THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(d) OF REGULATION S-T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended November 30, 1995
Commission File No. 1-6833
MGI PROPERTIES
(Exact name of Registrant as specified in its charter)
Massachusetts 04-6268740
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
30 Rowes Wharf, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-5335
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares New York Stock Exchange
(par value $l per share)
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of January 30, 1996, the aggregate market value of the voting shares of the
Registrant held by non-affiliates of the Registrant was $194,679,087.
Common Shares Outstanding as of November 30, 1995: 11,502,271
The information required by Part III of Form 10-K will be incorporated by
reference to a definitive proxy statement involving the election of Trustees
which is expected to be filed by the Registrant pursuant to Regulation 14A
within 120 days after the close of its fiscal year ended November 30, 1995.
<PAGE>
TABLE OF CONTENTS
Page
PART I.......................................................................1
Item 1. Business.............................................................1
Item 2. Properties.....................................................6
Item 3. Legal Proceedings..............................................8
Item 4. Submission of Matters to a Vote Security Holders...............8
PART II......................................................................9
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................................9
Item 6. Selected Financial Data.......................................10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................11
Item 8. Financial Statements and Supplementary Data...................16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................16
PART III....................................................................17
PART IV.....................................................................18
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K.......................................18
POWER OF ATTORNEY...........................................................22
SIGNATURES..................................................................22
<PAGE>
PART I
Item 1. Business
General
MGI Properties (the "Trust" or "MGI") is an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts. MGI
commenced operations in 1971 as a real estate investment trust. Since that time,
the Trust has elected to be treated as a real estate investment trust (a "REIT")
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and expects to continue to operate in a manner which
will entitle the Trust to be so treated. For each taxable year in which the
Trust qualifies as a REIT under the Internal Revenue Code, taxable income
distributed to the holders of its shares will not be taxable to the Trust (other
than certain items of tax preference which are subject to minimum tax in the
hands of the Trust). See "Investment and Operating Policies" and "Portfolio"
below and the description of dividend policy included under Item 5 of this
Annual Report on Form 10-K for the year ended November 30, 1995 (the "Report").
References herein to the Trust include its wholly-owned subsidiaries.
Narrative Description of Business
The Trust, which is a self-administered and self-managed equity REIT,
owns and manages a diversified portfolio of income-producing real estate assets.
The Trust's portfolio consists of investments in multi-use industrial facilities
(such as warehouses and research and development buildings), office buildings,
apartment complexes and shopping centers. The primary investment objective of
the Trust is to make diversified equity and equity-oriented investments in
existing properties believed to be capable of producing stable and rising income
streams and having long-term capital appreciation potential. The Trust also
believes that its active managing and leasing practices can enhance rental
income, funds from operations and long-term capital appreciation. These
investments have typically taken the form in recent years of a direct equity
ownership interest.
The Trust employs thirteen persons.
Investment and Operating Policies
The investment policy of the Trust in its broadest aspect is to seek
income of the types permitted to a REIT under Section 856 of the Internal
Revenue Code, consistent with its Declaration of Trust. Under its Declaration of
Trust, the Trust is permitted to invest in a broad range of real estate and
mortgage investments, including among other things equity interests, full or
participating interests in securities, whether or not secured by mortgages,
interests in rents and any other interests related to real property. The Trust's
policies are subject to ongoing review by the Board of Trustees and may be
modified from time to time to take into consideration changes in business or
economic conditions or otherwise as circumstances warrant.
The Trust's investment focus with respect to type of property has,
during the last several years, been directed to equity and equity-oriented
investments in existing income-producing properties, principally multi-use
industrial facilities, office buildings, apartment complexes and shopping
centers. MGI continues to believe it is beneficial to diversify its assets by
location and type of real estate, although it periodically changes its emphasis
from one sector to another in accordance with its perception of market
opportunities. Over the past several years,
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<PAGE>
MGI has increased its emphasis on acquisitions in the northeastern region of the
United States, primarily in Massachusetts and particularly industrial and office
properties.
Although the principal investment emphasis is on the direct ownership
of income-producing equity real estate, MGI was historically an equity-oriented
or "hybrid" (equity and mortgage) trust. MGI's focus turned from mortgage loans
with equity participations toward equity investments in which the Trust becomes
the sole owner of the property and realizes all of the property's future
benefits and risks. Management believes that this evolution has given the Trust
greater control over the direction of its portfolio and the opportunity to
increase its capital gains potential.
In making new investments, MGI's investment focus has been primarily
directed to acquiring quality income-producing properties. Over the last several
years, MGI's investment philosophy has been to seek what management believes to
be value-creating opportunities by acquiring quality properties that have not
met their full potential at a cost believed to be below or near replacement
value. Management believes that its investments can be managed to create a total
return which includes current income and appreciation. The Trust seeks to
implement its investment objectives through selective acquisitions of quality
properties, leasing and property management in accordance with its defined long
term goals, investment in property improvements and periodic sales of selected
properties. The Trust has recently operated with an individual investment
parameter of below $20,000,000, but has exceeded and may occasionally exceed
this parameter. The decision to sell specific properties or investments involves
a number of factors, including the economic climate (giving effect also to the
impact of tax laws and other regulatory factors), future potential and
reinvestment alternatives. As indicated above, the investment focus may change,
based upon the ongoing review of the Trust's policies by the Board of Trustees.
As is common with any real estate owner or lender investing in equity
real estate, partnerships, mortgage loans and other investments, the Trust from
time to time may restructure its financial arrangements with partners, tenants
or borrowers who encounter financial or other difficulties. Accordingly, the
Trust, as circumstances warrant, has modified and will modify a lease,
partnership, loan or other agreement if, after investigation, it is established
that such modification would be economically feasible and in the best interests
of the Trust. Protection of the Trust's investments may require foreclosure or
other action leading to acquisition of title to properties underlying its
mortgage loans or investments.
The Trust's business is limited to investments in real estate, direct
or indirect, including investments in and possible future acquisitions of real
estate companies. To the extent that the Trust has assets not otherwise invested
in real estate, the Trust may invest such assets in other securities, including
United States government obligations and commercial paper, so long as, in the
opinion of the Trustees, such securities may be held without jeopardizing the
Trust's qualification as a REIT under the Internal Revenue Code.
Funds necessary to conduct operations are provided from rental and
interest income, mortgaging of equity investments, lines of credit, corporate
borrowings, sale of marketable securities and loan repayments and amortization.
