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, 1995 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 April 10, 1995: 11,481,339
Page 1 of 13 pages
Exhibit Index appears on Page 12
<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
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
<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, 1995 November 30, 1994
(unaudited)
<S> <C> <C>
ASSETS
Real estate, at cost $ 268,068,000 $ 267,530,000
Accumulated depreciation and amortization (33,744,000) (32,029,000)
Net investments in real estate 234,324,000 235,501,000
Cash 1,643,000 1,774,000
Short-term investments, at cost 12,601,000 11,118,000
U.S. Government securities, at cost 612,000 629,000
Other assets 7,577,000 7,013,000
$ 256,757,000 $ 256,035,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 70,619,000 $ 70,954,000
Other liabilities 4,667,000 5,286,000
Total liabilities 75,286,000 76,240,000
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; 17,500,000 shares authorized;
11,480,018 issued (11,465,842 at November 30, 1994) 11,480,000 11,466,000
Additional paid-in capital 166,102,000 165,921,000
Undistributed (distributions in excess of) net income 189,000 (1,292,000)
Total shareholders' equity 177,771,000 176,095,000
$ 256,757,000 $ 256,035,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
INCOME
Rental and other income $10,721,000 $10,726,000
Interest on investment securities 200,000 74,000
Other 16,000 16,000
Total Income 10,937,000 10,816,000
EXPENSES
Property operating expenses 2,962,000 3,033,000
Real estate taxes 1,392,000 1,374,000
Depreciation and amortization 1,891,000 1,896,000
Interest 1,412,000 1,466,000
General and administrative 674,000 600,000
Total expenses 8,331,000 8,369,000
Income before net gain 2,606,000 2,447,000
Net gain 1,400,000 450,000
Net income $ 4,006,000 $ 2,897,000
PER SHARE DATA
Income before net gain $ 0.23 $ 0.21
Net gain 0.12 0.04
Net income $ 0.35 $ 0.25
Weighted average shares outstanding 11,474,893 11,441,250
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,006,000 $ 2,897,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,891,000 1,896,000
Net gain (1,400,000) (450,000)
Other (802,000) (1,112,000)
Net cash provided by operating activities 3,695,000 3,231,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate (1,836,000) (6,435,000)
Additions to real estate (2,142,000) (475,000)
Net proceeds from sales of real estate interests 4,738,000 2,288,000
Cash distributions from real estate partnerships -- 100,000
Decrease in U.S. Government securities, net 17,000 88,000
Other (313,000) (99,000)
Net cash provided by (used in) investing activities 464,000 (4,533,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common shares 53,000 --
Repayment of mortgage and other loans payable (335,000) (362,000)
Additions to mortgage and other loans payable, net -- 1,870,000
Cash distributions (2,525,000) (2,403,000)
Net cash used in financing activities (2,807,000) (895,000)
Net increase (decrease) in cash and short-term investments 1,352,000 (2,197,000)
CASH AND CASH EQUIVALENTS
Beginning of period 12,892,000 11,816,000
End of period $ 14,244,000 $ 9,619,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Undistributed
Number of (Distributions Total
Common Common Additional in Excess of) Shareholders'
Shares Issued Shares Paid-in Capital Net Income Equity
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1994 11,465,842 $ 11,466,000 $ 165,921,000 ($ 1,292,000) $176,095,0000
Net Income -- -- -- 4,006,000 4,006,000
Distributions -- -- -- (2,525,000) (2,525,000)
Dividend reinvestment and 3,796 4,000 49,000 53,000
share repurchase plan
Options exercised and other 10,380 10,000 132,000 -- 142,000
Balance at February 28, 1995 11,480,018 $ 11,480,000 $ 166,102,000 $ 189,000 $ 177,771,000
</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 22, 1995, the Board of Trustees declared a cash dividend of
$.22 per share payable on April 13, 1995 to shareholders of record on
April 6, 1995. This dividend will aggregate $2.5 million.
Note 3: Shareholders' Equity: On March 22, 1995, the shareholders approved an
amendment to the Trust's Declaration of Trust increasing the number of
authorized Preferred Shares to 6.0 million.
