SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[X] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14(a)-12
MGI PROPERTIES
Name of Registrant as Specified in Charter
PHILLIP C. VITALI
(Name of Person(s) filing Proxy Statement)
Payment of filing fee (check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii) or 14a-6(i)(1),
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
(4) Proposed maximum aggregate value of transaction:
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE>
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid: 125.00
(2) Form, schedule or registration statement no.: PRE 14A
(3) Filing party: MGI Properties
(4) Date filed: 1-24-95
<PAGE>
MGI PROPERTIES
30 Rowes Wharf
Boston, Massachusetts 02110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 22, 1995
To the Shareholders of
MGI Properties:
Notice is Hereby Given that the Annual Meeting of Shareholders (the "Annual
Meeting") of MGI Properties (the "Trust") will be held at the Boston Harbor
Hotel, 70 Rowes Wharf, Boston, Massachusetts, on March 22, 1995 at 10:00 A.M.
for the following purposes:
1. To elect three Trustees;
2. To approve an increase in the number of the Trust's authorized Preferred
Shares (the "Preferred Shares") from 2,000,000 Preferred Shares to
6,000,000 Preferred Shares; and
3. To consider and act upon such other business as may properly come before
the Annual Meeting.
Only shareholders of record at the close of business on February 7, 1995 will
be entitled to vote at the Annual Meeting.
If you do not expect to attend the Annual Meeting, please sign and promptly
mail the enclosed proxy in order that your shares may be voted for you. A
return envelope is provided for your convenience.
By Order of the Trustees,
W. Pearce Coues
Chairman of the Board of Trustees
Dated: Boston, Massachusetts
February 17, 1995
MGI PROPERTIES is a Massachusetts trust and all persons dealing with the
Trust must look solely to the property of this Trust for the enforcement of
any claims against the Trust. Neither the Trustees, officers, agents nor
shareholders of this Trust assume any personal liability for obligations
entered into on its behalf.
<PAGE>
MGI PROPERTIES
30 Rowes Wharf
Boston, Massachusetts 02110
ANNUAL MEETING OF SHAREHOLDERS
March 22, 1995
PROXY STATEMENT
This Proxy Statement is being mailed to the shareholders of MGI Properties
(the "Trust") on or about February 17, 1995, in connection with the
solicitation by the Board of Trustees of the Trust (the "Board of Trustees")
of proxies for the Annual Meeting of Shareholders (the "Annual Meeting") to
be held at the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts, on
March 22, 1995. The meeting has been called for the following purposes: (1)
to elect three Trustees; (2) to approve an increase in the number of the
Trust's authorized Preferred Shares (the "Preferred Shares") from 2,000,000
Preferred Shares to 6,000,000 and (3) to consider and act upon such other
business as may properly come before the Annual Meeting.
PROXIES AND VOTING RIGHTS
The voting securities of the Trust outstanding on February 7, 1995 consisted
of 11,480,018 of the Trust's Common Shares (the "Common Shares") entitling
the holders thereof to one vote per Common Share. Shareholders of record at
the close of business on February 7, 1995 are entitled to notice of and to
vote at the Annual Meeting. A majority of the outstanding Common Shares is
required to be represented to constitute a quorum for the holding of the
Annual Meeting. The affirmative vote of the holders of Common Shares
representing not less than 66-2/3% of the total votes authorized to be cast
by shares of all classes which are present in person or by proxy and entitled
to vote and voting on the election of Trustees (i.e., Proposal No. 1) is
required for the election of each of the nominees for Trustees (i.e., 66-2/3%
of the votes cast). In the event that no nominee for a particular trusteeship
receives the requisite number of votes for election to such trusteeship at
the Annual Meeting, the incumbent Trustee shall remain in office until the
next annual meeting and until a successor is elected and qualified. At that
meeting, such nominee would stand for election for the remainder of such
term, together with the nominees for the class whose term then expires.
The affirmative vote of the holders of Common Shares representing not less
than a majority of the total votes authorized to be cast by shares of all
classes which are entitled to vote on the increase in the number of
authorized Preferred Shares (i.e., Proposal No. 2) is required for the
adoption of such increase.
With regard to the election of Trustees, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on all proposals (except on
the election of Trustees) and will be counted as present for purposes of the
item on which the abstention is noted. Since the increase in the number of
Preferred Shares requires the approval of a majority of the outstanding
Common Shares entitled to vote, abstentions will have the effect of a
negative vote. Under the rules of the New York Stock Exchange,
<PAGE>
brokers who hold Common Shares in street name for customers have the
authority to vote, under certain circumstances, on items when they have not
received instructions from beneficial owners. Brokers that do not receive
instructions are entitled to vote only on Proposal 1 and may not vote on
Proposal 2 without specific instructions from such beneficial owners.
All proxies delivered pursuant to this solicitation may be revoked by the
person executing the same by notice in writing received at the office of the
Trust at any time prior to exercise. If not revoked, the Common Shares
represented thereby will be voted at the Annual Meeting. All proxies will be
voted in accordance with the instructions specified thereon.
All expenses in connection with the solicitation will be borne by the Trust.
It is expected that the solicitation will be made primarily by mail, but
regular employees or representatives of the Trust may also solicit proxies by
telephone, telegraph or in person, without additional compensation. Beacon
Hill Partners, Inc., a proxy solicitation firm, will assist the Trust in
soliciting proxies with respect to Common Shares held of record by brokers or
other nominees at a cost of $3,250 plus reasonable out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of February 7, 1995, all of the current Trustees and executive officers as
a group owned approximately 5.3% of the outstanding Common Shares (including
Common Shares underlying presently exercisable options). See "Election of
Trustees" for information on the number of Shares beneficially owned by each
of the Trustees of the Trust (including the nominees for election as
Trustees) and by such Trustees and executive officers as a group.
Based on a Schedule 13G dated January 30, 1995, Welch & Forbes, Inc., a
Massachusetts corporation with its principal place of business located at 45
School Street, Boston, Massachusetts 02108 ("Welch & Forbes"), beneficially
owned 678,435 of the outstanding Common Shares, representing 5.9% thereof as
of such date. Of such Common Shares, Welch & Forbes has (i) sole voting power
with respect to 575,507 of such shares, (ii) shared voting power with respect
to 102,928 of such shares and (iii) sole dispositive power with respect to
all such shares. Except for the foregoing, there was no person who, to the
knowledge of the Trust's management, owned beneficially more than five
percent of the outstanding Common Shares as of February 7, 1995.
PROPOSAL NO. 1
ELECTION OF TRUSTEES
The Board of Trustees is divided into three classes. Each class is elected by
the shareholders.
Unless authority is specifically withheld, proxies will be voted for the
election of the nominees named below to serve as Trustees for the term
indicated herein and until their successors are elected and qualified. The
three nominee-Trustees have consented to serve if elected; however, should
any nominee not be a candidate at the time of the Annual Meeting (a situation
which is not now anticipated), proxies may be voted in favor of the remaining
nominees and may also be voted for a substitute nominee.
The following table contains certain information regarding the Trustees,
including nominees for election as Trustees:
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Common Shares
for the past five years and Beneficially
Current Public Directorships Trustee Owned on Percent
or Trusteeships Since February 7, 1995 of Class
<S> <C> <C> <C>
Trustee-Nominees
To be elected for a term of three years expiring on the date of the
annual meeting in 1998:
W. Pearce Coues (54) 1982 258,835 2.2%(1)
Chairman of the Board of Trustees and Chief Executive Officer of
the Trust
2
<PAGE>
Name, Age, Principal Occupation Common Shares
for the past five years and Beneficially
Current Public Directorships Trustee Owned on Percent
or Trusteeships Since February 7, 1995 of Class
Herbert D. Conant (70) 1988 20,500 (2)(3)
Retired Chairman of the Board and Chief Executive Officer, The
Turner Corporation, from 1985 through February 1989.
George S. Bissell (65) -- -- --
Chairman of the Board and previously Chief Executive Officer,
Keystone Group, Inc.
Trustees Continuing in Office
To continue in office for a term of two years expiring on the date
of the annual meeting in 1997:
Rodger P. Nordblom (67) 1984 21,000 (2)(4)
Chairman of the Board and previously President, Nordblom Company
(a real estate development and management firm) for more than
five years.
Colin C. Hampton (72) 1984 26,000 (2)(4)
Retired Chairman of the Board and Chief Executive Officer, UNUM
Corporation.
To continue in office for a term of one year expiring on the date
of the annual meeting in 1996:
Francis P. Gunning (71) 1971 21,000 (2)(4)
Retired Executive Vice President and General Counsel, Teachers
Insurance And Annuity Association of America and College
Retirement Equities Fund (insurance and annuity business).
George M. Lovejoy, Jr. (64) 1993 20,300 (2)(4)
President, Fifty Associates (a real estate investment trust) and
Chairman Emeritus, Meredith & Grew, Inc. (a full service real
estate firm); currently Trustee of the following mutual funds:
Scudder Cash Investment Trust; Scudder GNMA Fund; Scudder
Growth & Income Fund; Scudder Quality Growth Fund; Scudder
Income Fund; Scudder Balanced Fund; Scudder Managed Municipal
Bonds; Scudder High Yield Tax Free Fund and Scudder Tax Free
Money Fund; Director, Latin American Dollar Income Fund.
<FN>
(1) Includes 199,000 presently exercisable options and excludes 25,000
options not presently exercisable to purchase an aggregate of 224,000
Common Shares granted pursuant to the 1988 Employee Plan, the 1982
Incentive Plan, the 1982 Trustees' Plan, the 1988 Trustees' Plan and the
1994 Employee Plan. Also includes 207 Common Shares owned by Mr. Coues'
wife, as to which Mr. Coues disclaims beneficial ownership.
(2) Less than 1% of the outstanding Common Shares.
(3) Includes presently exercisable options to purchase 18,000 Common Shares
granted pursuant to the 1982 Trustees' Plan and the 1988 Trustees' Plan.
(4) Includes presently exercisable options to purchase 20,000 Common Shares
granted pursuant to the 1982 Trustees' Plan and the 1988 Trustees' Plan.
</FN>
</TABLE>
3
<PAGE>
All of the current Trustees and executive officers as a group (9 persons)
owned, or held presently exercisable options to acquire, an aggregate of
632,475 Common Shares, approximately 5.3% of the outstanding Common Shares
(112,543 Common Shares outstanding plus 519,932 Common Shares subject to such
options) as of February 7, 1995. Except as specified above, each of the
aforementioned Trustees has voting and investment power (directly or
indirectly) with respect to the outstanding Common Shares indicated. In
addition, such executive officers hold options not presently exercisable to
acquire an aggregate of 26,000 Common Shares.
The Board of Trustees held four meetings during the year ended November 30,
1994. In addition, there is one Committee of the Board of Trustees, the
Administrative-Audit Committee which, in addition to fulfilling the functions
of an audit committee, has supervisory responsibility for personnel, Trustee
nominations, compensation, including stock options, and Trust administration.
The Administrative-Audit Committee, which is comprised of Messrs. Gunning,
who acts as Chairman, Conant and Hampton, met 3 times during the year ended
November 30, 1994. The Administrative-Audit Committee may also make
recommendations to the Board of Trustees and does not have the power to bind
the Trust, except that such Committee is empowered to function as the
Compensation and Stock Option Committee in administering all of the Trust's
stock option plans and in fixing the compensation of executive officers.
The Trust's policy effective December 1, 1994, is to pay each Trustee other
than Mr. Coues (i) a $12,000 annual fee and (ii) $1,000 per Board of Trustees
or committee meeting attended; provided, however, that the Trustees receive
$500 for each committee meeting attended on the same day a Board meeting is
held. Trustees have been provided with the option to receive their $12,000
annual retainer, or a portion thereof, in advance for the sole purpose of
making open market purchases of Common Shares as legally permissible.
The following table contains certain information regarding additional
executive officers of the Trust:
<TABLE>
<CAPTION>
Executive
Officer's Name Age Principal Occupation
<S> <C> <C>
Robert Ware 56 Executive Vice President since December 1989;
Senior Vice President from April 1986 to
December 1989
Phillip C. Vitali 44 Executive Vice President since December 1989;
Senior Vice President from January 1987 to
December 1989; Treasurer and Chief Financial
Officer since March 1986.
Karl W. Weller 37 Senior Vice President from March 1993 to present:
for more than five years prior thereto, Vice
President, Aetna Life & Casualty Company and
Managing Director, real estate investment group.
</TABLE>
4
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information regarding compensation (including
option/SAR grants) of executive officers of the Trust for the fiscal year
ended November 30, 1994.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards All Other
Name and Principal Position Year Salary Bonus(2) Options(3) Compensation(4)
<S> <C> <C> <C> <C> <C>
W. Pearce Coues 1994 $261,414 $68,125 35,000 $60,137
Chairman of the Board and Chief 1993 $249,084 $80,250 -- $56,986
Executive Officer 1992 $245,952 $33,375 25,000 $56,986
Phillip C. Vitali 1994 $154,269 $21,800 8,000 $24,872
Executive Vice President; 1993 $145,950 $29,425 -- $21,656
Treasurer and Chief Financial 1992 $144,529 $19,861 12,000 $21,252
Officer
Robert Ware 1994 $147,188 $21,800 8,000 $39,994
Executive Vice President 1993 $139,874 $29,425 -- $28,428
1992 $137,695 $25,500 12,000 $27,292
Karl W. Weller(5) 1994 $141,794 $20,438 6,000 $21,300
Senior Vice President 1993 $102,363 $24,075 12,000 $ 8,567
<FN>
(1) This Table covers all executive officers receiving compensation of at
least $100,000. The Table does not include columns for Other Annual
Compensation, Restricted Stock Awards and Long Term Incentive Plan
Payouts as there was no information to report with respect to these
columns.