Such operations include the Trust's continuous incurrence of costs, reimbursed
and unreimbursed, for improvements and renovations of its existing properties in
order to maintain and enhance their value. From time to time, as conditions
warrant, the Trust may operate on a leveraged basis by incurring indebtedness in
order to increase its capital available for investment when, in the Trustees'
judgment, the Trust will benefit thereby. There is no assurance at any given
time that borrowed funds will be available or that the terms and conditions of
such borrowings will be acceptable. The Trust may employ short-term or long-term
borrowings to fund some of its investments. Reference is made to Note 4 of the
Notes to Consolidated Financial Statements included in Item 14 below.
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<PAGE>
Portfolio
The Trust's real estate portfolio as of November 30, 1995 consisted of
interests in fifty-four properties, fifty-one of which are wholly-owned, two are
owned by partnerships in which the Trust has an equity interest, one is a
property sold by the Trust in a prior year transaction which did not meet the
conditions for a completed sale and is still carried as a real estate investment
for financial accounting purposes. For tax purposes, the property sold is
treated as a mortgage loan receivable.
The Trust's real estate investments can be classified by type of
property and market region. As of November 30, 1995, the Trust's real estate
investments were diversified by type of property as follows:
Number of Percent of
Type of Property Properties Cost Total
- ---------------- ---------- ---- -----
Industrial 28 $ 91,571,000 31%
Office 12 78,382,000 27
Retail 6 64,048,000 22
Apartment 8 59,468,000 20
-- ------------ ---
Total 54 $293,469,000 100%
== ============ ===
As of November 30, 1995, the Trust's real estate investments were
diversified by geographic region as follows:
Number of Percent of
Region Properties Cost Total
- ------ ---------- ---- -----
Northeast 25 $128,450,000 44%
Midwest 15 90,766,000 31
Southeast 9 51,493,000 17
Mid-Atlantic 4 22,535,000 8
Other 1 225,000 *
-- ------------ ---
Total 54 $293,469,000 100%
== ============ ===
- --------------
* Less than 1%
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<PAGE>
Terms under leases to tenants at the Trust's properties range from
tenancies-at-will up to twenty years. The Trust leases commercial space to
approximately 287 commercial tenants, including 153 office tenants, 71 retail
tenants and 63 industrial tenants.
Additional information concerning the Trust's mortgage and real estate
investments is set forth under Item 2 and in Notes 1, 2, 3, 4 and 7 in the Notes
to Consolidated Financial Statements and Schedules III and IV of the Financial
Statement Schedules included in Item 14 below.
Environmental Matters
Under various Federal, state and local laws, ordinances and regulations,
an owner of real estate or lender may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property. The costs of such removal or remediation of such
substances could be substantial. Such laws often impose liability without regard
to whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or rent such property or to borrow using such property as collateral.
Other Federal and state laws require the removal or encapsulation of asbestos
containing material in the event of remodeling or renovation.
MGI is not aware of any material violation of applicable environmental
requirements with respect to any of its real estate investments and MGI is not
aware of any environmental liabilities (including asbestos related liabilities)
that management believes would have a material adverse effect on MGI's business,
assets or results of operations.
Competition, Regulation and Other Factors
The success of the Trust depends, among other factors, upon general
economic conditions and trends, including interest rates, availability of
credit, real estate trends, construction costs, income tax laws, governmental
regulations and legislation, increases or decreases in operating expenses,
zoning laws, population trends and the ability of the Trust to attract tenants
and keep its properties leased at profitable levels. The Trust does not consider
its real estate business to be seasonal in nature.
In the areas of investment permitted to the Trust, there may be a wide
variety of competing investors and lenders. The Trust competes with life
insurance companies, real estate investment trusts, pension funds, other
financial institutions, partnerships, corporations, individuals and other
business entities, both domestic and foreign. An increase in the number of
competing investors and lenders and the availability of investment funds can
have the effect of increasing competition for investments in real estate and
reducing the yields realizable with respect to such investments. With respect to
properties presently owned by the Trust, or in which it has an investment, the
Trust competes with other owners of properties for tenants. The Trust's
properties compete for tenants primarily on the basis of location, rent and the
condition and design of improvements. Its properties compete with similar
properties located in their geographic area, and such properties may be newer
and larger than those in which the Trust has an interest. There are no
statistics readily available which would enable the Trust to determine its
position with respect to its competitors in the real estate investment industry.
-4-
<PAGE>
The Trust has been able to compete effectively despite recessionary
conditions in certain regions from time to time and believes that it will be
able to do so in the future, by reason of the diverse make-up of its income
producing properties, as well as their geographic diversity. However,
recessionary economic conditions in certain regions or any adverse changes in
local or national economic conditions could result in the inability of some
existing tenants (or borrowers) of the Trust to meet their lease or other
obligations and could otherwise adversely affect the Trust's ability to attract
or retain tenants. Management believes, however, that by reason of the factors
stated above and the Trust's financial strength and operating practices,
particularly its ability to implement renovations and improvements, it will be
able to maintain and over time increase rental income from its properties
(although there can be no assurance thereof).
-5-
<PAGE>
Item 2. Properties.