Note 4: On March 21, 1995 the Trust acquired a 189,000 square-foot research and
development facility located in Tewksbury, Massachusetts for a price of
$5.75 million. MGI has also entered into a fifteen-year escalating
lease with Avid Technology, Inc. for the entire building. The lease
commits the Trust to tenant and capital improvements totaling
approximately $6.3 million with corresponding increases in the rent as
funds are advanced.
Note 5: At February 28, 1995, the market value of U.S. Government securities
was $0.6 million.
Note 6: Cash paid for interest amounted to $1.5 million for both three-month
periods ended February 28, 1995 and February 28, 1994.
Note 7: At February 28, 1995, options to purchase an aggregate of 661,632
shares at exercise prices ranging from $7.375 to $15.375 per share were
outstanding under MGI's stock option plans for key employees and
trustees. All options outstanding at February 28, 1995 expire by
December 2004.
Note 8: MGI intends to qualify for the year ended November 30, 1995 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, 1995, liquidity was provided by $14.9 million in cash and
investment securities and by unused lines of credit totaling $23.0 million.
Shareholders' equity of $177.8 million at February 28, 1995, when compared to
$176.1 million at November 30, 1994, principally reflects net income in excess
of distributions.
Principal sources of funds in the first quarter of 1995 include property
operations and the proceeds from the sale of an industrial property located in
Nashville, Tennessee. During the three months ended February 28, 1995, these
resources were used to pay dividends of $2.5 million, to acquire an office
building located in Boston, Massachusetts at a purchase price of $1.8 million,
to fund $0.7 million of tenant and $0.4 million of capital improvements, to fund
$1.0 million of construction loan advances, and to repay $0.3 million of
indebtedness.
On March 21, 1995 the Trust acquired a 189,000 square-foot research and
development facility located in Tewksbury, Massachusetts for a price of $5.75
million. As part of the negotiated purchase, MGI simultaneously entered into a
fifteen-year escalating lease with Avid Technology, Inc. for the entire
building. The lease, which begins with the date of purchase, commits the Trust
to tenant and capital improvements of up to approximately $6.3 million. It is
anticipated that the building will produce an annualized yield of approximately
11.7% on the Trust's cash investment for fiscal 1995. The interior and exterior
will be completely renovated as a result of the improvements. The commitment is
payable over a twenty seven-month period and the lease provides for
corresponding increases in the rent as funds are advanced.
The Trust entered into an agreement to acquire a 108,000 square-foot
distribution facility located in Northborough, Massachusetts for a price of
$2.25 million. The building is 100% occupied. The Trust has also entered into an
agreement for the purchase of a 66,000 square-foot research and development
facility located in Littleton, Massachusetts for a price of approximately $2.3
million. The acquisitions should be completed, subject to the completion of due
diligence and a satisfactory purchase agreement, in the second quarter or early
in the third quarter. In addition to the aforementioned, at February 28, 1995,
the Trust has additional commitments for capital and tenant improvements of
approximately $1.7 million.
During 1994, the Trust signed a commitment to acquire a department store of
approximately 100,000 square feet, which will be leased in its entirety by
Bradlees under a twenty-year lease, for a price of $11.1 million. The cost of
construction is being funded by MGI, subject to a construction loan agreement.
As of February 28, 1995, the Trust has advanced $6.6 million of construction
loan proceeds. The purchase will occur and the lease will begin upon
satisfactory completion of the building, currently expected on or about
September 1, 1995. The construction loan is reflected as an investment in real
estate for financial reporting purposes.
<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 $70.6 million at February 28,
1995, a net decrease of $0.3 million compared to November 30, 1994. The decrease
resulted from scheduled principal amortization payments made during the
three-month period. Scheduled loan principal payments due within twelve months
of February 28, 1995 total $1.5 million. MGI believes it will continue to be
able to extend or refinance maturing mortgage loans upon satisfactory terms.
Principal sources of funds in the future are expected to be from operations of
properties, including those acquired in the future, refinancing of existing
mortgages on or additional mortgaging of properties and MGI's portfolio of
investment securities. Other potential sources of funds include the proceeds of
offering 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 use of those funds, including the anticipated yields of
investments to be acquired. The purchase of additional properties in 1995 may
require the use of funds from MGI's lines of credit, new borrowings, proceeds
from the sale of properties or the issuance of 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, 1995 was $4.0 million, or $0.35
per share, as compared to $2.9 million, or $0.25 per share in the corresponding
quarter of 1994. Included in 1995 net income was $1.4 million, or $0.12 per
share, of gain recognized in connection with the sale of an industrial property.