(2) All of these bonuses were paid in the form of Common Shares (except for a
portion of Mr. Vitali's 1993 and 1992 bonuses).
(3) Options awarded under the Trust's 1988 Stock Option and Stock
Appreciation Rights Plan for Key Employees may include a tandem grant of
stock appreciation rights ("SARs"). An SAR is exercisable at any time the
Option to which it relates can be exercised, but only upon a showing of
"hardship" by the optionee and upon consent of the Board's Compensation
and Stock Option Committee. In addition, an SAR may be exercised only if
prior to the exercise, the Optionee has exercised or exercises an
equivalent number of options granted pursuant to the plan. A Hostile
Change in Control, as defined, abrogates the hardship requirement and the
prior or simultaneous option exercise requirement. SARs terminate when
the related option is exercised. Mr. Coues was granted in tandem with
stock options, 1,500 SARs in 1994 and 1,826 SARs in 1992. Messrs. Vitali
and Ware were each granted in tandem with stock options, 4,000 SARs in
1994 and 2,825 SARs in 1992. Mr. Weller was granted in tandem with stock
options, 3,000 SARs in 1994 and 6,000 SARs in 1993.
(4) All Other Compensation is comprised of contributions to the respective
Simplified Employees Pension Plan (SEPP) of each individual and amounts
accrued by or payments made by the Trust to the accounts of participants
in the Trust's Supplemental Retirement Plan (SERP). The SEPP contribution
for Mr. Coues was $25,137 in 1994 and $30,000 in each of 1993 and 1992.
The SERP contribution was $35,000, $26,986 and $26,986 in 1994, 1993 and
1992, respectively. All amounts listed for Mr. Vitali are SEPP
contributions. The SEPP contributions for Mr. Ware were $24,994, $21,472
and $20,336 in 1994, 1993 and 1992, respectively. The SERP contribution
for Mr. Ware was $15,000 in 1994 and $6,956 in each of 1993 and 1992. All
amounts listed for Mr. Weller are SERP contributions.
(5) Mr. Weller's employment commenced on March 1, 1993 and he was appointed
an executive officer in December 1993.
</FN>
</TABLE>
5
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants For Option Term(1)
% of Total
Options/SARs
Granted to Exercise
Options Employees in Price Expiration
Name Granted(2) Fiscal Year Per Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
W. Pearce Coues 35,000 57.4% $13.50 12/14/03 $297,500 $752,500
Phillip C. Vitali 8,000 13.1% $13.50 12/14/03 $ 68,000 $172,000
Robert Ware 8,000 13.1% $13.50 12/14/03 $ 68,000 $172,000
Karl W. Weller 6,000 10.2% $13.50 12/14/03 $ 51,000 $129,000
</TABLE>
(1) Options will have no actual value unless, and then only to the extent
that, the stock price of the Common Shares appreciates from the grant
date to the exercise date.
(2) Options awarded under the Trust's 1994 and 1988 Stock Option and Stock
Appreciation Rights Plan for Key Employees may include a tandem grant of
SARs. An SAR is exercisable at any time the option to which it relates
can be exercised, but only upon a showing of "hardship" by the Optionee
and upon consent of the Board's Compensation Committee. In addition, an
SAR may be exercised only if prior to the exercise, the Optionee has
exercised or exercises an equivalent number of options granted pursuant
to such plan. SARs granted in tandem with 1994 stock option awards were
1,500 to Mr. Coues, 4,000 each to Messrs. Vitali and Ware and 3,000 to
Mr. Weller (representing 10.3%, 27.6%, 27.6% and 20.7% of the SARs
granted in fiscal 1994).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Common Shares Unexercised Options/SARs In-the-Money
Acquired On At Fiscal Year- Options/SARs At
Name Exercise Value Realized($) End(1)(2) Fiscal Year-End(1)
<S> <C> <C> <C> <C>
W. Pearce Coues -- -- 174,000 $276,057
Phillip C. Vitali -- -- 89,432 $175,611
Robert Ware -- -- 89,500 $165,562
Karl W. Weller -- -- 18,000 $ 3,000
</TABLE>
(1) All options are presently exercisable.
(2) Outstanding SARs, all of which were granted in tandem with stock options,
aggregated at fiscal year-end 39,598 for Mr. Coues, 34,313 for Mr.
Vitali, 34,347 for Mr. Ware and 9,000 for Mr. Weller.
6
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return on the
Trust's Common Shares to the total returns in the Standard and Poor's 500
Stock Index and the National Association of Real Estate Investment Trusts
("NAREIT") Total Return Indices for Equity REITS.
(Tabular representation of Line Graph)
MGI S & P 500 NARIET-EQUITY
1989 1000.0 1000.0 1000.0
1990 628.2 964.7 847.3
1991 947.0 1161.2 1069.8
1992 1151.0 1375.1 1290.3
1993 1443.6 1513.7 1574.4
1994 1557.7 1530.0 1511.3
7
<PAGE>
REPORT OF ADMINISTRATIVE-AUDIT COMMITTEE
ON EXECUTIVE COMPENSATION
The Administrative-Audit Committee (the "Committee"), which serves as the
Trust's Compensation and Stock Option Committee, is composed entirely of
independent, non-management Trustees. The Committee is responsible for
adopting, implementing and administering the policies which govern annual
compensation and short-term and long-term incentive programs, including stock
option plans.
The Committee annually evaluates the Trust's operating performance and
financial position, annual salary and incentive compensation and stock option
matters and compares the Trust's overall performance within its own industry
and with real estate companies in general.
The Committee meets without the Chief Executive Officer present for the
purpose of evaluating his performance and reports their deliberations and
determinations to all of the independent Trustees of the Board. The Committee
receives recommendations made by the Chief Executive Officer with respect to
the remaining executive officers and the Committee reviews these
recommendations in light of the factors set forth below. The Committee's
actions (with respect to executive compensation matters) are generally
reported to and ratified by the full Board of Trustees (absent the Chief
Executive Officer who is the sole non-independent Trustee).
In establishing fiscal 1994 compensation levels for executive officers,
including the Chief Executive Officer, the Committee considered several
factors. These factors involved both internal and external measurements and
comparisons bearing upon the overall operating performance and financial
position of the Trust and the successful investment of the proceeds of a 1993
equity offering. The performance measures reviewed by the Committee were
actual funds from operations as compared to budget, management's leasing
success relative to market occupancy levels and market rents and relative to
the magnitude of scheduled maturities, and property net operating income
versus budget and prior year levels. The Committee also considers the
management of the liability side of the Trust's balance sheet, including the
flexibility attained with respect to available financial resources and the
maintenance of the overall quality levels of tenants and properties.
From time to time, the Committee also considers the advice of an outside
compensation consultant with respect to comparable REIT and non-REIT
organizations and with respect to executive compensation matters generally.
In setting fiscal 1994 salaries, the Committee also considered the most
recent executive compensation survey by the National Association of Real
Estate Investment Trusts. The Trust has not established a policy with regard
to Section 162(m) of the Internal Revenue Code of 1986, as amended, since the
Trust has not and does not currently anticipate paying compensation in excess
of $1 million per annum to any employee.
The Committee determined to make annual share bonus awards to the executive
officers with respect to fiscal 1994 premised upon performance factors which
they believed would serve the short-term and long-term interests of
shareholders. Eligible recipients were determined to be the four executive
officers of the Trust and two other officers. In December 1993, the Committee
voted to continue a discretionary guideline (based in part upon
recommendations of an outside compensation consultant) providing criteria for
the award of short-term incentive share bonuses to these officers. The
Committee set two measurement categories, shareholders' Total Return (i.e.,
increase in stock price plus dividends) and Funds from Operations, as the
determinants for this annual stock bonus, of which up to 30% can be taken in
cash by a recipient. Funds from Operations was given 75% weight, and the
Total Return element was given 25% weight. "Minimum," "Budget," "Target" and
"Stretch" thresholds for each measurement category were established.
Based upon the Trust's fiscal 1994 operating results and stock price
performance, short-term share bonuses were awarded in December 1994. The 1994
bonuses reflected 1994 results attaining the "stretch" threshold with
8
<PAGE>
respect to Funds from Operations and attaining the "Minimum" threshold in
respect of Total Return and resulted in stock awards of approximately 22.5%
of 1994 salary in the case of the Chief Executive Officer and approximately
15% of salary to the remaining executive officers. See "Summary Compensation
Table." In the exercise of its discretion as permitted under the guidelines
and taking into consideration the fact that the Chief Executive Officer
requested that his base compensation not be increased in fiscal 1995, the
1994 share bonus awarded to the Chief Executive Officer was increased to
approximately 26% of his 1994 salary.
Stock options were granted by the Committee in December 1994 to all executive
officers under the Trust's 1994 Employee Plan in furtherance of the
Committee's practice and policy of making stock option awards as a means of
reinforcing management's identity of interest with shareholders and creating
long-term incentives for growing Trust asset value. The executives referred
to in the Summary Compensation Table received such options as follows: W.
Pearce Coues, 50,000; Robert Ware, 18,000; Phillip C. Vitali, 18,000 and Karl
Weller, 16,000. All of the stock options granted in December 1994 vest as to
one-half immediately and the balance upon the first anniversary thereof in
December 1995.
In December 1993, the Committee also determined, based upon the advice of its
actuarial consultant (KPMG Peat Marwick LLP), the amount of its SEPP and SERP
contributions with respect to the 1994 plan year. In the case of the SERP,
for the plan year 1994, such amounts were fixed at $35,000 for Mr. Coues and
$15,000 for Mr. Ware. Mr. Weller was a participant in the SERP in fiscal 1994
and fiscal 1993, and a contribution of 15% of his salary in 1994 and 7.5% of
his salary in 1993 was made by the Trust to the SERP for Mr. Weller's
benefit.
Francis P. Gunning, Chairman
Herbert D. Conant
Colin C. Hampton
Stock Option Plans
As of February 7, 1995, executive officers and Trustees as a group (9
persons) held presently exercisable options to purchase a total of 519,932
Common Shares under all of the Trust's stock option plans at exercise prices
ranging from $7.375 to $14.25 per Common Share. In addition, the members of
such group hold options not presently exercisable to acquire an aggregate of
51,000 Common Shares. Of all outstanding options, 62,416 were granted
pursuant to the 1982 Incentive Plan, 228,844 pursuant to the 1988 Employee
Plan, 56,672 under the 1994 Employee Plan, 52,284 pursuant to the 1982
Trustees' Plan and 119,716 pursuant to the 1988 Trustees' Plan.
Severance Compensation Plan
Effective June 11, 1987, and as amended on December 19, 1989, the Board of
Trustees adopted a severance compensation plan for officers in the event of a
"hostile takeover," which includes the following events, if not approved by
two-thirds of the members of the Board of Trustees in office immediately
prior to the occurrence of any such event: the election as Trustee(s) in any
year of one or more persons not nominated by at least two-thirds of the Board
of Trustees in office prior to such election; a business combination such as
a merger; the acquisition of 15% or more of the voting power of the Trust's
securities by any person or entity; or the failure of the Trust to qualify as
a "REIT" for tax purposes by reason of more than 50% in value of the Shares
outstanding being held by five or fewer individuals.
All full time officers who have completed a minimum of thirty-six months of
continuous employment with the Trust are eligible under the plan. An eligible
officer is entitled to severance benefits if (i) such individual terminates
his or her employment within two years after a hostile takeover for reasons
such as a reduction in compensation, discontinuance of employee benefit
plans, change in duties or status and certain changes in job location or (ii)
if the individual is terminated for reasons other than "just cause" as
defined in the plan. The severance payment is equal to three months
compensation for each twelve months of employment based on the highest total
annual
9
<PAGE>
compensation rate earned prior to the Hostile Change in Control (up to a
maximum of 24 months of compensation payable at such rate, but 36 months in
the case of Messrs. Coues, Ware and Vitali). Fringe benefits are also
continued for the number of months for which compensation is paid.
PROPOSAL NO. 2
INCREASE IN AUTHORIZED PREFERRED STOCK
The Board of Trustees has declared advisable and directed that there by
submitted to the shareholders of the Trust at the Annual Meeting a proposed
amendment to Article VI, Section 6.1 of the Trust's Declaration of Trust (the
"Declaration of Trust") which would effect an increase in the number of
authorized Preferred Shares from 2,000,000 shares to 6,000,000. As of the
close of business on February 7, 1995, there were no Preferred Shares issued
or outstanding, albeit 150,000 Series A Participating Preferred Shares were
reserved for issuance under the Trust's Shareholder Rights Plan.
