UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: February 29, 1996 Commission File Number: 1-6833
----------------- ------
MGI PROPERTIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6268740
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 Rowes Wharf, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-5335
----------------------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Common shares outstanding as of April 15, 1996: 11,531,336
Page 1 of 13 pages
Exhibit Index appears on Page 12
<PAGE>
MGI PROPERTIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Exhibit A: Computation of Earnings Per Share 11
PART II: OTHER INFORMATION
Items 1 - 6 12
Signatures 13
- 2 -
<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
February 29, 1996 November 30, 1995
(unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate, at cost $304,471,000 $293,469,000
Accumulated depreciation and amortization (38,537,000) (36,375,000)
- ------------------------------------------------------------------------------------------------------------
Net investments in real estate 265,934,000 257,094,000
Cash 1,925,000 2,456,000
Short-term investments, at cost 4,451,000 4,589,000
Accounts receivable 2,836,000 3,354,000
Other assets 8,540,000 7,158,000
============================================================================================================
$283,686,000 $274,651,000
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $93,577,000 $84,506,000
Other liabilities 5,236,000 5,905,000
- ------------------------------------------------------------------------------------------------------------
Total liabilities 98,813,000 90,411,000
Deferred gain -- real estate 3,700,000 3,700,000
Shareholders' equity:
Preferred shares -- $1 par value; 6,000,000 shares authorized;
none issued -- --
Common shares -- $1 par value; 17,500,000 shares authorized;
11,531,336 issued (11,502,271 at November 30, 1995) 11,531,000 11,502,000
Additional paid-in capital 166,750,000 166,348,000
Undistributed net income 2,892,000 2,690,000
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 181,173,000 180,540,000
- ------------------------------------------------------------------------------------------------------------
$283,686,000 $274,651,000
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
-------------------------------------------
February 29, 1996 February 28, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Rental and other income $12,693,000 $10,721,000
Interest on investment securities 85,000 200,000
Other 6,000 16,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Income 12,784,000 10,937,000
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating expenses 3,372,000 2,814,000
Real estate taxes 1,511,000 1,392,000
Depreciation and amortization 2,312,000 2,039,000
Interest 1,891,000 1,412,000
General and administrative 733,000 674,000
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 9,819,000 8,331,000
- -----------------------------------------------------------------------------------------------------------------------------
Income before net gain 2,965,000 2,606,000
Net gain -- 1,400,000
- -----------------------------------------------------------------------------------------------------------------------------
Net income $2,965,000 $4,006,000
=============================================================================================================================
PER SHARE DATA
Income before net gain $0.26 $0.23
Net gain -- 0.12
- -----------------------------------------------------------------------------------------------------------------------------
Net income $0.26 $0.35
=============================================================================================================================
Weighted average shares outstanding 11,517,710 11,474,893
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended
-----------------------------------------
February 29, 1996 February 28, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,965,000 $4,006,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,312,000 2,039,000
Net gain -- (1,400,000)
Other (886,000) (950,000)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,391,000 3,695,000
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate (10,344,000) (1,836,000)
Additions to real estate (1,059,000) (2,142,000)
Deferred tenant charges (189,000) (270,000)
Net proceeds from sales of real estate interests -- 4,738,000
Other 13,000 (26,000)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (11,579,000) 464,000
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage and other loans payable, net 9,500,000 --
Repayment of mortgage and other loans payable (429,000) (335,000)
Cash distributions (2,763,000) (2,525,000)
Proceeds from issuance of common shares 211,000 53,000
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,519,000 (2,807,000)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments (669,000) 1,352,000
- ---------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 7,045,000 12,892,000
- ---------------------------------------------------------------------------------------------------------------
End of period $6,376,000 $14,244,000
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Additional
Common Paid-In Undistributed
Shares Capital Net Income
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 30, 1995 $11,502,000 $166,348,000 $2,690,000
Net income -- -- 2,965,000
Distributions -- -- (2,763,000)
Options exercised and other 29,000 402,000 --
-------------------------------------------------------------------------------------------
Balance at February 29, 1996 $11,531,000 $166,750,000 $2,892,000
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: The results of the interim period are not necessarily indicative
of results to be expected for the entire fiscal year. The figures
contained in this interim report are unaudited and may be subject to
year-end adjustments. Certain prior year amounts have been
reclassified to conform with the current year presentation. In the
opinion of management, all adjustments necessary for a fair
presentation of financial position and results of operations have
been included and such adjustments include only the normal accruals.
Note 2: On March 21, 1996, the Board of Trustees declared a cash dividend
of $.24 per common share payable on April 12, 1996 to shareholders of
record on April 4, 1996. This dividend payment will aggregate $2.8
million.
Note 3: On March 6, 1996, the Trust acquired a 140,000 square-foot
research and development facility located in Tewksbury,
Massachusetts for a price of $8.8 million.