The following table sets forth certain information concerning the
Trust's properties.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------- -------------------------------------
Net Carrying Value Scheduled Lease Expirations
Percentage Number of Lease
INDUSTRIAL Sq. Ft. Dollars Sq. Ft Leased 1996 1997 Tenants Principal Tenant Expiration
- ---------------------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution and Manufacturing
Wilmington, MA 294,000 $6,922,000 $23.54 100% -- -- 4 Avon Dispatch 5/31/00
St. Louis, MO 200,600 4,045,000 20.16 100% 100% -- 2 Home Decorators 8/31/96
N. Charleston, SC 191,900 2,312,000 12.05 100% -- -- 2 Mill Transportation 12/31/97
St. Louis, MO 95,700 2,158,000 22.54 100% 25% -- 2 S.P. Richards 8/31/98
Bedford, MA 93,200 2,420,000 25.97 100% 49% -- 3 Imaging Technology 7/25/96
Westwood, MA 77,400 1,460,000 18.86 100% -- 100% 1 P.B. Diagnostics 5/31/97
St. Louis, MO 61,300 1,498,000 24.44 100% -- -- 2 I.C.S. Diversified 4/15/97
St. Louis, MO 61,200 1,511,000 24.69 100% -- -- 1 Tyler Mountain Water 12/31/97
Blue Ash, OH 53,200 593,000 11.15 100% 100% -- 1 Aero Mailing 2/28/96
St. Louis, MO 41,000 1,149,000 28.02 100% -- -- 2 Zepp Manufacturing 5/31/00
Blue Ash, OH 38,700 478,000 12.35 100% -- -- 1 Ethicon 9/30/97
Research and Development
Tewksbury, MA 189,200 10,665,000 56.37 100% -- -- 1 Avid Technology 6/30/10
Andover, MA 128,400 6,282,000 48.93 100% -- -- 1 Hewlett Packard 7/31/99
Billerica, MA 122,300 4,713,000 38.54 100% -- -- 1 Precision Robots 7/31/02
Wilmington, MA 109,400 4,417,000 40.37 100% -- -- 3 United Shoe Machinery 12/31/01
Chelmsford, MA 108,500 4,611,000 42.50 100% -- -- 1 Telebit, Inc. 7/31/01
Andover, MA 105,500 6,949,000 65.87 100% -- -- 1 ISI Systems, Inc. 4/30/99
Northborough, MA 102,300 2,298,000 22.46 100% -- 24% 3 Folio, Inc. 10/31/00
Wilmington, MA 100,200 2,518,000 25.13 100% -- -- 1 Datawatch 4/30/99
Billerica, MA 100,000 4,182,000 41.82 100% -- -- 1 Bay Networks 6/30/98
Chelmsford, MA 70,900 1,988,000 28.04 100% 5% 4% 6 W.J. Schaffer Assoc. 7/31/98
Bedford, MA 70,600 2,164,000 30.65 100% -- -- 1 Atex Publishing 7/31/98
Littleton, MA 66,500 2,367,000 35.59 100% -- -- 4 X-Rite 12/31/97
Marlborough, MA 59,400 2,337,000 39.34 100% -- -- 4 Diebold Incorporated 11/30/02
Billerica, MA 60,000 2,048,000 34.13 100% -- -- 2 Bay Networks 3/30/00
Billerica, MA 56,300 1,989,000 35.33 100% -- -- 1 Bay Networks 12/31/99
St. Louis, MO 40,900 1,282,000 31.34 100% -- 3% 8 Southtowne Machining 4/30/98
St. Louis, MO 35,600 1,880,000 52.84 100% 57% 20% 3 Interlock Pharmacy
Systems 5/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,734,200 $87,236,000 $31.91 100% 13% 4% 63
- ------------------------------------------------------------------------------------------------------------------------------------
-6-
<PAGE>
Item 2. Properties. (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Carrying Value Scheduled Lease Expirations
Percentage Number of Lease
OFFICE Sq. Ft. Dollars Sq. Ft Leased 1996 1997 Tenants Principal Tenant Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Somerset, NJ 178,500 $14,929,000 $83.64 96% 9% 57% 14 Merrill Lynch 6/30/97
Tampa, FL 122,400 9,271,000 75.74 83% 8% 1% 17 Bally's Health 6/30/00
Framingham, MA 107,000 7,257,000 67.82 98% 13% 17% 27 IDG Expo 10/12/99
Boston, MA 106,000 8,732,000 82.38 90% 4% 8% 11 Cambridge Associates 4/26/99
Andover, MA 97,700 7,653,000 78.33 95% -- -- 10 Computer Associates 12/31/02
Ann Arbor, MI 80,000 6,760,000 84.50 100% -- -- 4 Comshare 2/28/05
Naperville, IL 65,300 4,534,000 69.43 96% 5% -- 15 Eby Brown 6/30/04
Greenville, SC 48,600 2,208,000 45.43 90% 31% 4% 26 S.C. Tax Commission 6/30/96
Greenville, SC 46,000 1,605,000 34.97 54% -- 3% 6 S.C. Voc. Rehab. Dept. TAW
Boston, MA 37,700 1,900,000 50.40 86% 34% -- 13 ML Securities 9/30/99
Boston, MA 27,100 1,325,000 48.89 83% 8% -- 8 Winthrop Law 2/28/98
Charlotte, NC 16,300 846,000 51.90 100% 47% -- 2 Comprehensive Medical 9/21/96
- ------------------------------------------------------------------------------------------------------------------------------------
Total 932,600 $67,020,000 $71.86 91% 9% 14% 153
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
- ------------------------------------------------------------------------------------------------------------------------------------
Aurora, IL 313,000 $26,983,000 $86.21 93% 26% 2% 26 Best Buy 8/31/10
Baltimore, MD 134,800 6,471,000 48.00 100% -- 4% 16 Kmart Corp. 1/30/05
Nashville, TN 111,400 3,792,000 34.04 95% -- 1% 8 Burlington Coat Factory 1/31/10
Peabody, MA 106,900 10,410,000 97.38 100% -- -- 1 Bradlees 10/31/15
Tampa, FL 100,500 8,127,000 80.87 98% 12% -- 19 Publix Supermarket 11/30/06
Hagerstown, MD 40,200 1,423,000 35.40 100% -- -- 1 Giant Food Stores, Inc. 12/31/04
- ------------------------------------------------------------------------------------------------------------------------------------
Total 806,800 $57,206,000 $70.90 96% 12% 2% 71
- ------------------------------------------------------------------------------------------------------------------------------------
Net Carrying Value Percentage
APARTMENT Units Dollars Per Unit Leased
- ------------------------------------------------------------------------------------------------------------------------------------
Harrison Township, MI 376 $ 7,096,000 $18,875 96%
Bloomfield Hills, MI 346 14,381,000 41,564 100%
Tampa, FL 264 7,732,000 29,288 94%
Laurel, MD 237 11,293,000 47,650 93%
Tampa, FL 112 4,863,000 43,420 98%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,335 $45,365,000 $33,981 96%
- ------------------------------------------------------------------------------------------------------------------------------------
Net
PARTNERSHIPS Units Carrying Value
- ------------------------------------------------------------------------------------------------------------------------------------
Washington, DC (4% ) 778 $ 16,000
San Bruno, CA (2% ) 430 225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,208 $241,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Note 2 of the Notes to Consolidated Financial Statements included
under Item 14 of this Report.
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<PAGE>
Reference is made to Notes 1, 2 and 3 in the Notes to the Consolidated
Financial Statement and Schedules III and IV of the Financial Statement
Schedules for descriptions of the Trust's investments and properties.
Executive Office.
The Trust's headquarters, at 30 Rowes Wharf, Boston, Massachusetts,
includes approximately 5,400 square feet and is occupied under a lease expiring
during 1996.
Item 3. Legal Proceedings
The Trust is not a party to any material legal proceedings as to which
it does not have adequate insurance coverage.