Net income in the first quarter of 1994 included a gain of $.45 million, or $.04
per share, recognized in connection with the sale of a partnership interest.
Funds from operations totaled $4.5 million, or $0.39 per share in the 1995 first
quarter, compared to $4.3 million, or $0.38 per share in the corresponding
quarter of 1994. 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.
In comparing the first quarter of 1995 to that of the previous year, the
increase of $0.2 million in net income before net gain resulted principally from
increases in interest income and property operating income. Property operating
income is defined as rental and other income less property operating expenses
and real estate taxes. The improvement in interest income of $0.1 million
reflects both a higher level of short-term investments owned pending the
reinvestment of property sales proceeds and higher rates. Property operating
income has increased to $6.4 million from $6.3 million for the first quarters of
1995 and 1994, respectively.
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Although the change in property operating income is not significant, the sales
and acquisitions of properties during 1994 and 1995 have had an offsetting
effect on the results of operations. The properties sold had contributed $0.7
million of operating income in the first quarter of 1994. The loss of this
income in 1995 was offset by $0.6 million of income from acquisitions, a $0.1
million increase in the income recognized from partnership interests and $0.1
million of improved results from properties owned throughout both quarters. With
respect to the properties owned throughout both quarters, operating income has
improved by $0.15 million in the apartments segment due to both higher rental
rates and increased occupancy. In addition, operating income in the industrial
segment has increased by $0.1 million. These increases were offset by a combined
decrease of $0.15 million in the office and retail segments which is the result
of lower average occupancy for the first quarter of 1995 when compared to 1994.
Rental and other income, property operating expenses, real estate taxes and
depreciation and amortization expense are also relatively unchanged when the
results for the first quarter of 1995 are compared to that of 1994.
Average occupancy in the first quarter of 1995 was 93%, as compared to 93.5% in
the comparable quarter of 1994. Average occupancy levels in the first quarter of
1995 and 1994 for MGI's commercial space were 92% and 93%, respectively. This
change reflects decreases in both the retail and office segments, while the
industrial segment is unchanged. Average residential occupancy was 94.5% and 93%
for the first quarter of 1995 and 1994, respectively. Leases executed during the
first quarter, related to 1995 expirations, totaled 186,000 square feet. At the
end of the quarter, the remaining 1995 commercial lease expirations approximate
287,000 square feet of which 207,000 square feet is industrial, 65,000 is office
and 15,000 is retail.
Real estate investments are subject to a number of factors, including changes in
the 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.
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
February 28, February 28,
1995 1994
<S> <C> <C>
PRIMARY
Net income $ 4,006,000 $ 2,897,000
Weighted average number of shares outstanding during the period 11,474,893 11,441,250
Primary earnings per share $ .35 $ .25
ASSUMING FULL DILUTION
Net income $ 4,006,000 $ 2,897,000
Weighted average number of shares outstanding during the period 11,474,893 11,441,250
Earnings per share assuming full dilution $ .35 $ .25
</TABLE>
Note: Outstanding stock options are not taken into account in 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 11).
b) Reports on Form 8-K: None.
<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: April , 1995 Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: April , 1995 David P. Morency
Controller
(Principal Accounting Officer)
<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: April 13, 1995 /s/ Phillip C. Vitali
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: April 13, 1995 /s/ David P. Morency
David P. Morency
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> FEB-28-1995
<CASH> 14,244
<SECURITIES> 612
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 7,577
<PP&E> 268,068
<DEPRECIATION> 33,744
<TOTAL-ASSETS> 256,757
<CURRENT-LIABILITIES> 4,667
<BONDS> 70,619
<COMMON> 11,480
000
000
<OTHER-SE> 166,291
<TOTAL-LIABILITY-AND-EQUITY> 256,757
<SALES> 10,721
<TOTAL-REVENUES> 10,937
<CGS> 000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,412
<INCOME-PRETAX> 2,606
<INCOME-TAX> 000
<INCOME-CONTINUING> 2,606
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 4,006
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