If approved, the increased number of authorized Preferred Shares will be
available for issuance from time to time for such purposes and consideration
as the Board of Trustees may approve and no further vote of shareholders of
the Trust will be required, except as provided under Massachusetts law or the
rules of any national securities exchange on which Common Shares are at the
time listed. The availability of additional Preferred Shares for issuance,
without the delay and expense of obtaining the approval of shareholders at a
special meeting, will afford the Trust greater financial flexibility than it
currently has.
The additional Preferred Shares for which authorization is sought would be of
the same class of Preferred Shares currently authorized, and would be
undesignated as to series. Under the Declaration of Trust, the Board of
Trustees is authorized to designate the terms of any new series of Preferred
Shares, including dividend rates, voting rights, redemption prices and
conversions or other special rights, if any, without further action by
shareholders of the Trust.
The creation of additional Preferred Shares will increase the Trust's
financial flexibility. The Board of Trustees believes that the complexity of
modern business financing and acquisition transactions requires greater
flexibility in the Trust's capital structure than now exists. Additional
Preferred Shares will be available for issuance from time to time as
determined by the Board of Trustees for any proper corporate purpose. Such
purposes could include, without limitation, issuance in public or private
sales for cash as a means of obtaining capital for use in the Trust's
business and operations, issuance as part or all of the consideration
required to be paid by the Trust for acquisitions of other businesses or
properties, and issuance under employee benefit plans.
The Trust does not presently have any plans, agreements, understandings or
arrangements that will or could result in the issuance of any Preferred
Shares.
It is not possible to state the actual effect of the authorization of
additional Preferred Shares upon the rights of holders of Common Shares until
the Board of Trustees determines the respective rights of the holders of one
or more series of Preferred Shares. The effects of such issuance could
include, however: (i) reduction of the amount otherwise available for
payments of dividends on Common Shares if dividends are payable on the
Preferred Shares, (ii) restrictions on dividends on Common Shares if
dividends on the Preferred Shares are in arrears, (iii) dilution of the
voting power of Common Shares if the Preferred Shares have voting rights and
(iv) restrictions on the rights of holders of Common Shares to share in the
Trust's assets upon liquidation until satisfaction of any liquidation
preference granted to the holders of Preferred Shares.
The creation of additional Preferred Shares could further discourage an
attempt by a person to acquire control of the Trust by a tender offer or
other means. It could therefore deprive shareholders of benefits that could
result
10
<PAGE>
from such an attempt, such as the realization of a premium over the market
price of their shares in a tender offer or the temporary increase in market
price that such an attempt could cause. Moreover, the issuance of voting
Preferred Shares to persons friendly to the Board of Trustees could make it
more difficult to remove incumbent management and Trustees from office even
if such change would be favorable to shareholders generally.
Pursuant to Article 13.1 of the Declaration of Trust, the affirmative vote of
the holders of a majority of the outstanding Common Shares entitled to vote
at the Annual Meeting is required to authorize the proposed increase in the
authorized number of Preferred Shares. If the amendment is authorized, the
text of Article VI, Section 6.1 of the Declaration of Trust (which will
remain unchanged other than changing from 2,000,000 to 6,000,000 the number
of Preferred Shares which the Trust shall have authority to issue) will be as
follows:
"Section 6.1. Description of Shares. The interest of the Shareholders
hereunder shall be divided into shares of beneficial interest which shall
be known collectively as "Shares," all of which shall be fully paid and
no assessment shall ever be made upon Shareholders. There shall be two
classes of Shares; one such class shall be known as "Common Shares," $1
par value, and the other shall be known as "Preferred Shares," $1 par
value. The number of Common Shares which the Trust shall have authority
to issue is 17,500,000, and the number of Preferred Shares which the
Trust shall have authority to issue is 6,000,000."
The Board of Trustees recommends that shareholders vote FOR the proposed
increase in authorized Preferred Shares.
INDEPENDENT AUDITORS
It is expected that the accounting firm of KPMG Peat Marwick LLP will again
be selected as the independent auditors for the Trust for the current fiscal
year ending November 30, 1995. A representative of that firm, which served as
the Trust's independent auditors for the fiscal year ended November 30, 1994,
is expected to be present at the Annual Meeting and, if he so desires, will
have the opportunity to make a statement, and in any event will be available
to respond to appropriate questions.
SHAREHOLDER PROPOSALS
To the extent required by law, for a shareholder proposal to be included in
the proxy statement for next year's annual shareholders' meeting, it must be
received at the Trust's principal executive offices prior to October 23,
1995.
11
<PAGE>
OTHER MATTERS
So far as now known, there is no business other than that described above to
be presented for action by the shareholders at the Annual Meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the Annual Meeting or any adjournment thereof,
in accordance with the discretion of the persons named therein.
The Annual Report for the fiscal year ended November 30, 1994 is being mailed
herewith. If, for any reason, you did not receive your copy of the report,
please advise the Trust and another will be sent to you.
By Order of the Trustees,
W. Pearce Coues
Chairman of the Board
Dated: Boston, Massachusetts
February 17, 1995
The Trust will furnish, without charge, a copy of its Annual Report on Form
10-K for the fiscal year ended November 30, 1994 (as filed with the
Securities and Exchange Commission) to shareholders as of February 7, 1995
who make written request therefor to Ms. Jean M. Harrington, Vice President,
MGI Properties, 30 Rowes Wharf, Boston, Massachusetts 02110.
12
<PAGE>
MGI PROPERTIES
Proxy solicited on behalf of the Board of
Trustees for Annual Meeting on March 22, 1995
The undersigned hereby appoints W. PEARCE COUES and PHILLIP C. VITALI, and
each of them with power in each to vote in the absence of the other,
as the Proxy Agents of the undersigned, with full power of substitution
and with all the powers the undersigned would possess if personally present
to vote all the Common Shares of the undersigned in MGI PROPERTIES at the
Annual Meeting of the Shareholders scheduled to be held on March 22, 1995 and
at all adjournments thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE>
[X] Please mark votes as in this example
1. Election of three Trustees as recommended in Management's Proxy Statement:
Nominees: W. Pearce Coues, Herbert D. Conant and George S. Bissell
FOR [ ] WITHHELD [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), PRINT NAME(S) ABOVE
2. Approval of a proposed amendment to Article VI, Section 6.1 of the Trust's
Declaration of Trust as recommended in Management's Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, upon such other business as may properly come before
the meeting.
Proxies will be voted for the election of Trustees and the approval of the
proposed amendment to the Trust's Declaration of Trust as recommended in
the Proxy Statement unless contrary instructions are hereinabove indicated.
Discretionary authority is granted the Proxy Agents as to other matters that
may come before the meeting. Management knows of no such other matters.
Receipt of the MGI PROPERTIES Proxy Statement is hereby acknowledged. All
proxies heretofore signed by the undersigned are hereby revoked.
Please insert date and sign exactly as name(s) appear herein. When signing
as attorney, custodian, administrator, executor or guardian, please give full
title as such. Corporations are requested to sign their names by their
Position or other authorized officer. All joint owners should sign.
Signature: Date
Signature: Date
(Cover)
MGI
Properties
1994
Annual
Report
(Photo of building at dusk)
<PAGE>
(Inside Front Cover)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended November 30,
1994 1993 1992
<S> <C> <C> <C>
Total income $ 43,880,000 $ 36,898,000* $ 30,589,000
Net gains $ 4,480,000 - $ 1,644,000
Net income $ 14,491,000 $ 7,957,000* $ 7,248,000
Net income per share $ 1.26 $ .75* $ .77
Book value per share $15.36 $14.96 $15.48
Real estate investments, at cost $267,530,000 $258,663,000 $209,905,000
Cash and investment securities $ 13,521,000 $ 12,653,000 $ 17,748,000
Total assets $256,035,000 $246,700,000 $214,161,000
Mortgage and other loans payable $ 70,954,000 $ 66,949,000 $ 60,571,000
Shareholders' equity $176,095,000 $171,039,000 $145,748,000
Shares outstanding 11,465,842 11,433,721 9,414,992
<FN>
* Includes a $1.0 million, or $.10 per share, fee received in connection with a
lease assignment and amendment.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
1994 1993 1992
<S> <C> <C> <C>
Net income $14,491,000 $ 7,957,000* $ 7,248,000
Less net gains 4,480,000 -- 1,644,000
Plus depreciation and amortization 7,654,000 6,987,000 5,996,000
Plus equity method partnership loss -- 45,000 90,000
$17,665,000 $14,989,000 $11,690,000
Per share $ 1.54 $ 1.42* $ 1.24
<FN>
* Includes a $1.0 million, or $.10 per share, fee received in connection with a
lease assignment and amendment.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1994 LEASING
1994 Vacancy at 1995 Expirations
Total Beginning 1994 Potential November 30, 1994 Total 1996
Sq. Ft. Vacancy*Expirations* Vacancy Leased Sq. Ft. Percent Scheduled Preleased Remaining Expirations
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial 2,411,100 63,900 213,600 277,500 196,700 80,800 3.4% 411,000 91,800 319,200 369,000
Retail 700,200 21,000 51,400 72,400 58,100 14,300 2.0% 39,000 - 39,000 69,800
Office 767,300 57,000 139,800 196,800 113,300 83,500 10.9% 144,800 69,900 74,900 84,400
3,878,600 141,900 404,800 546,700 368,100 178,600 4.6% 594,800 161,700 433,100 523,200
<FN>
* Beginning vacancy and expirations adjusted to reflect vacancies of properties
acquired and sold during 1994.
</FN>
</TABLE>
MGI Properties Annual Report
<PAGE>
(Photo with caption: W. Pearce Coues, Chairman of the Board of Trustees)
Letter To Shareholders
We completed 1994 and entered 1995 with exceptionally strong fundamentals. Our
portfolio produced a solid 10.9% yield in fiscal 1994 and equity values have
been materially strengthened by the twenty-three property investments made over
the past two and one-half years at a total cost of $81,429,000. Most of these
properties were acquired in Massachusetts at or near the depth of the region's
real estate market decline. They were purchased from institutional sellers at
major discounts of up to 50% from prices prevailing approximately five years
ago. They are 98% occupied and generating an average yield of 12.7%. We believe
these assets provide significant upside potential based on their low acquisition
prices and current rents. MGI is poised to capitalize on additional investment
opportunities in the market through our understanding of how to create value and
our experience and judgment in making investments that meet our criteria for
strong earnings and growth.
Over the past four years, MGI has recorded a total return for shareholders of
134%. In calendar 1994, the Trust's total return was 9.1%, well below what we
consider acceptable, but is significantly better than the 3.2% for other equity
real estate investment trusts (REITs) or the 1.3% of Standard and Poor's 500
index. Total return measures dividends paid and stock price appreciation. It is
a generally accepted method for measuring rewards and benefits as shareholders,
although stock prices may often lag performance. During 1994, stock market
valuations for real estate trusts became particularly stringent. As a result,
MGI's significant earnings growth and value creation appear to have been
overshadowed by the broadly based discounted stock market valuations. The stock
prices of most seasoned REITs were driven to material discounts in 1994 by a
flood of newly formed REITs. These declines were further exacerbated by rapidly
rising interest rates. As a consequence, MGI closed the year at $14.00 per
share, well below our $15.36 historic book basis, which we believe understates
the inherent value of our portfolio.
MGI has ample capital available to make selective investments in 1995. The
Trust also effectively demonstrated its ability to sell property into the
strength of a recovering market. This strategy generates not only gains but also
reinvestable funds which further enhance the value-creation process. Our 1995
objective is to continue our long-range business plan to build earnings and grow
the dividend as earnings accelerate. In this way, we expect to continue building
an increasingly impressive real estate portfolio. Although there is pressure
among publicly-traded REITs to focus near-term and to pay out nearly 100% of
cash flow as dividends, many trusts that have embarked on this focus are showing
signs of weakness. Like a long-distance runner, the trophies will belong
MGI Properties 1 Annual Report
<PAGE>
Letter To Shareholders
(charts)
Rental Income by Property Segment
Apartment ---------------------------------------------- 31%
Industrial ------------------------------------------- 29%
Office --------------------------------------- 26%
Retail ----------------------- 14%
Portfolio Distribution by Property Type
Apartment --------------------------------------------- 27%
Industrial --------------------------------------------- 27%
Office ----------------------------------------- 24%
Retail -------------------------------------- 22%
to those that take the long-term perspective, balancing income and dividend
growth with capital appreciation, which underlies ultimate value.
Earnings
Funds from operations in 1994 showed a continued positive upward momentum,
rising to $17,665,000 from $14,989,000 in 1993 and $11,690,000 in 1992. On a
per-share basis, funds from operations were $1.54 in 1994 versus $1.42 in 1993
(including a non-recurring lease cancellation fee of $.10 per share) and $1.24
per share in 1992. This momentum in funds from operations should be viewed
within the context of an evolving improvement in the quality and growth
potential of the portfolio.