Item 4. Submission of Matters to a
Vote of Security Holders.
Not applicable.
-8-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
(a) Market Information and Dividends.
The principal market on which the Trust's common shares are traded is
the New York Stock Exchange, under the symbol MGI. The table below sets forth,
for the fiscal quarters indicated, the high and low sales prices on the New York
Stock Exchange of the Trust's common shares and dividends paid per common share.
Fiscal Sales Price
1995 High Low Dividends
---- ---- --- ---------
First Quarter 14 7/8 13 3/8 $.22
Second Quarter 15 1/2 14 1/8 $.22
Third Quarter 15 1/8 14 $.23
Fourth Quarter 16 1/8 14 7/8 $.23
Fiscal Sales Price
1994 High Low Dividends
---- ---- --- ---------
First Quarter 15 5/8 13 1/8 $.21
Second Quarter 16 5/8 14 3/8 $.21
Third Quarter 16 14 3/8 $.22
Fourth Quarter 16 13 5/8 $.22
Future dividends will be determined by the Trust's Board of Trustees
and will be dependent upon the earnings, financial position and cash
requirements of the Trust and other relevant factors existing at the time. The
Trust must distribute at least 95% of the Trust's taxable income in order to
enable it to qualify as a real estate investment trust for tax purposes. So long
as the Trust continues to qualify as a REIT, shareholders will, therefore,
receive in the form of dividends at least 95% of the taxable income of the
Trust.
(b) Approximate Number of Holders of Common Shares.
Approximate Number
of Holders (as of
Title of Class January 30, 1996)
- -------------- -----------------
Common Shares, $1.00 2,800
par value
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<PAGE>
Item 6. Selected Financial Data (a)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Five Years Ended November 30,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Rental and other income $ 44,811,000 $ 43,422,000 $ 36,094,000 $ 27,928,000 $ 30,662,000
Property operating expenses and
real estate taxes 17,948,000
17,854,000 14,704,000 11,442,000 12,442,000
- ----------------------------------------------------------------------------------------------------------------------
26,863,000 25,568,000 21,390,000 16,486,000 18,220,000
Interest and other income 578,000 458,000 804,000 2,661,000 2,469,000
Less expenses:
Depreciation and amortization 7,814,000
7,654,000 6,987,000 5,996,000 5,974,000
Interest 5,807,000
5,781,000 5,059,000 5,511,000 6,429,000
General and administrative 2,651,000
2,580,000 2,191,000 2,036,000 2,108,000
- ----------------------------------------------------------------------------------------------------------------------
Income before net gains 11,169,000
10,011,000 7,957,000 5,604,000 6,178,000
Net gains 3,150,000
4,480,000 -- 1,644,000 --
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000
- ----------------------------------------------------------------------------------------------------------------------
SUMMARY OF FINANCIAL POSITION
Investments in real estate, at $293,469,000 $267,530,000 $258,663,000 $209,905,000 $208,011,000
cost
- ----------------------------------------------------------------------------------------------------------------------
Total assets $274,651,000 $255,971,000 $246,700,000 $214,161,000 $217,428,000
- ----------------------------------------------------------------------------------------------------------------------
Mortgage and other loans $ 84,506,000 $70,954,000 $66,949,000 $ 60,571,000 $67,852,000
payable
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $180,540,000 $176,095,000 $171,039,000 $145,748,000 $145,873,000
- ----------------------------------------------------------------------------------------------------------------------
Weighted average shares 11,487,677 11,450,451 10,574,104 9,402,476 9,396,992
outstanding
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Income before net gains $ .98 $ .87 $ .75 $ .60 $ .66
Net gains .27 .39 -- .17 --
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1.25 $ 1.26 $ .75 $ .77 $ .66
- ----------------------------------------------------------------------------------------------------------------------
Funds from operations $ 1.65 $ 1.54 $ 1.42 $ 1.24 $ 1.30
- ----------------------------------------------------------------------------------------------------------------------
Dividends $ .90 $ .86 $ .81 $ .80 $ .80
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note:
Reference is made to the Index to Consolidated Financial Statements filed as
part of this report under Item 14. Item 6, Selected Financial Data, should be
read in conjunction with the Consolidated Financial Statements and the related
notes appearing elsewhere herein.
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<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY
Shareholders' equity at November 30, 1995 was $180.5 million, compared to
$176.1 million at November 30, 1994. The increase primarily reflects net income
in excess of distributions. At November 30, 1995 financial liquidity was
provided by $7.0 million in cash and investment securities and by unused lines
of credit of $33.0 million. The $5.8 million decrease in cash and investment
securities, from $12.9 million at November 30, 1994, reflects the Trust's
investing activity during 1995. The principal sources and uses of funds in
fiscal 1995 are summarized below:
Source of Funds
- ---------------
Trust operations $19,300,000
Sales of real estate, net 16,900,000
New borrowing, net of fees, prepayments
and amortization 12,600,000
$48,800,000
Uses of Funds
- -------------
Real estate acquisitions $38,300,000
Dividends 10,300,000
Additions to real estate 4,400,000
Deferred tenant charges 1,600,000
$54,600,000
During 1995, the Trust acquired eight Massachusetts properties -- three
office and five industrial buildings. In addition, upon the completion of
construction, the Trust acquired title to a department store which was subject
to the Trust's $10.2 million first mortgage construction loan and which had been
previously reflected as an investment in real estate for financial reporting
purposes. In December 1995, the Trust acquired three additional industrial
buildings. A summary of real estate acquisitions is as follows:
Date Square
Fiscal 1995 Acquisitions Acquired Feet Cost
- ------------------------ -------- ---- ----
Industrial Tewksbury, Massachusetts 3/95 189,200 $10,700,000
Northborough, Massachusetts 5/95 102,300 2,300,000
Marlborough, Massachusetts 6/95 59,400 2,400,000
Littleton, Massachusetts 9/95 66,500 2,400,000
Chelmsford, Massachusetts 10/95 108,500 4,600,000
Office Boston, Massachusetts 12/94 37,700 1,900,000
Andover, Massachusetts 10/95 97,700 7,700,000
Boston, Massachusetts 11/95 27,100 1,300,000
Retail Peabody, Massachusetts 8/95 106,900 5,000,000
(Additions) ------- ---------
795,300 $38,300,000
======= ===========
Fiscal 1996 Acquisitions through January 1996
- ---------------------------------------------
Industrial Marlborough, Massachusetts 12/95 75,000 $ 2,800,000
Franklin, Massachusetts 12/95 83,500 3,800,000
Franklin, Massachusetts 12/95 65,300 3,200,000
------ ---------
223,800 $ 9,800,000
======= ===========
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<PAGE>
Mortgage and other loans payable totaled $84.5 million at November 30,
1995 (79% at fixed rates and 21% at floating rates), a net increase of $13.5
million compared to $71.0 million at November 30, 1994. During 1995, the Trust
executed four mortgages totaling $29.0 million with an average effective
interest rate of 7.8%. In addition, the Trust repaid $24.0 million of debt in
conjunction with mortgage refinancings. The retired debt had an average
effective rate of 9.1%. Scheduled payments of loan principal amortization and
other payments totaled $1.5 million. In 1995, MGI increased its secured lines of
credit by approximately $9.0 million, which increased the total lines of credit
to $45.0 million. At November 30, 1995, the Trust had $12.0 million outstanding
on its lines. Subsequent to year end, the Trust borrowed an additional $9.5
million from its lines which was used to acquire the three industrial
properties. Scheduled loan principal payments due within twelve months of
November 30, 1995 total $7.8 million. MGI believes it will continue to be able
to extend or refinance maturing mortgage loans upon satisfactory terms.