Note 4: Cash paid for interest amounted to $1.9 million and $1.5 million for
three-month periods ended February 29, 1996 and
February 28, 1995, respectively.
Note 5: At February 29, 1996, options to purchase an aggregate of 791,911
common shares at exercise prices ranging from $7.375 to $16.125 per
share were outstanding under MGI's stock option plans for key
employees and trustees. All options outstanding at February 29, 1996
expire by December 2005.
Note 6: MGI intends to qualify for the year ended November 30, 1996 as a
real estate investment trust under the provisions of Sections 856-860
of the Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been made for Federal income taxes.
- 7 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Shareholders' equity at February 29, 1996 was $181.2 million, compared
to $180.5 million at November 30, 1995. The increase primarily reflects net
income in excess of distributions. At February 29, 1996, financial liquidity was
provided by $6.4 million in cash and investment securities and by unused lines
of credit aggregating $23.5 million.
During the first three months of fiscal 1996, the Trust acquired three
Massachusetts industrial properties aggregating 233,800 square feet for a
combined purchase price of $9.9 million and acquired a parcel of land located in
Tampa, Florida for $0.4 million. In March 1996, the Trust acquired a 140,000
square-foot, two-story research and development building located in Tewksbury,
Massachusetts for $8.8 million. The building is presently leased in its entirety
to Avid Technology, Inc. Expenditures for capital and tenant improvements during
the first quarter of fiscal 1996 totaled $0.6 million and $0.5 million,
respectively. The capital improvements costs are largely associated with
renovations to Boston office properties. The Trust is contractually committed to
approximately $3.1 million of capital and tenant improvement projects which are
anticipated to be completed during the balance of fiscal 1996.
Mortgage and other loans payable totaled $93.6 million at February 29,
1996 (77% at fixed rates and 23% at floating rates), a net increase of $9.1
million compared to $84.5 million at November 30, 1995. The change represents
draws from the Trust's lines of credit totaling $9.5 million offset, in part, by
scheduled principal amortization of $0.4 million. Subsequent to the end of the
fiscal quarter, the Trust borrowed an additional $8.0 million from its lines
which was used to acquire the Tewksbury, Massachusetts property. The Trust has
two loan commitments totaling $14.0 million, which are anticipated to close late
in the second fiscal quarter. The average rate and term of these loans are 7.5%
and thirteen years, respectively, and each will be secured by a Massachusetts
property. Scheduled loan principal payments due within twelve months of February
29, 1996 total $15.6 million, which include one of the Trust's lines of credit.
MGI believes it will continue to be able to extend or refinance maturing
mortgage loans upon satisfactory terms.
Cash requirements in fiscal 1996 include distributions to shareholders,
capital and tenant improvements and other leasing expenditures required to
maintain MGI's current occupancy levels and other investment undertakings.
Principal sources of funds in the future are expected to be from property
operations, mortgaging or refinancing of existing mortgages on properties and
MGI's portfolio of investment securities. Other potential sources of funds
include the proceeds of public or private offerings of additional equity or debt
securities of the Trust or the sale of real estate investments. The cost of new
borrowings or issuances of the Trust's equity securities will be measured
against the anticipated returns of investments to be acquired with such funds.
In lieu of proceeds from real estate sales or the sale of its equity securities,
the Trust presently anticipates that the purchase of additional properties in
fiscal 1996 will be primarily financed by debt and, to a lesser extent, by cash
flow from operations and short-term investments. MGI believes the combination of
available cash and investment securities, the value of MGI's unencumbered
properties and other resources available to it are sufficient to meet its short-
and long-term liquidity requirements.
- 8 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Net income for the fiscal quarter ended February 29, 1996 was $3.0
million, or $.26 per share, as compared to $4.0 million, or $.35 per share in
the corresponding quarter of 1995. Included in the 1995 net income was $1.4
million, or $.12 per share of gain recognized in connection with the sale of an
industrial property. Funds from operations ("FFO") totaled $5.3 million, or $.46
per share in the first quarter of fiscal 1996, compared to $4.6 million, or $.41
per share in the corresponding quarter of 1995. MGI has implemented in 1996 the
National Association of Real Estate Investment Trusts recommended changes in the
calculation of FFO. The new definition stipulates that in calculating FFO
leasing costs should be capitalized and not deducted as an expense. This has the
effect of increasing the Trust's FFO by approximately $.01 in the first quarter
of fiscal 1996. The fiscal first quarter one year ago has accordingly been
restated to account for $148,000 of reduced leasing expenses which results in
the FFO rising from $.39 per share to $.41 per share in the first quarter of
fiscal 1996. FFO is defined as net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property plus depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. MGI believes FFO
is an appropriate supplemental measure of operating performance. The change in
FFO compared to the corresponding quarter in 1995 is attributable to the same
factors that affected income before net gains in such periods with the exception
of depreciation and amortization expense.