Gain recognition added an additional $4,480,000 to net income in 1994, equal
to $.39 per share, reflecting the sale of seven industrial buildings in
Minneapolis, Minnesota, an industrial building in St. Louis, Missouri and an
apartment complex in Memphis, Tennessee. We sold these non-core properties at
what we perceived to be full prices and on yields to the purchasers that
averaged just over 9%. The sale proceeds have been primarily reinvested in
Massachusetts properties through tax-deferred exchanges. In the aggregate, the
new assets are producing higher yields to the Trust and are expected to provide
an even greater potential for growth in value. MGI has periodically sold mature
properties for gain and the success of this strategy should provide shareholders
with additional insight and confidence as to the appreciation process underway
within the portfolio.
Net income in 1994, after depreciation charges and inclusive of gains, was
$14,491,000, or $1.26 per share, compared to $7,957,000, or $.75 per share in
1993. Net income in 1994 included the previously discussed gains of $4,480,000,
or $.39 per share.
The 1994 gains do not reflect an additional gain of approximately $1,400,000,
which will be recognized in the first quarter of 1995 from the sale of an
industrial building in Nashville, Tennessee. This purchase and sale is
indicative of the opportunities within our business. We acquired the Nashville
property two and one-half years ago from the mortgagee for $3,431,000, which we
perceived as an advantageous price. Most investors at the time were aggressively
pursuing residential properties. Given the aggressive residential pricing, MGI
believed that then out-of-favor industrial investments would provide higher
yields and an improved likelihood of capital appreciation. Our $1,400,000 gain,
which computes to a 40% profit, plus the 12% annual cash flow yield on this
investment, equaled a 28% average annual return during our holding period. Our
overall return suggests that prudent diversification is not a liability but an
asset.
Acquisitions
During 1994, we acquired $31,786,000 worth of real estate and sold properties
for an aggregate price of $25,200,000. Our investment of $31,786,000 covers
eight different properties, each representing a strategic opportunity to add
income and value to the Trust. Entrance yields on the $31,786,000 are
anticipated to average 11.5% by mid-1995, more than 200-basis points higher than
the yield at which the properties were sold. Of the $31,786,000 in acquisitions,
$27,643,000 are properties located in Massachusetts; the remaining $4,143,000
was invested in St. Louis, Missouri, where we have six other properties. These
acquisitions and the underlying strategy are discussed more fully beginning on
page 5 of this Report. Aside from the improved 11.5% yield, these new assets are
expected to provide significantly greater opportunity for value growth than the
assets that were sold for $25,200,000.
MGI Properties 2 Annual Report
<PAGE>
Letter To Shareholders
(charts)
Portfolio Distribution by Location
Northeast -------------------------------- 33%
Mid-West -------------------------------- 33%
Southeast --------------------------- 25%
Mid-Atlantic ------- 9%
Capital Expenditures
1994 -------- $1,051,000 ---------------- $2,157,000
1993 ------- $984,000 ------------ $1,688,000
1992 ------ $934,000 ------------ $1,528,000
-- Tenant Improvements -- Capital Improvements
Acquisitions have been concentrated in the price range of $2,000,000 to
$10,000,000 per property. This sector of the market provides an all-cash buyer,
such as MGI, with what we perceive to be a competitive advantage. Larger
investors, such as pension funds, tend to focus on properties over $10,000,000,
while investors below $10,000,000 traditionally require cumbersome mortgage
debt, which restricts their ability to move as quickly as MGI. Our range of
$2,000,000 to $10,000,000 also broadens our holdings, allowing us to spread risk
and opportunity. This size also enables us to more readily liquify certain
assets for cash when we perceive that an asset is approaching a pricing ceiling.
Recent investments have provided longer-term leases, with durations running
from three to twenty years, thus adding significant stability to our income
stream. In several cases, we have taken partially occupied buildings and signed
tenants prior to closing, with immediate improvement in yields and value.
Typically, leases either have built-in escalations or are at levels that should
afford improvement on renewal or releasing.
Portfolio/Leasing
During 1994, we leased or renewed approximately 529,800 square feet of
non-residential space, including 161,700 square feet of space maturing in 1995.
The effect of this leasing is that MGI entered 1995 with the portfolio
approximately 96% leased, the same impressive level as a year ago. The 96% was
comprised of 95.4% for non-residential property and 96.7% for residential space.
Scheduled lease maturities in 1995 consist of approximately 433,000 square feet
and represent a manageable 11% of the portfolio, roughly equal to lease
expirations of 1994.
Leases signed for non-residential space in 1994 on balance reflect modestly
increased rents over those rent levels previously charged, which is indicative
of the emerging recovery taking place in our markets. To achieve this leasing,
the Trust expended $1,051,000 on tenant improvements to accommodate incoming or
renewing tenants. The comparable amount in 1993 was $984,000. General capital
expenditures in 1994 for non-residential properties involved an additional
expenditure of $724,000, versus $1,157,000 in 1993. At our residential
properties, capital expenditures were $1,433,000 in 1994 compared to $531,000 in
1993, with the majority of the increase due to significant improvement projects
at two of our apartment complexes. These combined expenditures are funded out of
cash flows and are essential to maintaining the opportunity for continued income
growth. During 1995, budgeted expenditures for capital and tenant improvements
are expected to exceed those of 1994, reflecting a larger portfolio and several
major office leases.
As noted, the Trust's portfolio produced a 10.9% yield in 1994, exclusive of
gains and depreciation expense. This amount is an 8% increase over the 10.1%
earned in 1993. Analyzing the 10.9% by component, industrial properties produced
a strong 14.1%, office buildings earned 10.0%, retail was 8.5%, with residential
earning 11.3%. All yields are calculated on a depreciated cost basis.
Dividends and Dividend Reinvestment and Share Purchase Plan
MGI has one of the strongest dividend coverages in the industry, distributing in
1994 56% of its $1.54 funds from operations. The dividend has been increased
twice since August 1993; now, at $.88 per year, it is 10% higher than eighteen
months ago.
As the REIT industry grows, there will continue to be an on-going dialogue
concerning proper dividend pay-out levels. For each company, the appropriate
level will vary by property type within its portfolio and according to its
investment horizons. REITs seeking little long-term capital appreciation will
tend to pay out aggressive dividends, while growth-oriented entities will
MGI Properties 3 Annual Report
<PAGE>
Letter To Shareholders
seek to balance dividend growth with the longer-term objective of building
quality asset value and maximizing shareholder value.
MGI's shareholders should anticipate future dividend growth, as earnings
and values build. During 1994, out of funds from operations, the Trust was able
to self-fund $.19 of capital improvements and $.09 of tenant improvements. An
additional $.13 was directed to recurring amortization of debt and $.19 was
reinvested in new acquisitions. These expenditures are preserving and enhancing
property values and shareholders' equity. Trusts paying out maximum dividend
levels are often forced to buy seemingly higher-yielding property, which often
appreciates at a much lower rate than well-maintained, quality real estate.
In the fourth quarter of 1994, MGI instituted a Dividend Reinvestment and
Share Purchase Plan, whereby shareholders can reinvest their dividends in MGI
shares, while also strengthening shareholders' equity. We have been encouraged
by the initial participation levels of those shareholders who are using the Plan
as an additional means of participating in MGI's growth. For shareholders who
wish to join the Plan at this time, we have enclosed a participation form for
completion and mailing to our Dividend Reinvestment Agent, the Bank of Boston.
Outlook
MGI has been operating as a REIT since 1971. We are one of only approximately
twenty publicly-traded REITs that has operated through the major cycles of the
last twenty-three years. Having taken the long-term perspective, MGI has emerged
from each cycle stronger, with ever-increasing potential.
The REIT industry has grown dramatically over the past several years, with
fifty percent of the industry now less than two years old. Such rapid change
breeds confusion and inefficiency, as the securities market seeks to digest a
new landscape. This environment results in a period of unusual challenge for
interim investors and opportunity for long-term shareholders, as recognition of
value can lag actual progress and achievement.
In its November 21, 1994 edition, Forbes magazine noted MGI's role in
Boston's dramatic real estate recovery. The article noted that Boston office
vacancies declined from 19.2% in 1991 to 12.1% in 1994 and that MGI, as a
leading investor in the recovery, "_ stepped into the Boston market after the
late-1980s crash, attracted by semivacant and foreclosed properties unloaded by
humbled developers, banks and insurers." MGI laid the foundation for this
strategic move in the early- to mid-1980s by electing not to leverage the
portfolio and to diversify its assets out of the then overheating New England
real estate market. The wisdom of that strategy is represented graphically by
recent gains on the sales of buildings acquired at that time as a sensible
alternative to the New England market.
Taking a longer-term perspective, what is the outlook for MGI shareholders?
Quietly and consistently, we are assembling an enviable portfolio that features
favorable costs, above-average quality and capital gains potential. Investments
in the $2,000,000 to $10,000,000 range, while not flamboyant, represent a
lucrative segment of the marketplace; big is not always best. One by one, brick
by brick, these buildings combine to form a cohesive and increasingly valuable
and diversified portfolio in markets where MGI has a depth of knowledge and
experience.
Although real estate is often perceived as a high-risk business, our history
and strategy provide a reasonable level of stability in this challenging
industry. Diversification, low leverage, well-covered dividends and the ability
and willingness to shun investments that fail to meet our standards, suggest
that the foundation on which we build is solid. Efficiently managing the
existing portfolio, complementing this with insightful and timely new
acquisitions and periodic sales, our objective is to have a real estate
portfolio value of not less than $24 per share, net of debt by the year 2000. At
this juncture in 1995, the Trust appears to be on target.
/s/ W. Pearce Coues
W. Pearce Coues
Chairman of the Board of Trustees
January 27, 1995
MGI Properties 4 Annual Report
<PAGE>
Property Acquisitions
The following pages review eight property investments initiated during 1994 and
a ninth property acquired early in fiscal 1995. The 1994 investments total
$31,786,000; acquisitions over a two and one-half year period total $81,429,000.
Of these acquisitions $72,681,000 were in Massachusetts, a real estate market
that has provided what we believe to have been unusually attractive buying
opportunities.
The floor of the market, evidenced by low prices and rents, appears to have
been from 1992 to mid-1993. Since this time, a noticeable increase in rents and
values has governed the market. Although prices have clearly been rising, MGI's
1994 acquisitions were made with great selectivity as to price and yields and,
in our opinion, afford similar potential as acquisitions made over the previous
two years.
<TABLE>
<CAPTION>
Percentage
Leased at
Investments Original Cost Cost/Sq.Ft. Property Type Sq.Ft. 11/30/94
<S> <C> <C> <C> <C> <C>
1995
33 Broad Street, Boston, MA $ 1,835,000 $48.29 Office 38,000 100%
1994
Two Federal Street, Billerica, MA 4,363,000 43.63 Industrial/R&D 100,000 100%
Five Federal Street, Billerica, MA 2,072,000 36.80 Industrial/R&D 56,300 100%
Four Andover Tech Center, Andover, MA 6,492,000 50.56 Industrial/R&D 128,400 100%
321 Billerica Road, Chelmsford, MA 1,921,000 26.98 Industrial/R&D 71,200 90%
234 Ballardvale Street, Wilmington, MA 2,514,000 25.09 Industrial/R&D 100,200 52%
805 Middlesex Turnpike, Billerica, MA 4,811,000 39.34 Industrial/R&D 122,300 100%
4142 Rider Trail, St. Louis, MO 4,143,000 20.65 Distribution 200,600 100%
26,316,000 33.78 779,000 93%
Construction in Progress, Peabody, MA 5,470,000 - Retail - -
31,786,000
1993 and 1992 Massachusetts Investments
326 Ballardvale Street, Wilmington, MA 7,028,000 23.90 Distribution 294,000 100%
400 Research Drive, Wilmington, MA 4,602,000 42.07 Industrial/R&D 109,400 100%
Point West Place, Framingham, MA 7,214,000 66.18 Office 109,000 100%
One Winthrop Square, Boston, MA 8,655,000 81.65 Office 106,000 97%
Two Andover Tech Center, Andover, MA 7,240,000 68.63 Industrial/R&D 105,500 100%
55 Middlesex Turnpike, Bedford, MA 2,577,000 27.80 Industrial/R&D 92,700 100%
47 Harvard Street, Westwood, MA 1,515,000 19.57 Distribution 77,400 100%
15 Crosby Drive, Bedford, MA 2,247,000 31.83 Industrial/R&D 70,600 100%
One Federal Street, Billerica, MA 2,125,000 35.42 Industrial/R&D 60,000 100%
43,203,000 42.17 1,024,600 100%
Total $76,824,000 $38.75* 1,841,600 98%
<FN>
*Excludes construction in progress.
</FN>
</TABLE>
MGI Properties 5 Annual Report
<PAGE>
(Photo: Two & Five Federal Street, Billerica, Massachusetts)
Located in a 426,000 square-foot park, two separate research and development
buildings were acquired as a package from a major life insurance company. The
buildings contain a combined total of 156,300 square feet and were acquired for
$6,435,000, equal to $41 per square foot.
Both buildings are leased in their entirety to Wellfleet Communications, now
Bay Networks, Inc. following a recent merger. Bay Networks is in the computer
inter-networking business and is traded on the NASDAQ Stock Exchange with a
market capitalization of $3.2 billion.