Other cash requirements in 1996 are distributions to shareholders, capital
and tenant improvements and other leasing expenditures required to maintain
MGI's current occupancy levels and other investment undertakings. During 1995,
expenditures for capital and tenant improvements totaled $1.8 million and $2.5
million, respectively. Included in the amount for capital improvements are $0.4
million of costs associated with building renovations. During 1996, budgeted
renovation costs are anticipated to aggregate $2.4 million, of which
approximately $1.5 million is related to Boston office properties, the balance
being associated with the partial remodeling of a Michigan apartment complex.
Additionally, for 1996 the Trust has estimated recurring capital expenditures
will total $1.1 million, including $0.6 million which pertains to interior and
exterior improvements for its apartment complexes and $0.5 million for its
commercial properties. The Trust has also budgeted $2.3 million for tenant
improvements related to recently executed leases. The Trust is contractually
committed to approximately $2.9 million of the 1996 capital and tenant
improvement projects.
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 or the sale of real estate investments. The cost of new borrowings or
issuances of 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 equity securities, it is presently anticipated that
the purchase of additional properties in 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 are
sufficient to meet its short- and long-term liquidity requirements.
RESULTS OF OPERATIONS
1995 Compared to 1994
Net income for 1995 of $14.3 million, or $1.25 per share, included a net
gain of $3.2 million, or $.27 per share, which resulted from the sale of real
estate investments. Net income for 1994 was $14.5 million, or $1.26 per share,
which included a net gain of $4.5 million, or $.39 per share, resulting from
similar sales. Income before net gains increased by $1.2 million to $11.2
million for 1995, compared to $10.0 million in 1994.
Funds from operations in 1995 totaled $19.0 million, or $1.65 per share,
compared to $17.7 million, or $1.54 per share, in 1994. MGI defines funds from
operations as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or
-12-
<PAGE>
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.
When comparing 1995 to 1994, the increase in income before net gains
resulted principally from an increase in property operating income, which 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 both 1994 and 1995, as well as the effects resulting
from the sales and acquisitions of properties.
Property Operating Income 1995 Compared To 1994 Net Change
- ----------------------------------------------- ----------
Properties held during 1994 and 1995 $ 800,000
1995 and 1994 acquisitions 3,200,000
1995 and 1994 sales (2,700,000)
----------
$ 1,300,000
==========
The change in operating income from the property segments generally derives from
the Trust's pattern of acquisitions and sales.
Property Operating Income Change By Segment Net Change
- ------------------------------------------- ----------
Industrial $1,100,000
Office 600,000
Apartment (300,000)
Retail (100,000)
--------
$1,300,000
==========
The income growth in the industrial segment is primarily due to the twelve
acquisitions completed during the prior two years. These properties added 1.4
million square feet to this segment which now totals 2.7 million square feet.
The properties were near or at 100% occupancy throughout 1995, and the Trust
executed 405,400 and 224,600 square feet of leases related to 1995 and 1996
expirations, respectively. Scheduled lease expirations for 1996 are 346,800
square feet.
The increase in the office segment reflects $0.3 million from the 1995
acquisitions and a $0.3 million improvement from the properties owned throughout
both 1995 and 1994. The three 1995 acquisitions totaled 162,500 square feet and
bring the office portfolio to 932,600 square feet. As two of the acquisitions
occurred in the latter part of the fourth quarter, their earnings impact will
not be appreciable until 1996. The increase in operating income from comparable
properties is due to an improvement in occupancy and to a lesser extent rental
rates. Average occupancy during 1995 was 90%, compared to 88% in 1994. The Trust
executed 141,900 and 22,800 square feet of leases related to 1995 and 1996
expirations, respectively. Scheduled lease expirations for 1996 are 84,100
square feet.
The change in the apartment segment reflects improvement from comparable
properties offset by the effect of property sales in 1994 and 1995. The
comparable properties experienced a 4.5% increase in revenue, principally from
an increase in rental rates, while operating expenses were relatively unchanged
from 1994. This resulted in an increase in operating income of $0.4 million
which was offset by the loss of income of $0.9 million from properties sold,
when 1995 is compared to 1994. The Trust's interest in a Metairie, Louisiana
apartment complex, which
-13-
<PAGE>
was sold in September 1995 for $12.0 million, had generated $1.1 million of
operating income for the ten months it was owned during 1995. The Trust's
partnership interests contributed an additional $0.2 million of income compared
to 1994.
Operating income in the retail segment decreased slightly from 1994 due to
charges associated with tenant terminations. During the latter part of the third
quarter, the Trust acquired a Peabody, Massachusetts department store. The
building is being leased by Bradlees, Inc., which filed for bankruptcy under
Chapter 11 of the Federal Bankruptcy Code in June 1995. In October 1995,
Bradlees affirmed its lease with the Trust and subsequently began paying rent.
The commencement and affirmation of the lease should help expand revenue for
this segment. The Trust executed 115,100 square feet of leases during 1995.
Scheduled lease expirations for 1996 are 94,500 square feet.
Also contributing to the change in income before net gains and funds from
operations when 1995 is compared to 1994 is an increase in interest income which
is due generally to higher interest rates on short-term investments during 1995.
Depreciation expense increased due to the increase in the number of properties
owned.
