In addition, in April 1994, the Trust executed an
$11.5 million mortgage loan, secured by the apartment complex that previously
secured a $6.3 million mortgage loan which matured on April 1994. Scheduled
amortization payments of $1.2 million were made during the nine-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
$7.1 million.
Loans payable due within twelve months or less totaled $12.1 million at August
31, 1994, including an $11.0 million floating rate loan with a September 1994
maturity. MGI has reached an agreement in principle with the lender of the $11.0
million loan to extend the maturity of this loan on generally similar terms and
expects to complete the extension during the fourth quarter. 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 7.75%. In
addition, MGI has a $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, in addition to those previously discussed, 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, the
lines of credit, mortgaging or refinancing existing mortgages on properties, 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 August 31, 1994 was $5.3 million, or $0.46 per
share as compared to $1.9 million, or $0.17 per share in the corresponding
quarter of 1993. Included in the 1994 third quarter net income was $2.7 million,
or $0.24 per share of gain recognized in connection with the sale of the
- 9 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Minneapolis, Minnesota industrial properties. For the nine months ended August
31, 1994 net income was $10.6 million, or $0.92 per share including the
recognition of $3.2 million in gains, equal to $.27 per share. Net income for
the nine months ended August 31, 1993 was $5.6 million, or $0.54 per share.
Funds from operations totaled $4.5 million, or $0.39 per share in the 1994 third
quarter, compared to $3.6 million, or $0.32 per share in the corresponding
quarter of 1993. Funds from operations in the nine months ended August 31, 1994
and 1993 were $13.2 million, or $1.16 per share and $10.7 million, or $1.04 per
share, respectively. Included in funds from operations and net income for the
nine months ended August 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 third 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 $1.9 million increase in rental and other income in the
third quarter of 1994, when compared to the third quarter of 1993, was due to
properties acquired since July 1993, that totaled $1.7 million in additional
revenue. The balance of the increase is primarily due to higher retail and
industrial occupancy and higher apartment rental rates. Of the $.6 million
increase in the third quarter property operating expenses and real estate taxes,
when compared to the 1993 third quarter, $.5 million is due to properties
acquired since August 1993.
The increase in year to date revenues, property operating expenses, real estate
taxes and depreciation and amortization expense reflect similar factors. Three
additional factors also contributed to the change in income before net gain and
funds from operations when the results for the third quarter date 1994 are
compared to the 1993 year. 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 third quarter of 1994 was 92.7 %, as compared to 93.4%
in the comparable quarter of 1993. Average occupancy levels in the third quarter
of 1994 and 1993 for MGI's commercial space were 92.0% and 94.5%, respectively.
This change reflects the decrease in average office occupancy, primarily at the
suburban Chicago, Illinois and Somerset, New Jersey buildings, which is offset
by increases in both the industrial and retail segments. Average occupancy in
the industrial and retail segments in the 1994 third quarter increased by 2.2%
and 2.5% to 98% and 94.2%, respectively, compared to the 1993 third quarter.
Average residential occupancy was approximately 93% in both the
- 10 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
third quarter of 1994 and of 1993. During the first three quarters of 1994, the
Trust executed leases for a total of 372,000 square feet. At August 31, 1994
scheduled commercial 1994 lease expirations approximate 49,500 square feet and
fiscal 1995 expirations approximate 480,000 square feet of which 325,000 square
feet is industrial. The Trust has been notified that a tenant occupying 55,000
square feet of office space would vacate at the expiration of its lease in 1995.
This space was relet subsequent to the end of the quarter as the Trust has
signed a ten year lease for approximately 65,000 square feet of office space
with a company listed on the NASDAQ National Market System. The Trust will incur
approximately $2.0 million in costs associated with tenant improvements and
commissions for this lease. It is anticipated that the lease will commence in
the second quarter of 1995.
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, overbuilding 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.
- 11 -
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY
Net income $5,287,000 $1,926,000 $10,564,000 $5,553,000
Weighted average number of shares outstanding during the period 11,452,895 11,433,091 11,446,962 10,288,611
Primary earnings per share $.46 $.17 $.92 $.54
ASSUMING FULL DILUTION
Net income $5,287,000 $1,926,000 $10,564,000 $5,553,000
Weighted average number of shares outstanding during the period 11,452,895 11,433,091 11,446,962 10,288,611
Earnings per share assuming full dilution $.46 $.17 $.92 $.54
</TABLE>
Note: Outstanding stock options are not taken into account in the computation
of earnings per share as they are not materially dilutive.
- 12 -
<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 Report 8-K was filed on August 26, 1994.
- 13 -
<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: October 13, 1994 /s/ Phillip C. Vitali
---------------- ---------------------
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: October 13, 1994 /s/ David P. Morency
---------------- --------------------
David P. Morency
Controller
(Principal Accounting Officer)
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-END> AUG-30-1994
<CASH> 14,441
<SECURITIES> 675
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 6,263
<PP&E> 257,912
<DEPRECIATION> 33,469
<TOTAL-ASSETS> 245,822
<CURRENT-LIABILITIES> 4,633
<BONDS> 62,960
<COMMON> 11,453
000
000
<OTHER-SE> 163,076
<TOTAL-LIABILITY-AND-EQUITY> 245,822
<SALES> 32,567
<TOTAL-REVENUES> 32,886
<CGS> 000
<TOTAL-COSTS> 19,164
<OTHER-EXPENSES> 1,891
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 4,417
<INCOME-PRETAX> 7,414
<INCOME-TAX> 000
<INCOME-CONTINUING> 7,414
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 10,564
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