Two Federal Street, which consists of 100,000 square feet, is leased through
June 1998 at a current net rent of $4.50 per square foot that escalates $.50 per
year. Bay Networks has one five-year option to renew at market.
Five Federal Street, which consists of 56,300 square feet, is leased through
December 1999 at a current net rent of $3.50 per square foot which escalates
annually by $.25 per square foot. Bay Networks has one five-year option to renew
at market.
The combined average rent from both buildings should provide the Trust with
a yield just over 11% on rents that we perceive to be below market. Following
this acquisition MGI owns three buildings in the Park which is 100% occupied.
MGI Properties 6 Annual Report
<PAGE>
(Photo: Four Andover Tech Center, Andover, Massachusetts)
This 128,400 square-foot research and development property was developed by a
major insurance company in 1984. It is part of an impressive 462,000
square-foot park consisting of four buildings, two of which are now owned by
MGI. The Park enjoys a particularly strong location northwest of Boston in
Andover, Massachusetts providing excellent access to all areas within
Metropolitan Boston via Route 93, Route 495 and Route 128.
MGI acquired the property for $6,492,000, a price of approximately
$50 per square foot. We believe the reproduction cost of this property to be
significantly over our acquisition price. The building is leased in its
entirety to Hewlett Packard under a five-year net lease that now equals $5
per square foot. In addition to the $5 per square foot rent, Hewlett Packard
invested significant funds for their own improvements. We believe the $5 per
square foot net rent is modestly below prevailing market rents. Since our
purchase, we have noted a significant firming of occupancy levels. Neighbors
in the Park include NYNEX, Siemens, Ford Motor Credit and ISI.
MGI Properties 7 Annual Report
<PAGE>
(Photo: 321 Billerica Road, Chelmsford, Massachusetts)
In November 1994, MGI acquired this 71,200 square-foot research and
development building for $1,921,000, or $27 per square foot. MGI purchased the
building from an insurance company whose loan had been $5,400,000, or $76 per
square foot.
The building is leased to six separate tenants and was 80% occupied
when we initiated purchase discussions. Occupancy had risen to 90% when we
closed the investment in November 1994 and is now 98%. Recent leases have ranged
between $4.50 and $4.75 per square foot net, with lease terms running through
1997 to 2000. MGI's yield on the current occupancy is expected to exceed 13%. As
this sector of the market, northwest of Boston near the intersection of Route 3
and Route 495, is showing consistent increases in occupancy, we believe the
direction of rents will be upward from $4.50 per square foot net.
MGI Properties 8 Annual Report
<PAGE>
(Photo: 234 Ballardvale Street, Wilmington, Massachusetts)
A one-story industrial building, 234 Ballardvale Street contains 100,200
square feet. The facility, situated on 14.3 acres of land, is strategically
located off Route 93 several miles north of Route 128. This type of building,
referred to as a flex building, has truck docks for distribution purposes in
the rear of the building, with office space that can be expanded or
contracted in the front.
MGI acquired the property in November 1994 for $2,514,000, equal to
$25 per square foot, from a small pension fund in a liquidation mode.
Shortly after acquisition, occupancy increased from 52% to 100%,
as MGI leased the remaining vacant space to a new tenant, Progress Software
Corporation. Progress Software Corporation is a NASDAQ listed company, which
supplies application development technology and support services to business
and government worldwide, with a market capitalization of approximately
$310,000,000. Progress Software's five-year lease is for 48,575 square feet
of space at a net rental rate of $3.75 per square foot. The tenant provided
an extensive build-out at its own expense and has an option to renew for five
years at market.
MGI Properties 9 Annual Report
<PAGE>
(Photo: 805 Middlesex Turnpike, Billerica, Massachusetts)
This 122,300 square-foot research and development building was acquired for
$4,811,000, equal to $39 per square foot from a major life insurance company.
During the latter part of the 1980s, buildings such as 805 Middlesex Turnpike
were trading at prices of $85 to $90 per square foot.
805 Middlesex Turnpike is leased in its entirety to PRI,
Automation under a seven-year net lease currently at $3.75 net per square
foot escalating to $4.50, $5.00 and $5.50 per square foot. PRI, Automation is
a leading manufacturer of factory automation systems and is publicly traded
on the NASDAQ Stock Exchange with a current stock market capitalization of
approximately $90,000,000.
Occupancy levels in this sector of the market are showing a strong
trend, which indicates that rents should be escalating. The Trust's yield
under the net lease in place is expected to average 11.7%
MGI Properties 10 Annual Report
<PAGE>
(Photo: 4142 Rider Trail Drive, St. Louis, Missouri)
The seven industrial buildings MGI owns in the St. Louis market have enjoyed
a particularly strong occupancy level. 4142 Rider Trail is a 200,600
square-foot modern distribution building that MGI acquired in October 1994
for $4,143,000, equal to $20.65 per square foot. The seller was a large
national pension fund that was forced to sell certain properties due to
redemptions. The sale price was well below their cost of over $30 per square
foot. The building has a tax assessment of $33 per square foot, which we
intend to appeal based on our lower acquisition price.
The building is well suited for distribution, with excellent
access in a major industrial park, twenty-five modern truck doors and a
desirable 24-foot clear ceiling height. The Park was developed by Ford Motor
Credit; other buildings in the Park are owned by Equitable, Prudential,
Trammel Crow and CIGNA. Major tenants in the Park include Whirlpool, Trane,
J.C. Penny, Purina Mills and United Parcel Service.
Our property is 100% occupied by two tenants, each occupying
100,000 square feet. Their leases go to August 1996 and 2002 at net rents of
$2.75 and $3.00 per square foot, which we perceive to be below market with
occupancies running over 95%.
MGI Properties 11 Annual Report
<PAGE>
(Photo: Bradlees, Peabody, Massachusetts)
This investment features a superior location and a high yield provided by a
long-term escalating net rent. The building is leased to Bradlees, a New York
Stock Exchange listed company. This retail store, which we anticipate owning
in the summer of 1995, will provide a yield of 13% over a twenty-year lease
reflecting built-in rent escalations every five years.
The building is currently under construction with completion
expected to be mid-1995. MGI is financing the construction and will acquire
ownership upon completion and Bradlees' occupancy.
Although we have been focusing largely on existing buildings, the
real estate debacle of the late 1980s resulted in a capital void for new
development. Given the approximately $114,000,000 market capitalization of
Bradlees' stock, superior location and Bradlees' in-place lease, MGI's
$11,100,000 investment provides similar growth and gain potential as afforded
by the other investments made in 1994.
MGI Properties 12 Annual Report
<PAGE>
(Photo: 33 Broad Street, Boston, Massachusetts)
In December 1994, MGI acquired this 38,000 square-foot office property at a
cost of $1,835,000, equal to $48.29 per square foot. The sale was
orchestrated by a group of participating lenders whose debt was significantly
higher than our purchase price.
33 Broad Street was developed by Harvard College in 1904. It is
strategically located in Boston's Financial District effectively at the
corner of State Street and Broad Street. The cover picture on our Annual
Report this year is of the Custom House at the foot of State Street
approaching Boston Harbor, and was taken from the roof of our 33 Broad Street
building.
33 Broad Street is fully occupied at rents averaging $12.50 per
square foot for the office space, with lease terms running approximately
three to five years. With the dramatic recovery of the Boston office market
and given this property's superior location and ability to serve full-floor
tenants with excellent window lines, we believe the rental market value today
for new leases is $2 higher than the leases in place.
Our entrance yield, even with the below market rents in place, is
expected to be over 10%. We plan a phased improvement program for the
building which we believe will further enhance rent levels as leases mature.
MGI Properties 13 Annual Report
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF PROPERTIES OWNED
NOVEMBER 30, 1994
Net Carrying Value Percentage
Apartment Units Dollars Per Unit Leased
<S> <C> <C> <C> <C>
Metairie, LA 516 $10,746,000 $20,826 97%
Harrison Township, MI 376 7,290,000 19,388 98%
Bloomfield, MI 346 14,810,000 42,803 98%
Tampa, FL 264 7,866,000 29,795 93%
Laurel, MD 237 11,692,000 49,333 95%
Tampa, FL 112 4,948,000 44,179 94%
Total 1,851 $57,352,000 $30,984 97%
Net Percentage
Partnership Units Carrying Value Leased
Washington, DC (4% ) 778 $ 16,000 92%
San Bruno, CA (2% ) 430 225,000 94%
Total 1,208 $241,000
</TABLE>
<TABLE>
<CAPTION>
Per- Scheduled Lease Number
Net Carrying Value centage Expirations of Lease
Industrial Sq.Ft. Dollars Sq.Ft. Leased 1995 1996 Tenants Principal Tenant Expiration
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Research and Development
Andover, MA 128,400 $ 6,415,000 $49.96 100% - - 1 Hewlett Packard 7/31/99
Billerica, MA 122,300 4,802,000 39.26 100% - - 1 Precision Robotics 7/31/02
Wilmington, MA 109,400 4,497,000 41.11 100% - - 3 United Shoe Machinery 12/31/01
Andover, MA 105,500 7,094,000 67.24 100% - - 1 ISI Systems, Inc. 4/30/99
Wilmington, MA 100,200 2,510,000 25.05 52% - - 1 Datawatch 4/30/99
Billerica, MA 100,000 4,273,000 42.73 100% - - 1 Bay Network, Inc. 6/30/98
Bedford, MA 92,700 2,483,000 26.79 100% - 81% 3 Imaging Technology 7/25/96
Chelmsford, MA 71,200 1,918,000 26.94 90% - - 6 W.J. Schaffer Assoc. 7/31/98
Bedford, MA 70,600 2,204,000 31.22 100% - - 1 Atex Publishing 7/31/98
Billerica, MA 60,000 2,112,000 35.20 100% - - 2 Bay Networks, Inc. 3/30/99
Billerica, MA 56,300 2,031,000 36.11 100% - - 1 Bay Networks, Inc. 12/31/99
St. Louis, MO 40,900 1,351,000 33.03 100% 22% 5% 8 IBF Business Forms 6/30/98
St. Louis, MO 35,600 1,926,000 54.10 100% 57% - 3 Interlock 3/31/95
Distribution and Manufacturing
Wilmington, MA 294,000 6,905,000 23.49 100% - - 4 Avon Dispatch 5/31/00
Nashville, TN 203,000 3,315,000 16.33 88% - - 5 Burnham Industries 5/31/97
St. Louis, MO 200,600 4,135,000 20.61 100% - 50% 2 Everest & Jennings 7/7/02
North Charleston, SC 191,900 2,382,000 12.41 100% - 100% 2 Mill Transportation 12/31/95
St. Louis, MO 95,600 2,185,000 22.86 100% 100% - 2 S.P. Richards 8/31/95
Westwood, MA 77,400 1,495,000 19.32 100% - - 1 PB Diagnostics Systems 5/31/97
St. Louis, MO 61,400 1,458,000 23.75 100% 100% - 2 American Greetings 4/14/95
St. Louis, MO 61,200 1,549,000 25.31 100% - - 1 Tyler Mountain Water 12/31/97
Blue Ash, OH 53,200 616,000 11.58 100% 100% - 1 Aero Mailing 8/31/95
St. Louis, MO 41,000 1,169,000 28.51 100% 100% - 2 Nat'l Service Industries 3/31/95
Blue Ash, OH 38,700 496,000 12.82 100% 100% - 1 Ethicon 1/31/95
Total 2,411,100 $69,321,000 $28.75 97% 13% 15% 55
Office
Franklin Township, NJ 178,600 $14,891,000 $83.38 82% - 11% 11 Merrill Lynch 6/30/97
Tampa, FL 122,400 9,627,000 78.65 93% 8% 4% 16 Bally 6/30/00
Framingham, MA 109,000 7,103,000 65.17 99% 18% 12% 29 National Dentex 1/31/98
Boston, MA 106,000 8,436,000 79.58 97% 10% 4% 11 Cambridge Associates 4/26/99
Ann Arbor, MI 76,600 5,744,000 74.99 93% 7% 13% 7 Comshare 2/28/05
Naperville, IL 63,800 4,657,000 72.99 87% 10% 3% 12 Eby Brown 6/30/04
Greenville, SC 48,600 2,221,000 45.70 70% 21% 28% 21 S.C. Tax Commission 6/30/96
Greenville, SC 46,000 1,766,000 38.39 96% 46% 22% 7 S.C. Voc. Rehab. Dept. 10/31/95
Charlotte, NC 16,300 887,000 54.42 47% - 47% 1 Comprehensive Medical 9/21/96
Total 767,300 $55,332,000 $72.11 89% 10% 11% 115
Retail
Aurora, IL 313,000 $27,341,000 $87.35 97% 7% 15% 27 Builders Square 8/31/06
Baltimore, MD 135,000 6,712,000 49.72 100% 5% 2% 14 K mart Corp. 1/30/05
Nashville, TN 111,400 3,910,000 35.10 99% 4% 7% 9 Burlington Coat Factory 1/31/10
Tampa, FL 100,600 8,337,000 82.87 97% 5% 12% 19 Publix Supermarket 11/30/06
Hagerstown, MD 40,200 1,460,000 36.32 100% - - 1 Giant Food Stores, Inc. 12/31/04
Total 700,200 $47,760,000 $68.21 98% 6% 10% 70
</TABLE>
MGI Properties 14 Annual Report
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY CARD
FIRST CLASS MAIL PERMIT NO. 3736 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
BANK OF BOSTON
DIVIDEND REINVESTMENT
MS: 45-01-20
P.O. BOX 1681
BOSTON, MA 02105-9904
DIVIDEND
REINVESTMENT PLAN
MGI Properties offers a Dividend
Reinvestment Plan which enables
its shareholders to automatically
invest dividends, as well as make
voluntary cash payments towards
the purchase of additional shares.