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. 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.
A primary component of the change in income before net gains is property
operating income. 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.
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, increased by $0.2 million to
$16.1 million excluding $1.0 million of income received during 1993 in
connection with the amendment and assignment of a lease at Yorkshire Plaza
located in Aurora, Illinois.
With respect to the group of properties owned throughout all of 1993 and
1994, apartment property operating income improved by 6% largely due to
increases in rental rates, with average occupancy at 94% for both 1993 and 1994.
Industrial property operating income improved 20% due to an increase in
occupancy. Overall, average occupancy for all industrial properties owned
improved by 2% to 98% during 1994. The increases in property operating income
from comparable apartment and industrial buildings were offset, however, by a
$0.5 million decline from comparable office buildings. Average occupancy in
office buildings 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 was largely
unchanged, excluding the $1.0 million lease amendment income received in 1993,
and average occupancy increased modestly from 92% in 1993 to 93% in 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
-14-
<PAGE>
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 previously
mentioned. Exclusive of this income, revenue in the group of properties which
the Trust owned throughout all of 1993 and 1994 increased by $0.5 million.
Rental income from the comparable portfolio of apartments and industrial
buildings increased while revenue in the office segment 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 and (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 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.
During the past three fiscal years, the impact of inflation on MGI's
operations and investment activity has not been significant.
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.
-15-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item
14 of this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
-16-
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of this Part III has
been omitted from this Report since the Registrant intends to file with the
Securities and Exchange Commission a definitive proxy statement which involves
the election of Trustees not later than 120 days after the close of the
Registrant's last fiscal year.
-17-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets, November 30, 1995 and 1994
Consolidated Statements of Earnings, Years ended November 30, 1995, 1994
and 1993
Consolidated Statements of Cash Flows, Years ended November 30,
1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity, Years ended
November 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules (as of or for the year ended November 30, 1995):
Schedule III, Real Estate and Accumulated Depreciation
Schedule IV, Mortgage and Other Loans on Real Estate
Exhibit XI - Computation of Net Income Per Share Assuming Full Dilution
Exhibit XXVII - Financial Data Schedule for year ended November 30, 1995
(EDGAR filing only)
Other schedules are omitted for the reasons that they are not required, are not
applicable, or the required information is set forth in the financial statements
or notes thereto.
3. EXHIBITS
Sequentially
Numbered Page
3(a) Second Amended and Restated Declaration of Trust, incorporated by
reference to Exhibit 3 of the Trust's Annual Report on Form 10-K for the
fiscal year ended November 30, 1981 (the "1981 10-K").
(b) Certificate of First Amendment of Second Amended and Restated Declaration
of Trust, incorporated by reference to Exhibit 3 of the 1981 10-K.
(c) Certificate of Second Amendment of Second Amended and Restated Declaration
of Trust, incorporated by reference to the Trust's Report on Form 8-K,
filed on January 13, 1983.
-18-
<PAGE>
(d) Certificate of Third Amendment of Second Amended and Restated Declaration
of Trust, incorporated by reference to Exhibit 3(d) to Amendment No. 1 to
the Trust's Registration Statement on Form S-2 filed on June 7, 1985.
(e) Certificate of Fourth Amendment of Second Amended and Restated Declaration
of Trust, dated October 17, 1986, incorporated by reference to the Trust's
Annual Report on Form 10-K for the year ended November 30, 1986.
(f) Certificate of Fifth Amendment of Second Amended and Restated Declaration
of Trust, dated March 25, 1987, incorporated by reference to Exhibit 3(f)
of the Trust's Annual Report on Form 10-K for the fiscal year ended
November 30, 1987.
(g) Certificate of Sixth Amendment of Second Amended and Restated Declaration
of Trust, dated February 10, 1988, incorporated by reference to Exhibit
4(g) of the Trust's Registration Statement on Form S-8 filed on May 3,
1988.
(h) Certificate of Seventh Amendment of Second Amended and Restated
Declaration of Trust, dated June 30, 1988, incorporated by reference to
Exhibit 4.8 of the Trust's Registration Statement on Form S-4 filed on
November 10, 1988 (Reg. No. 33-25495).
(i) Certificate of Eighth Amendment of Second Amended and Restated Declaration
of Trust, dated March 27, 1989, incorporated by reference to Exhibit 3(i)
of the Trust's Annual Report on Form 10-K for the fiscal year ended
November 30, 1989 (the "1989 10-K").
(j) By-Laws, incorporated by reference to the Trust's Report on Form 8-K,
filed on January 12, 1983.
(k) Certificate of Amendment of By-Laws, dated March 21, 1989, incorporated by
reference to the Trust's Report on Form 8-K dated March 21, 1989.
(l) Rights Agreement, dated as of June 21, 1989 between the Trust and The
First National Bank of Boston as Rights Agent, incorporated by reference
to Exhibit 1 to the
-19-
<PAGE>
Trust's Registration Statement on Form 8-A, filed on June 27, 1989.
(m) Certificate of Vote of the Trustees Designating a Series of Preferred
Shares, dated June 21, 1989, incorporated by reference to Exhibit 3(m) of
the 1989 10-K.
(n) Certificate of Eleventh Amendment of Second Amended and Restated
Declaration of Trust which increased the authorized number of Common
Shares from 15,000,000 to 17,500,000 incorporated by reference to Exhibit
B to the Trust's Quarterly Report Form 10-Q for the ended May 31, 1995.
(o) Certificate of Twelfth Amendment of Second Amended and Restated
Declaration of Trust which increased the authorized number of Preferred
Shares from 2,000,000 to 6,000,000 incorporated by reference to Exhibit B
to the Trust's Quarterly Report Form 10-Q for the quarter ended May 31,
1995.
10(a) Mortgage Growth Investors Incentive Stock Option Plan for Key Employees,
incorporated by reference to the Trust's Definitive Proxy Statement dated
March 15, 1982.
(b) Mortgage Growth Investors Stock 1982 Option Plan For Trustees,
incorporated by reference to the Trust's Definitive Proxy Statement dated
March 15, 1982.
(c) MGI Properties 1988 Stock Option and Stock Appreciation Rights Plans for
Key Employees and Trustees, incorporated by reference to the Trust's
Definitive Proxy Statement, dated February 19, 1988.
(d) Amendment to MGI Properties' 1982 Incentive Stock Option Plan for Key
Employees, dated as of December 19, 1989, incorporated by reference to
Exhibit 10(d) of the 1989 10-K.