In comparing the first quarter of fiscal 1996 to that of the previous
year, the increase in net income before net gain of $0.4 million resulted
principally from a $1.3 million increase in property operating income which is
offset, in part, by increases in interest expense and depreciation and
amortization of $0.5 million and $0.3 million, respectively. The increase in
interest expense is due to the higher balance of debt during the first quarter
of fiscal 1996. Property operating income is defined as rental and other income
less property operating expenses and real estate taxes. The change in property
operating income reflects improvement in properties owned throughout the first
quarters of both fiscal 1996 and 1995, as well as the effect resulting from the
sale and acquisition of properties.
Change in Property Operating Income
<TABLE>
<CAPTION>
Properties Held 1995 and 1996
Both Fiscal Years Acquisitions 1995 Sales Net Change
----------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Industrial (44,000) 931,000 -- 887,000
Office 267,000 181,000 -- 448,000
Apartment 110,000 -- (371,000) (261,000)
Retail 67,000 154,000 -- 221,000
------- --------- --------- ----------
400,000 1,266,000 (371,000) 1,295,000
======= ========= ========= ==========
</TABLE>
- 9 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The income growth in the industrial segment is primarily due to the
eight acquisitions completed since February 28, 1995. The increase in the retail
segment is largely due to the contribution of the Bradlees store in Peabody,
Massachusetts which began paying rent in November 1995. The office segment has
increased due to higher occupancy and to fourth quarter 1995 acquisitions. The
decrease in the apartment segment is due to the sale of the Posada del Rey
Apartments in Metairie, Louisiana in September 1995. The income from the
remaining apartment properties has increased, reflecting increased rental rates
compared to those in the first quarter of fiscal 1995.
Also contributing to the change in income before net gains and funds
from operations when fiscal 1996 is compared to fiscal 1995 is a decrease in
interest income which is due generally to lower balances of short-term
investments during 1996.
Scheduled lease expirations and fiscal 1996 leasing (in square feet) are
as follows:
1996 Scheduled Expirations
Leased at Period Remaining Scheduled
February 29, 1996 Leasing 1996 1997
----------------- ------- ------- --------
Industrial 98.2% 204,000 119,000 527,000
Office 93.2% 33,000 70,000 202,000
Retail 96.4% 17,000 78,000 19,000
----- ------- ------- -------
96.9% 254,000 267,000 748,000
===== ======= ======= =======
The fiscal 1997 scheduled lease expirations represent 15.9% of MGI's
total commercial portfolio compared to fiscal 1996 scheduled expirations at
February 28, 1995 that equaled 14.9% of the portfolio.
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.
- 10 -
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
------------------------------
February 29, February 28,
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income $2,965,000 $4,006,000
=========================================================================================================================
Weighted average number of shares outstanding during the period 11,517,710 11,474,893
=========================================================================================================================
Primary earnings per share $.26 $.35
=========================================================================================================================
ASSUMING FULL DILUTION
Net income $2,965,000 $4,006,000
=========================================================================================================================
Weighted average number of shares outstanding during the period 11,517,710 11,474,893
=========================================================================================================================
Earnings per share assuming full dilution $.26 $.35
=========================================================================================================================
Note: Outstanding stock options are not taken into account in the computation of earnings per share as they are not
materially dilutive.
</TABLE>
- 11 -
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1: Legal Proceedings: Not applicable.
Item 2: Changes in Securities: Not applicable.
Item 3: Defaults upon Senior Securities: Not applicable.
Item 4: Submission of Matters to a Vote of Security Holders: None.
Item 5: Other Information: Not applicable.
Item 6: Exhibits and Reports on Form 8-K:
a) Exhibits:
Computation of Earnings Per Share (see page 11).
b) Reports on Form 8-K: None.
- 12 -
<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April , 1996
- ----------------------- ---------------------------------------
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: April , 1996
- ----------------------- ----------------------------------------
David P. Morency
Controller
(Principal Accounting Officer)
- 13 -
<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April , 1996 /s/ Phillip C. Vitali
--------------- ---------------------
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: April , 1996 /s/ David P. Morency
---------------- --------------------
David P. Morency
Controller
(Principal Accounting Officer)
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-28-1996
<CASH> 6,376
<SECURITIES> 000
<RECEIVABLES> 2,836
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 8,540
<PP&E> 304,471
<DEPRECIATION> (38,537)
<TOTAL-ASSETS> 283,686
<CURRENT-LIABILITIES> 5,236
<BONDS> 93,577
<COMMON> 11,531
000
000
<OTHER-SE> 169,642
<TOTAL-LIABILITY-AND-EQUITY> 283,686
<SALES> 12,693
<TOTAL-REVENUES> 12,784
<CGS> 000
<TOTAL-COSTS> 7,928
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,891
<INCOME-PRETAX> 2,965
<INCOME-TAX> 000
<INCOME-CONTINUING> 2,965
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 2,965
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