Please send me a Prospectus and Enrollment Card for your Dividend
Reinvestment Plan.
[] I am a registered shareholder with shares held in my name.
[] I am a shareholder with my shares held by a nominee such as a broker, bank
or other similar organization.
Name: _______________________________________________________________________
(Type or print, please)
Address: ____________________________________________________________________
City: __________________________________ State: _____________ Zip: __________
Telephone Number: ___________________________________________________________
Note: If your shares are held by a nominee (such as a broker, bank or other
similar organization), you also need to contact them for their individual
enrollment procedures. You will only receive a Prospectus upon return of
this card.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
At November 30, 1994 financial liquidity was provided by $13.5 million in
cash and investment securities and by unused lines of credit of $23.0 million.
Shareholders' equity of $176.1 million at November 30, 1994, when compared to
$171.0 million at November 30, 1993, primarily reflects net income in excess
of distributions.
Principal sources of funds in fiscal 1994 included property operations,
the sale of eight industrial properties and an apartment complex, mortgage
loan proceeds, and the sale of a partnership interest. During 1994, these
resources were used to pay dividends of $9.8 million, to repay $10.4 million
of indebtedness, to fund capital and tenant improvements of $2.1 million and
$1.1 million, respectively, and to acquire seven industrial properties -- six
industrial buildings totaling 578,400 square feet, located in Massachusetts,
for an aggregate price of $22.2 million and one 200,600 square-foot
industrial property, located in Missouri, for a price of $4.1 million.
Additionally, 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,
now under construction, is being funded by MGI subject to a construction loan
agreement which is reflected as an investment in real estate for financial
reporting purposes. The building will be leased in its entirety by Bradlees,
which is traded on the New York Stock Exchange, under a twenty-year net lease.
The purchase is anticipated to occur in mid-1995 upon the satisfactory
completion of construction of the building. As of November 30, 1994, the Trust
has advanced $5.5 million of the construction loan.
Mortgage and other loans payable totaled $71.0 million at November 30, 1994
(74% fixed rate and 26% floating rate), a net increase of $4.1 million
compared to $66.9 million at November 30, 1993. During 1994, the Trust
executed mortgages totaling $22.7 million with an average interest rate of
8.1%. In addition, the Trust retired $19.2 million of debt related to maturing
notes and properties sold. Scheduled payments of loan principal amortization
totaled $1.4 million. In 1994, MGI entered into a $15.0 million, two-year,
floating rate, secured line of credit facility, which increased the total
lines of credit to $25.0 million. At November 30, 1994, the Trust had $2.0
million outstanding on its lines. Mortgage and other loans payable are
collateralized by thirteen of MGI's properties having an aggregate carrying
value of $119.6 million, $3.2 million of investment securities and MGI's
guarantees of $4.5 million. Scheduled loan principal payments due within
twelve months of November 30, 1994 total $1.5 million. MGI believes it will
continue to be able to extend or refinance maturing mortgage loans upon
satisfactory terms.
In December 1994, the Trust acquired a 38,000 square-foot office building
located in Boston, Massachusetts for a price of $1.8 million. In January 1995,
the Trust agreed to acquire a 190,000 square-foot industrial building located
in Tewksbury, Massachusetts for a price of $5.75 million, subject to the
satisfactory completion of certain conditions including due diligence and the
execution with a publicly-traded company of a fifteen-year lease for the
entire building. The lease would commit the Trust to tenant and capital
improvements totaling approximately $6.3 million. Other cash requirements in
1995 are distributions to shareholders, capital and tenant improvements and
other leasing expenditures required to maintain MGI's occupancy levels and
other investment undertakings. During the period 1992 through 1994, annual
expenditures for capital and tenant improvements averaged approximately 1.3%
of net real estate investments. In 1995, budgeted capital and tenant
improvements, which are based on assumed leasing activity, completion of
discretionary capital projects and estimated costs, approximates 2.9% of net
real estate investments, excluding any commitments associated with the
purchase of the 190,000 square-foot industrial building. The budgeted increase
in 1995 over the average of previous years is primarily due to proposed
capital and tenant improvements in the office segment, which reflects budget
leasing assumptions for the year. Included in the 1995 budget is $1.5 million
of tenant improvements related to a signed 61,000 square-foot office lease at
its Michigan office building. Additionally, the Trust has budgeted $.8 million
of interior and exterior improvements for its apartment complexes and $.5
million for paving and roof replacements at certain industrial buildings.
Principal sources of funds in the future are expected to be from operations
of properties, including those acquired in the future, mortgage or refinancing
of existing mortgages on properties and MGI's portfolio of investment
securities. Other potential sources of funds include the proceeds of offerings
of additional equity or debt securities or the sale of real estate
investments. In this regard, the Trust sold an industrial property located in
Nashville, Tennessee for $4.8 million and will recognize a gain of
approximately $1.4 million in the quarter ending February 28, 1995. The cost
of new borrowings or issuances of equity capital will be measured against the
anticipated yields of investments to be
MGI Properties 15 Annual Report
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
acquired with such funds. The purchase of additional properties in 1995 may
require the use of funds from MGI's lines of credit, new borrowings, 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
1994 Compared to 1993
Net income for 1994 of $14.5 million, or $1.26 per share, exceeded net income
of $8.0 million, or $.75 per share, in 1993. Included in net income in 1994
was a net gain of $4.5 million, or $.39 per share, which resulted from the
sale of real estate investments for an aggregate sales price of $25.2 million.
Income before net gains increased 25% to $10.0 million for 1994, compared to
$8.0 million in 1993. The increase in income before net gains when comparing
1994 to 1993 resulted principally from the increase in properties owned.
Funds from operations in 1994 totaled $17.7 million, or $1.54 per share,
compared to $15.0 million, or $1.42 per share, in 1993. 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.
A primary component of the change in income before net gains is property
operating income which is defined as rental and other income less property
operating expenses and real estate taxes. Property operating income increased
by $4.2 million (20%) to $25.6 million in 1994 from $21.4 million in 1993.
This increase is largely due to the 1993 and 1994 acquisitions which
contributed $4.2 million and $1.1 million to the increase, respectively. These
properties consist of seventeen industrial and two office buildings totaling
over 1.9 million square feet (50% of the total non-residential portfolio) and
are 97% leased as of November 30, 1994. Properties sold during 1994 reduced
property operating income by less than $0.3 million. Property operating income
for the balance of the portfolio, which the Trust owned as of the beginning of
fiscal 1993, has increased by $0.2 million to $16.1 million, without
consideration of $1.0 million income received during 1993 in connection with
the amendment and assignment of a lease at Yorkshire Plaza located in Aurora,
Illinois.
With respect to this group of properties, which the Trust owned throughout
all of 1993 and 1994, apartment property operating income has improved by 6%
largely due to increases in rental rates, with average occupancy at 94% for
both 1993 and 1994. Industrial property operating income has improved 20% due
to an increase in occupancy. Overall, average occupancy for all industrial
properties owned has improved by 2% to 98% during 1994. The increases in
property operating income from comparable apartment and industrial buildings
are offset, however, by a $0.5 million decline from comparable office
buildings. Average occupancy in office buildings has declined from 94% in 1993
to 88% in 1994, primarily due to increased average vacancy at the suburban
Chicago, Illinois and Somerset, New Jersey buildings during 1994. Retail
property operating income is largely unchanged, excluding the $1.0 million
lease amendment income received in 1993, and average occupancy has increased
modestly from 92% to 93% from 1993 to 1994.
The $7.3 million increase in rental and other income in 1994 compared to
1993 was principally the result of $1.5 million from the properties acquired
in 1994, $6.8 million due to the partial year ownership of properties acquired
in 1993, offset by a decrease of $0.5 million due to the sale of properties in
1994 and a decrease of $0.5 million from the balance of the portfolio.
Included in 1993 rental and other income, however, was $1.0 million of income
received in connection with the lease amendment, mentioned above. Exclusive of
this income, revenue in the group of properties which the Trust owned
throughout all of 1993 and 1994 has increased $0.5 million. Rental income from
the comparable portfolio of apartments and industrial buildings has increased
while revenue in the office segment has declined due to factors similar to
those affecting property operating income.
The $2.0 million increase in property operating expenses and the $1.2
million increase in real estate taxes in 1994 as compared to 1993, reflect
primarily (i) $0.2 million and $0.3 million, respectively, attributable to the
properties acquired in 1994, (ii) $1.7 million and $0.9 million, respectively,
due to the buildings acquired in 1993 (iii) $0.2 million and $0.1 million,
respectively, from the balance of the portfolio, which are offset by the
decreases of $0.1 million and $0.1 million, respectively, due to buildings
MGI Properties 16 Annual Report
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
sold in 1994. The $0.7 million increase in depreciation and amortization
expense for 1994 when compared to 1993 was mostly due to partial year
ownership of the properties acquired in 1994 and 1993.
Three additional factors also contributed to the change in income before
net gains and funds from operations when 1994 is compared to 1993. Interest
income in 1994 reflects a decrease in the average outstanding balance of
short-term investments. General and administrative expenses increased in 1994
primarily reflecting an increase in personnel and shareholder-related items.
Interest expense increased reflecting a higher average level of debt
outstanding.
At November 30, 1994, scheduled 1995 lease expirations for non-residential
space approximates 433,000 square feet, or 11% of the entire commercial
portfolio, which is similar to the percentage of scheduled expiration for
fiscal 1994. Of these scheduled expirations, 319,000 square feet is industrial
space, 75,000 square feet is office and 39,000 square feet is retail. During
1994, the Trust signed leases totaling 530,000 square feet with lease
commencement dates in 1994 and 1995.
1993 Compared to 1992
Net income for 1993 of $8.0 million, or $.75 per share on the greater number
of shares outstanding, exceeded net income of $7.2 million, or $.77 per share,
in 1992. Included in net income in 1992 was a net gain of $1.6 million, or
$.17 per share.
The increase in income before net gains when comparing 1993 to 1992
resulted principally from the increase in properties owned and the receipt of
a non-recurring fee. As a result, rental and other income, property operating
expenses, real estate tax expense, depreciation and amortization expense
increased and mortgage interest income decreased in 1993. The $8.2 million
increase in rental and other income in 1993 compared to 1992 was principally
the result of (i) $3.6 million from the properties acquired in 1993, (ii) $2.4
million related to the reclassification of MGI's investment in a Metairie,
Louisiana apartment complex to owned real estate from a mortgage receivable,
(iii) $1.0 million of non-recurring income received in connection with the
assignment and amendment of a lease at Yorkshire Plaza, Aurora, Illinois, (iv)
$0.8 million due to the partial year ownership of properties acquired in 1992
and (v) the $0.4 million increase from the balance of the portfolio.
The $2.4 million increase in property operating expenses and the $0.9
million increase in real estate taxes in 1993 as compared to 1992, reflect
primarily (i) $1.0 million and $0.1 million, respectively, related to the
Metairie, Louisiana apartment complex, (ii) $0.8 million and $0.6 million,
respectively, from the properties acquired in 1993, (iii) $0.2 million and
$0.1 million, respectively, due to the buildings acquired in 1992 and (iv)
$0.4 million and $0.1 million, respectively, from the balance of the
portfolio. The $1.0 million increase in depreciation and amortization expense
for 1993 when compared to 1992 was mostly due to partial year ownership of the
properties acquired in 1993 and 1992 ($0.4 million) and the Louisiana
apartment complex ($0.5 million).
The $1.6 million decrease in mortgage interest income in 1993 is due the
reclassification of the Metairie, Louisiana investment to real estate owned
and the acquisition by MGI of the four properties that secured a $6.6 million
MGI wrap-around mortgage loan. Three additional factors also contributed to
the increase in income before net gains and funds from operations when 1993 is
compared to 1992. Interest income in 1993 reflects a decrease in the average
outstanding balance of short-term investments and lower interest rates.
General and administrative expenses increased in 1993 primarily reflecting an
increase in personnel. Lower average levels of debt outstanding, combined with
lower interest rates on variable rate debt, resulted in deceased interest
expense of $0.5 million when 1993 is compared to 1992.
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 capital and tenant improvements
required to maintain market position and control of 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.