(e) Amendment to MGI Properties' 1982 Stock Option Plan for Trustees, dated as
of December 19, 1989, incorporated by reference to Exhibit 10(e) of the
1989 10-K.
-20-
<PAGE>
(f) Amendment to MGI Properties' 1988 Stock Option and Stock Appreciation
Rights Plan for Key Employees, dated as of December 19, 1989, incorporated
by reference to Exhibit 10(f) of the 1989 10-K.
(g) Amendment to MGI Properties' 1988 Stock Option Plan for Trustees, dated as
of December 19, 1989, incorporated by reference to Exhibit 10(g) of the
1989 10-K.
(h) Amended and Restated Severance Compensation Plan, dated as of December 19,
1989, incorporated by reference to Exhibit 10(i) of the 1989 10-K.
(i) Amended and Restated MGI Properties Long Term Share Bonus Plan, dated
December 18, 1991, incorporated by reference to Exhibit 10(i) of the 1991
10-K.
(j) MGI Properties 1994 Stock Option and Stock Appreciation Rights Plan for
Key Employees and Trustees incorporated by reference to the Trust's
Definitive Proxy Statement, dated February 18, 1994.
(k) The Dividend Reinvestment and Share Purchase Plan of MGI Properties
incorporated by reference to the Trust's Report on Form S-3, filed on July
1, 1994.
11 Computation of Net Income Per Share, Assuming Full Dilution, included
under Item 14 of this Report.
24 Auditors' consent.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended November 30, 1995.
-------------------------
MGI Properties (the "Trust") is a Massachusetts business trust and all
persons dealing with the Trust must look solely to the property of the Trust for
the enforcement of any claims against the Trust. Neither the Trustees, officers,
agents nor shareholders of the Trust assume any personal liability in connection
with its business or assume any personal liability for obligations entered into
in its behalf.
-21-
<PAGE>
POWER OF ATTORNEY
MGI Properties and each of the undersigned do hereby appoint W. Pearce
Coues and Phillip C. Vitali and each of them severally, its or his true and
lawful attorneys to execute on behalf of MGI Properties and the undersigned any
and all amendments to this Report and to file the same with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission. Each of such attorneys shall have the power to act hereunder with or
without the other.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 31, 1996
MGI PROPERTIES
(Registrant)
By: /s/ W. Pearce Coues
W. Pearce Coues, Chairman of the
Board of Trustees
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ W. Pearce Coues Chairman of the Board of January 31, 1996
W. Pearce Coues Trustees and Chief Executive
Officer
/s/ Phillip C. Vitali Principal Financial Officer January 31, 1996
Phillip C. Vitali
/s/ David P. Morency Principal Accounting Officer January 31, 1996
David P. Morency
/s/ George S. Bissell Trustee January 31, 1996
George S. Bissell
/s/ Herbert D. Conant Trustee January 31, 1996
Herbert D. Conant
/s/ Francis P. Gunning Trustee January 31, 1996
Francis P. Gunning
/s/ Colin C. Hampton Trustee January 31, 1996
Colin C. Hampton
/s/ George M. Lovejoy, Jr. Trustee January 31, 1996
George M. Lovejoy, Jr.
/s/ Rodger P. Nordblom Trustee January 31, 1996
Rodger P. Nordblom
-22-
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1995
MGI PROPERTIES
<PAGE>
MGI PROPERTIES
Index to Consolidated Financial Statements and Schedules
Page
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheets,
November 30, 1995 and 1994 2
Consolidated Statements of Earnings,
Years ended November 30, 1995, 1994 and 1993 3
Consolidated Statements of Cash Flows,
Years ended November 30, 1995, 1994 and 1993 4
Consolidated Statements of Changes in Shareholders' Equity,
Years ended November 30, 1995, 1994 and 1993 5
Notes to Consolidated Financial Statements 6-11
Financial Statement Schedules (as of or for the year ended November 30, 1995):
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage and Other Loans on Real Estate
Exhibit XI - Computation of Net Income Per Share, Assuming Full Dilution
Other schedules are omitted as they are not required, are not applicable, or the
required information is set forth in the consolidated financial statements or
notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
MGI Properties:
We have audited the accompanying consolidated balance sheets of MGI Properties
and subsidiaries as of November 30, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended November 30, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 29, 1995
<PAGE>
MGI PROPERTIES
Consolidated Balance Sheets
November 30, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Real estate, at cost (notes 2, 3 and 4) $ 293,469,000 $ 267,530,000
Accumulated depreciation and amortization (36,375,000) (32,029,000)
----------- -----------
Net investments in real estate 257,094,000 235,501,000
Cash 2,456,000 1,774,000
Short-term investments, at cost, which approximates
market value (note 4) 4,589,000 11,118,000
Accounts receivable 3,354,000 2,901,000
Other assets 7,158,000 4,677,000
----------- -----------
$ 274,651,000 $ 255,971,000
============= =============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Mortgage and other loans payable (note 4) $ 84,506,000 $ 70,954,000
Other liabilities 5,905,000 5,222,000
----------- -----------
Total liabilities 90,411,000 76,176,000
Deferred gain (note 2) 3,700,000 3,700,000
Commitments (note 7)
Shareholders' equity (notes 5 and 6):
Preferred shares - $1 par value: 6,000,000
shares authorized; none issued -- --
Common shares - $1 par value: 17,500,000 shares
authorized; 11,502,271 issued (11,465,842 at
November 30, 1994) 11,502,000 11,466,000
Additional paid-in capital 166,348,000 165,921,000
Undistributed (distributions in excess of)
net income 2,690,000 (1,292,000)
----------- -----------
Total shareholders' equity 180,540,000 176,095,000
----------- -----------
$ 274,651,000 $ 255,971,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MGI PROPERTIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Year ended November 30,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Rental and other income $ 44,811,000 $ 43,422,000 $ 36,094,000
Interest 514,000 394,000 713,000
Other 64,000 64,000 91,000
---------- ---------- ----------
Total income 45,389,000 43,880,000 36,898,000
---------- ---------- ----------
Expenses:
Property operating expenses 12,348,000 12,437,000 10,457,000
Real estate taxes 5,600,000 5,417,000 4,247,000
Depreciation and amortization 7,814,000 7,654,000 6,987,000
Interest 5,807,000 5,781,000 5,059,000
General and administrative 2,651,000 2,580,000 2,191,000
---------- ---------- ----------
Total expenses 34,220,000 33,869,000 28,941,000
---------- ---------- ----------
Income before net gains 11,169,000 10,011,000 7,957,000
Net gains (note 2) 3,150,000 4,480,000 --
---------- ---------- ----------
Net income $ 14,319,000 $ 14,491,000 $ 7,957,000
========== ========== ==========
Per share data:
Income before net gains $ .98 $ .87 $ .75
Net gains .27 .39 --
--- ---