MGI Properties 17 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
November 30,
1994 1993
<S> <C> <C>
Assets
Real estate, at cost (notes 2, 3 and 4) $267,530,000 $258,663,000
Accumulated depreciation and amortization (32,029,000) (29,992,000)
Net investments in real estate 235,501,000 228,671,000
Cash 1,774,000 1,564,000
Short-term investments, at cost, which approximates market value (note 4) 11,118,000 10,252,000
U.S. Government securities, at cost, which approximates market value (note 4) 629,000 837,000
Other assets 7,013,000 5,376,000
$256,035,000 $246,700,000
Liabilities and Shareholders' Equity
Liabilities:
Mortgage and other loans payable (note 4) $ 70,954,000 $ 66,949,000
Other liabilities 5,286,000 5,012,000
Total liabilities 76,240,000 71,961,000
Deferred gain (note 2) 3,700,000 3,700,000
Commitments (note 2)
Shareholders' equity (notes 5 and 6):
Preferred shares - $1 par value: 2,000,000 shares authorized; none issued -- --
Common shares - $1 par value: 17,500,000 shares authorized;
11,465,842 issued (11,448,152 at November 30, 1993) 11,466,000 11,448,000
Additional paid-in capital 165,921,000 165,673,000
Distributions in excess of net income (1,292,000) (5,935,000)
176,095,000 171,186,000
At November 30, 1993, 14,431 shares in treasury, at cost -- (147,000)
Total shareholders' equity 176,095,000 171,039,000
$256,035,000 $246,700,000
</TABLE>
See accompanying notes to consolidated financial statements.
MGI Properties 18 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
Year Ended November 30,
1994 1993 1992
<S> <C> <C> <C>
Income
Rental and other income $43,422,000 $36,094,000 $27,928,000
Interest on mortgage loans - 54,000 1,686,000
Interest on investment securities 394,000 659,000 916,000
Other 64,000 91,000 59,000
Total income 43,880,000 36,898,000 30,589,000
Expenses
Property operating expenses 12,437,000 10,457,000 8,089,000
Real estate taxes 5,417,000 4,247,000 3,353,000
Depreciation and amortization 7,654,000 6,987,000 5,996,000
Interest 5,781,000 5,059,000 5,511,000
General and administrative 2,580,000 2,191,000 2,036,000
Total expenses 33,869,000 28,941,000 24,985,000
Income before net gains 10,011,000 7,957,000 5,604,000
Net gains (note 2) 4,480,000 - 1,644,000
Net income $14,491,000 $ 7,957,000 $ 7,248,000
Per Share Data
Income before net gains $ .87 $.75 $.60
Net gains .39 - .17
Net income $1.26 $.75 $.77
Weighted average shares outstanding 11,450,451 10,574,104 9,402,476
</TABLE>
See accompanying notes to consolidated financial statements.
MGI Properties 19 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended November 30,
1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 14,491,000 $ 7,957,000 $ 7,248,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,654,000 6,987,000 5,996,000
Net gains (4,480,000) -- (1,644,000)
Equity in losses of partnerships -- 45,000 90,000
Other (959,000) 803,000 903,000
Net cash provided by operating activities 16,706,000 15,792,000 12,593,000
Cash Flows from Investing Activities
Acquisitions of real estate (31,786,000) (40,963,000) (6,005,000)
Additions to real estate (3,208,000) (2,672,000) (2,471,000)
Net proceeds from sales of real estate interests 15,020,000 -- 18,773,000
Cash distributions from real estate partnership 100,000 -- --
Additions and advances on mortgage loans receivable -- (79,000) (235,000)
Decrease in U.S. Government securities, net 208,000 780,000 625,000
Other (116,000) (85,000) 154,000
Net cash provided by (used in) investing activities (19,782,000) (43,019,000) 10,841,000
Cash Flows from Financing Activities
Proceeds from sale of common shares, net 41,000 25,640,000 --
Repayment of mortgage and other loans payable (10,439,000) (7,688,000) (7,227,000)
Additions to mortgage and other loans payable 24,188,000 13,338,000 --
Cash distributions paid (9,828,000) (8,460,000) (7,523,000)
Stock option transactions 190,000 82,000 115,000
Net cash provided by (used in) financing activities 4,152,000 22,912,000 (14,635,000)
Net increase (decrease) in cash and short-term investments 1,076,000 (4,315,000) 8,799,000
Cash and cash equivalents:
Beginning of year 11,816,000 16,131,000 7,332,000
End of year $ 12,892,000 $ 11,816,000 $ 16,131,000
</TABLE>
See accompanying notes to consolidated financial statements.
MGI Properties 20 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes
in Shareholders' Equity
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, 1991 9,448,152 $ 9,448,000 $142,089,000 $(5,157,000) $(507,000) $145,873,000
Net income - - - 7,248,000 - 7,248,000
Distributions (note 6) - - - (7,523,000) - (7,523,000)
Options exercised and other - - (29,000) - 179,000 150,000
Balance at November 30, 1992 9,448,152 9,448,000 142,060,000 (5,432,000) (328,000) 145,748,000
Net income - - - 7,957,000 - 7,957,000
Sale of common shares 2,000,000 2,000,000 23,640,000 - - 25,640,000
Distributions (note 6) - - - (8,460,000) - (8,460,000)
Options exercised and other - - (27,000) - 181,000 154,000
Balance at November 30, 1993 11,448,152 11,448,000 165,673,000 (5,935,000) (147,000) 171,039,000
Net income - - - 14,491,000 - 14,491,000
Dividend reinvestment and
share purchase plan (note 5) 4,121 4,000 57,000 - - 61,000
Distributions (note 6) - - - (9,848,000) - (9,848,000)
Options exercised and other 13,569 14,000 191,000 - 147,000 352,000
Balance at November 30, 1994 11,465,842 $11,466,000 $165,921,000 $(1,292,000) $ - $176,095,000
</TABLE>
See accompanying notes to consolidated financial statements.
MGI Properties 21 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
1-Summary of Significant Accounting Policies
A. Consolidation
The consolidated financial statements of the Trust include the accounts of its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
B. Income Taxes
The Trust intends to continue to qualify to be taxed as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code of 1986
and the related regulations. In order to qualify as a real estate investment
trust for tax purposes, the Trust, among other things, must distribute to
shareholders at least 95% of its taxable income. It has been the Trust's
policy to distribute 100% of its taxable income to shareholders; accordingly,
no provision has been made for Federal income taxes.
C. Income and Expense Recognition
Income and expenses are recorded using the accrual method of accounting for
financial reporting and tax purposes. Income or loss from real estate
partnerships is accounted for according to generally accepted accounting
principles using either the cost method or the equity method.
D. Depreciation and Amortization
Real estate investments, excluding land costs, are depreciated using the
straight-line method over estimated useful lives of 20 to 40 years. Tenant
improvements are amortized over the shorter of their estimated useful lives or
lease terms ranging from 2 to 10 years. Equipment is depreciated over a range
from 5 to 20 years. Maintenance and repairs are charged to expense as
incurred; major improvements are capitalized.
E. Statements of Cash Flows
For purposes of the statements of cash flows, all short-term investments with
a maturity, at date of purchase, of three months or less are considered to be
cash equivalents.
During 1994, the Trust sold seven industrial properties for $14.9 million
in a single transaction. The properties were secured by a $10.2 million loan
payable which was assigned to the purchaser at closing. Only the cash portion
of the sale is reflected in the accompanying consolidated statement of cash
flows.
Cash interest payments of $5.8 million, $5.3 million and $5.5 million were
made for the years ended November 30, 1994, 1993 and 1992, respectively.
F. Fair Value of Financial Instruments
The Trust estimated the fair values of its financial instruments at November
30, 1994 using discounted cash flow analysis and quoted market prices. Such
financial instruments include short-term investments, U.S. Government
securities, mortgage and other loans payable and mortgage notes receivable
which were received in connection with transactions not qualifying as sales
for financial accounting purposes and accordingly not reflected in the Trust's
consolidated balance sheet. The excess of the aggregate fair value of the
Trust's financial instruments over their aggregate carrying amounts is not
material.
G. Net Income Per Share
Net income per share is computed based on the weighted average number of
common shares outstanding.
MGI Properties 22 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
2-Investments
A. Real Estate
A summary of real estate investments follows:
<TABLE>
<CAPTION>
Accumulated
Buildings Depreciation
and and Net Carrying Amount
Type of Investment Land Improvements Amortization 1994 1993
<S> <C> <C> <C> <C> <C>
Industrial $15,583,000 $ 56,805,000 $ 3,067,000 $ 69,321,000 $ 57,304,000
Apartment 10,831,000 60,503,000 13,957,000 57,377,000 64,030,000
Office 12,461,000 52,268,000 9,397,000 55,332,000 56,559,000
Retail 19,110,000 34,258,000 5,608,000 47,760,000 48,635,000
Retail - construction in progress - - - 5,470,000 -
Partnership - - - 241,000 2,143,000
$57,985,000 $203,834,000 $32,029,000 $235,501,000 $228,671,000
</TABLE>
A discussion of certain real estate investments follows:
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, now under
construction, is being funded by the Trust subject to a construction loan
agreement which requires interest at 9% per annum and is secured by a first
mortgage, an assignment of the lease and guarantees of the borrower.
Additionally, the tenant has guaranteed the completion of construction and the
funding of cost overruns exceeding a specified dollar amount. The building is
leased in its entirety to Bradlees, a NYSE company, subject to a twenty-year
net lease. The purchase of the building is expected to occur in mid-1995 upon
satisfactory completion of construction. The construction loan is reflected as
an investment in real estate for financial reporting purposes.
In 1982, the Trust sold its investment in a Michigan apartment complex and
received a $15.5 million purchase money mortgage in a transaction that did not
meet the conditions for a completed sale for financial accounting purposes.
The loan, which matures in February 1995, has an interest rate of 7% and
provides for the Trust to receive at least 50% but not more than 60% of the
shared appreciation value in excess of the outstanding note balance. In
addition, the Trust has a 35% ownership interest, direct and indirect, in the
partnership owning this complex. The Trust's purchase option expires in
February 1995 and allows it to obtain a maximum equity interest of 67.5%. At
November 30, 1994, the Trust carried this asset as a real estate investment at
a net carrying value of $7.3 million, which excludes the gain from the sale.
At November 30, 1992, the Trust began to account for its loan on a
Metairie, Louisiana apartment complex as real estate owned. The Trust had been
recognizing interest income ($1.1 million in 1992) on the related mortgage
loan as received. During 1994 and 1993, the Trust has recognized property
income and expenses as if it owned the property. For tax purposes, at November
30, 1994, this investment is reflected as a $14.1 million, 8.5% mortgage loan
receivable.
With respect to a San Bruno, California partnership investment, the Trust
is entitled to receive 50% of property cash flow and residuals through a 2%
limited partnership interest (carrying value of $225,000) and has an option to
increase its equity interest. In addition, the Trust has a loan receivable
from the partnership with a $3.1 million tax basis. Such loan is not recorded
in the accompanying financial statements.
B. Net Gains
In 1994, the Trust sold nine properties and one real estate partnership
interest with an aggregate net carrying value of $20.7 million for an
aggregate net sales price of $25.2 million resulting in gains totalling $4.5
million.
In 1992, the Trust recognized a gain of $3.7 million and deferred an
additional gain of $3.7 million, which was effectuated by the December 1991
repayment of approximately $18.8 million of financing it had provided to the
partnership owning the San Bruno, California apartment complex. Prior to the
completion of the December 1991 transaction, a 1976 sale had not met the
conditions for a completed sale and the Trust carried this property as a real
estate investment for financial accounting purposes. In addition, in 1992, the
Trust recognized a $2.1 million write-down of the Metairie, Louisiana
investment discussed above.
MGI Properties 23 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
3-Leases
All leases relating to real estate investments are operating leases;
accordingly, rental income is reported when earned.
Future minimum lease payments on noncancelable operating leases at
commercial properties at November 30, 1994 are: $23.7 million in 1995, $21.4
million in 1996, $17.7 million in 1997, $13.5 million in 1998, $10.0 million
in 1999, and $30.5 million thereafter.
The above amounts do not include contingent rental income which is received
under certain leases based upon tenant sales, ad valorem taxes, property
operating expenses and/or costs to maintain common areas. Contingent rental
income was $5.4 million in 1994, $3.4 million in 1993 and $2.6 million in
1992.
Operating leases on apartments generally have a term of one year or less.
4-Mortgage and Other Loans Payable
Mortgage and other loans payable at November 30 follow:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Mortgage loans, maturing 1996 through 2014, at effective interest rates ranging from
7.58% to 9.5%, net of unamortized discount of $31,000 in 1993 $52,224,000 $49,918,000
Mortgage loan, maturing in September 1999 at an effective variable interest rate,
7.81% and 5.25% at November 30, 1994 and 1993, respectively 10,884,000 11,185,000
Housing revenue bond, maturing 2007, at 5.40% and 4.28% at November 30, 1994
and 1993, respectively 5,750,000 5,750,000
Amount outstanding under line of credit, maturing in June 1996, at a variable interest rate,
8.5%, at November 30, 1994 2,000,000 --
Other, maturing 1995, at 7.50% 96,000 96,000
$70,954,000 $66,949,000
Weighted average interest rate 8.48% 8.52%
</TABLE>
These loans payable are nonrecourse and are collateralized by certain real
estate investments having a net carrying value of $119.6 million and the
Trust's guarantee of $4.5 million. Loans require monthly principal
amortization and/or a balloon payment at maturity.
The Trust has lines of credit of $10.0 million and $15.0 million maturing
September 1996 and June 1996, respectively. Both credit agreements contain
restrictive covenants which, among other things, require the Trust to maintain
certain financial ratios and restrict the incurrence of certain indebtedness
and the making of certain investments. Borrowings under the lines are secured
by mortgage and security interests in real estate and are subject to a
variable interest rate. A fee in the amount of .25% per annum is charged on
the unused amounts.
The housing revenue bond is tax exempt and is secured by real estate having
a net carrying value of $4.9 million. The bond is also secured by a letter of
credit which is collateralized by $3.2 million of short-term investments and
U.S. Government securities. The Trust has also guaranteed $3.0 million of the
debt. The base interest rate floats weekly and was 3.5% at November 30, 1994
(an effective interest rate of 5.4% due to the payment of fees).
Principal payments on mortgage and other loans payable due in the next five
years and thereafter are as follows: $1.5 million in 1995, $13.5 million in
1996, $17.3 million in 1997, $1.4 million in 1998, $10.5 million in 1999, and
$26.8 million thereafter.
MGI Properties 24 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
5-Shareholders' Equity
A. Stock Option Plans
At the 1994 annual meeting, shareholders ratified the 1994 Employee Stock
Option and Stock Appreciation Rights Plan and the 1994 Trustees' Stock Option
Plan.
Under the Trust's 1988 and 1994 stock option plans for key employees and
Trustees (the "Plans"), incentive stock options with or without stock
appreciation rights or nonqualified options and related stock appreciation
rights may be granted to employees, and nonqualified options may be granted to
Trustees. Under the Plans, options may be granted at an exercise price not
less than fair market value of the Trust's common shares on the date of grant.
Changes in options outstanding during the years ended November 30 were as
follows:
1994 1993 1992
Balance at
beginning of year 464,532 467,000 433,000
Granted 101,000 24,000 49,000
Exercised (15,900) (14,468) (15,000)
Expired - (12,000) -
Balance at end of year 549,632 464,532 467,000
Shares available for
granting future options 590,325 121,325 140,000
The weighted average exercise price per option at November 30, 1994, 1993 and
1992 was $12.62, $12.16 and $11.88, respectively. The shares reserved expire
by April 2004 and all outstanding options expire by April 2004. Subsequent to
November 30, 1994, 112,000 options were granted, of which half are currently
exercisable and half are exercisable in December 1995. All other options
outstanding are currently exercisable.
b. Shareholder Rights Plan
On June 21, 1989, the Board of Trustees adopted a shareholder rights plan.
Under this plan, one right was attached to each outstanding common share on
July 5, 1989, and one right will be attached to each share issued thereafter.
Each right entitles the holder to purchase, under certain conditions, one
one-hundredth of a share of Series A participating preferred stock for $60.
The rights may also, under certain conditions, entitle the holders to receive
common shares of the Trust, common shares of an entity acquiring the Trust, or
other consideration, each having a value equal to twice the exercise price of
each right ($120). One hundred fifty thousand preferred shares have been
designated as Series A participating preferred shares and are reserved for
issuance under the shareholder rights plan. The rights are redeemable by the
Trust at a price of $.01 per right. If not exercised or redeemed, all rights
expire in July 1999.
c. Dividend Reinvestment and Share Purchase Plan
Effective August 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 3% discount in the case of
newly issued shares. If MGI purchases shares in the open market for the plan,
the price for such shares will be 100% of the average purchase price paid.
Participants in the plan may make additional cash purchases of shares at the
same price as shares purchased through the reinvestment of dividends.
d. Common Stock Offering
In May 1993 the Trust sold 2,000,000 shares of common stock in a public
offering for a price of $13.785 per share. The Trust received net proceeds of
$25.6 million after the underwriting discount and offering costs.
6-Cash Distributions and Federal Income Taxes
The difference between taxable income and net income reported in the
consolidated financial statements is due principally to reporting certain
gains for tax purposes under the installment method, use of net operating loss
carryforwards available and differences in depreciation and in the basis of
real estate sold as reported for tax and financial statement purposes.
The Trust made cash distributions of ordinary income and capital gains of
$.86 per share ($9.8 million) in 1994, and cash distributions of ordinary
income of $.81 per share ($8.5 million) in 1993 and $.80 per share ($7.5
million) in 1992.
On December 15, 1994, the Trust declared a dividend of $.22 per share
payable on January 11, 1995 to shareholders of record on January 3, 1995.
MGI Properties 25 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
7-Subsequent Events
In December 1994, the Trust sold an industrial property located in Nashville,
Tennessee for $4.8 million and will recognize a gain of approximately $1.4
million in the first quarter ending February 28, 1995.
In December 1994, the Trust acquired a 38,000 square foot office building
located in Boston, Massachusetts for a price of $1.8 million. The building is
100% occupied.
8-Quarterly Financial Information (Unaudited)
Quarterly results of operations for the years ended November 30, 1994 and 1993
follow:
<TABLE>
<CAPTION>
1994 Quarter Ended
February 28 May 31 August 31 November 30
<S> <C> <C> <C> <C>
Total income $10,816,000 $10,953,000 $11,117,000 $10,994,000
Total expenses $ 8,369,000 $ 8,573,000 $ 8,530,000 $ 8,397,000
Income before net gains $ 2,447,000 $ 2,380,000 $ 2,587,000 $ 2,597,000
Net gains $ 450,000 $ - $ 2,700,000 $ 1,330,000
Net income $ 2,897,000 $ 2,380,000 $ 5,287,000 $ 3,927,000
Net income per share $.25 $.21 $.46 $.34
</TABLE>
<TABLE>
<CAPTION>
1993 Quarter Ended
February 28(a) May 31 August 31 November 30
<S> <C> <C> <C> <C>
Total income(a) $ 9,093,000 $8,285,000 $9,339,000 $10,181,000
Total expenses $ 6,710,000 $7,041,000 $7,413,000 $ 7,777,000
Net income $ 2,383,000 $1,244,000 $1,926,000 $ 2,404,000
Net income per share $.25 $.12 $.17 $.21
<FN>
(a)Results for the quarter ended February 28, 1993 include a $1.0 million fee
($.10 per share) for the assignment and amendment of a lease.
</FN>
</TABLE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of MGI Properties:
We have audited the accompanying consolidated balance sheets of MGI Properties
and subsidiaries as of November 30, 1994 and 1993, and the related
consolidated statements of earnings, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended November 30, 1994.
These consolidated financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MGI
Properties and subsidiaries as of November 30, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the
three-year period ended November 30, 1994 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
December 30, 1994
MGI Properties 26 Annual Report
<PAGE>
Selected Financial Data*
<TABLE>
<CAPTION>
Five Years Ended November 30,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Summary of Operations
Rental and other income $ 43,422,000 $ 36,094,000 $ 27,928,000 $ 30,662,000 $ 29,036,000
Property operating expenses and
real estate taxes 17,854,000 14,704,000 11,442,000 12,442,000 11,334,000
25,568,000 21,390,000 16,486,000 18,220,000 17,702,000
Interest and other income 458,000 804,000 2,661,000 2,469,000 2,525,000
Less expenses:
Depreciation and amortization 7,654,000 6,987,000 5,996,000 5,974,000 5,552,000
Interest expense 5,781,000 5,059,000 5,511,000 6,429,000 5,925,000
General and administrative 2,580,000 2,191,000 2,036,000 2,108,000 2,208,000
Income before net gains (loss) 10,011,000 7,957,000 5,604,000 6,178,000 6,542,000
Net gains (loss) 4,480,000 - 1,644,000 - (360,000)
Net income $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000 $ 6,182,000
Summary of Financial Position
Investments in real estate, at cost $267,530,000 $258,663,000 $209,905,000 $208,011,000 $205,993,000
Cash and investment securities $ 13,521,000 $ 12,653,000 $ 17,748,000 $ 9,574,000 $ 11,585,000
Total assets $256,035,000 $246,700,000 $214,161,000 $217,428,000 $222,434,000
Mortgage and other loans payable $ 70,954,000 $ 66,949,000 $ 60,571,000 $ 67,852,000 $ 71,304,000
Total shareholders' equity $176,095,000 $171,039,000 $145,748,000 $145,873,000 $147,213,000
Weighted average shares outstanding 11,450,451 10,574,104 9,402,476 9,396,992 9,400,559
Per Share Data
Income before net gains and losses $ .87 $ .75 $ .60 $ .66 $ .70
Net gains (loss) .39 - .17 - (.04)
Net income $1.26 $ .75 $ .77 $ .66 $ .66
Funds from operations $1.54 $1.42 $1.24 $1.30 $1.29
Dividend $ .86 $ .81 $ .80 $ .80 $1.04
<FN>
* The Selected Financial Data should be read in conjunction with the
consolidated financial statements and the related notes appearing therein.
</FN>
</TABLE>
MGI Properties 27 Annual Report
<PAGE>
Officers and Trustees
Officers
W. Pearce Coues
Chairman of the Board of Trustees and
Chief Executive Officer
Robert Ware
Executive Vice President
Phillip C. Vitali
Executive Vice President and Treasurer
Karl W. Weller
Senior Vice President
James P. O'Malley
Senior Vice President
Jean M. Harrington
Vice President and Secretary
David P. Morency
Controller
Trustees
W. Pearce Coues
Chairman of the Board of Trustees and Chief Executive Officer Former President
of National Association of Real Estate Investment Trusts, Inc.
Herbert D. Conant
Member of the Administrative-Audit Committee
Former Chairman and
Chief Executive Officer,
The Turner Corporation
Francis P. Gunning, Esq.
Chairman of the Administrative-Audit Committee
Former Executive Vice President and General Counsel, Teachers Insurance
and Annuity Association of America and College Retirement Equities Fund
Colin C. Hampton
Member of the Administrative-Audit Committee
Former Chairman and Chief Executive Officer, UNUM Corporation
George M. Lovejoy, Jr.
President and Director, Fifty Associates;
Chairman Emeritus, Meredith & Grew, Inc.;
Director, Latin America Dollar Income
Fund; Director, Scudder World Income
Opportunities Fund; Trustee or Director
of Various Scudder Mutual Funds;
Former President, Greater Boston
Real Estate Board
Rodger P. Nordblom
Chairman and Director,
Nordblom Company;
Former President,
Society of Industrial and Office Realtors
MGI Properties 28 Annual Report
<PAGE>
(Inside Back Cover)
Shareholder Information
Annual Meeting
The Annual Meeting of the Shareholders will be held on March 22, 1995 at
10:00 A.M. in the Boston Harbor Hotel,
70 Rowes Wharf, Boston, Massachusetts.
Stock Listing
New York Stock Exchange - Symbol MGI
Member
National Association of Real Estate
Investment Trusts, Inc.
General Counsel
Olshan Grundman Frome & Rosenzweig
Auditors
KPMG Peat Marwick LLP
"MGI Properties",(R) "MGI"(R) and
"Mortgage Growth Investors"(R) are registered
trademarks of MGI Properties.
Form 10-K
Shareholders of MGI Properties may, without charge, request a copy of the
Annual Report on Form 10-K as reported to the Securities and Exchange
Commission. Written requests should be sent to:
Jean M. Harrington
Vice President and Secretary
MGI Properties
30 Rowes Wharf
Boston, Massachusetts 02110-3337
Transfer Agent and Registrar
Bank of Boston
Transfer Processing
Mail Stop 45-01-05
P.O. Box 644
Boston, Massachusetts 02102-0644
617-575-3120 or 800-730-6001
Bank of Boston maintains shareholder records and can answer questions
regarding shareholders' accounts. Shareholders wishing to transfer shares or
to change the name on a certificate should contact Bank of Boston for
instructions.
Share certificates are valuable and should be safeguarded, since
replacement takes time and requires payment by the shareholder of a surety
bond premium. If a certificate is lost, stolen, or destroyed, Bank of Boston
should be notified. Registered mail should be used whenever a certificate is
mailed.
Dividend
Reinvestment Plan
MGI Properties offers a Dividend Reinvestment and Share Purchase Plan which
allows its shareholders to automatically invest dividends, as well as make
voluntary cash payments for the purchase of additional shares. To receive more
information, contact Bank of Boston:
617-575-3120 or 800-730-6001.
Shareholder Income Tax Information
The 1994 quarterly allocation of dividends paid per share for individual
shareholders' income tax purposes was as follows:
Long-Term
Date Paid Ordinary Capital Total
in 1994 Income Gain Dividend
January 11 $.053 $.157 $.21
April 8 .195 .015 .21
July 14 .093 .127 .22
October 12 .220 - .22
$.561 $.299 $.86
Shareholders should consult their individual tax advisors regarding the
appropriate reporting of these dividend payments.
MGI Properties (Recycled Paper Logo) Annual Report
<PAGE>
(Back Cover)
Corporate Office
30 Rowes Wharf
Boston, Massachusetts 02110-3337
617-330-5335
Regional Office
Harrison Township, Michigan
810-468-2690