Net income $ 1.25 $ 1.26 $ .75
====== ====== ======
Weighted average shares outstanding 11,487,677 11,450,451 10,574,104
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MGI PROPERTIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended November 30,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,319,000 $ 14,491,000 $ 7,957,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,814,000 7,654,000 6,987,000
Net gains (3,150,000) (4,480,000) --
Other 323,000 (244,000) 1,524,000
------------- ------------- ------------
Net cash provided by operating
activities 19,306,000 17,421,000 16,468,000
------------- ------------- ------------
Cash flows from investing activities:
Acquisitions of real estate (38,302,000) (31,786,000) (40,963,000)
Additions to real estate (1,825,000) (2,157,000) (1,688,000)
Tenant improvements (2,542,000) (1,051,000) (984,000)
Deferred tenant charges (1,634,000) (581,000) (528,000)
Net proceeds from sales of
real estate interests 16,902,000 15,020,000 --
Other (289,000) 58,000 468,000
------------- ------------- ------------
Net cash used in investing
activities (27,690,000) (20,497,000) (43,695,000)
------------- ------------- ------------
Cash flows from financing activities:
Proceeds from sale of
common shares, net 322,000 251,000 25,722,000
Repayment of mortgage and other
loans payable (25,473,000) (10,439,000) (7,688,000)
Additions to mortgage and other
loans payable, net 38,025,000 24,188,000 13,338,000
Cash distributions paid (10,337,000) (9,848,000) (8,460,000)
------------- ------------- ------------
Net cash provided by
financing activities 2,537,000 4,152,000 22,912,000
------------- ------------- ------------
Net increase (decrease)
in cash and
short-term investments (5,847,000) 1,076,000 (4,315,000)
Cash and cash equivalents:
Beginning of year 12,892,000 11,816,000 16,131,000
------------- ------------- ------------
End of year $ 7,045,000 $ 12,892,000 $ 11,816,000
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MGI PROPERTIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Undistributed
Additional (distributions
Common paid-in in excess of)
shares capital net income
------ ------- ----------
<S> <C> <C> <C>
Balance at November 30, 1992 $ 9,448,000 $ 142,060,000 $ (5,432,000)
Net income -- -- 7,957,000
Sale of common shares 2,000,000 23,640,000 --
Distributions (note 6) -- -- (8,460,000)
Options exercised and other -- (27,000) --
------------ -------------- ------------
Balance at November 30, 1993 11,448,000 165,673,000 (5,935,000)
Net income -- -- 14,491,000
Dividend reinvestment and
share purchase plan (note 5) 4,000 57,000 --
Distributions (note 6) -- -- (9,848,000)
Options exercised and other 14,000 191,000 --
------------ -------------- ------------
Balance at November 30, 1994 11,466,000 165,921,000 (1,292,000)
Net income -- -- 14,319,000
Dividend reinvestment and
share purchase plan (note 5) 19,000 250,000 --
Distributions (note 6) -- -- (10,337,000)
Options exercised and other 17,000 177,000 --
------------ -------------- ------------
Balance at November 30, 1995 $ 11,502,000 $ 166,348,000 $ 2,690,000
============ ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MGI PROPERTIES
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 1 to 20 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 $6.5 million, $5.8 million and $5.3 million were
made for the years ended November 30, 1995, 1994 and 1993, respectively.
During 1995, the Trust capitalized interest of $.4 million.
(f) Fair Value of Financial Instruments
The Trust estimated the fair values of its financial instruments at November
30, 1995 using dis-counted 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.
(Continued)
6
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
(g) Net Income Per Share
Net income per share is computed based on the weighted average number of
common shares outstanding.
(h) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) Investments
(a) Real Estate
A summary of real estate investments follows:
Accumulated
Buildings depreciation
Type of and and Net carrying amount
Investment Land improvements amortization 1995 1994
- ---------- ---- ------------ ------------ ---- ----
Industrial $ 19,432,000 $ 72,139,000 $ 4,335,000 $ 87,236,000 $ 69,321,000
Office 15,254,000 63,128,000 11,362,000 67,020,000 55,332,000
Retail 23,647,000 40,401,000 6,842,000 57,206,000 47,760,000
Apartment 8,691,000 50,536,000 13,836,000 45,391,000 57,377,000
Construction
in Progress - 5,470,000
Partnership 241,000 241,000
------------ ------------ ------------ ------------ ------------
$ 67,024,000 $ 226,204,000 $ 36,375,000 $ 257,094,000 $235,501,000
============ ============= ============ ============= ============
A discussion of certain real estate investments follows:
Effective August 1995, the Trust acquired title to the completed department
store which was subject to the Trust's $10.2 million first mortgage
construction loan. The building is being leased in its entirety by
Bradlees, Inc. which filed for bankruptcy under Chapter 11 of the Federal
Bankruptcy Code in June 1995. In October 1995, Bradlees affirmed its lease
with the Trust and subsequently began paying rent.
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 was scheduled to mature in 1995, and the Trust agreed
to extend the maturity until January 1997 on essentially the same terms
including an interest rate of 7% and a provision 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's 35%
ownership interest, direct and indirect, in the partnership owning this
complex will increase to 46%. The Trust will retain a purchase option
which will allow it to obtain a maximum equity interest of 100%. At
November 30, 1995, the Trust carried this asset as a real estate
investment at a net carrying value of $7.1 million, which excludes the
gain from the sale.
(Continued)
7
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
With respect to a San Bruno, California partnership interest, 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 connection with a December 1991
refinancing by the partnership, the Trust has deferred the recognition of
a gain of $3.7 million. 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 real estate investment for
financial reporting purposes. 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 1995, the Trust recognized gains of $3.2 million principally from the
sale of one industrial building and the repayment of its loan on a
Metairie, Louisiana apartment complex that had been carried as real estate
owned for financial reporting purposes.
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.
(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, 1995 are: $30.3 million in 1996,
$25.9 million in 1997, $20.9 million in 1998, $16.6 million in 1999, $11.7
million in 2000, and $64.5 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 $5.6 million in 1995, $5.4 million in 1994 and $3.4
million in 1993.
Operating leases on apartments generally have a term of one year or less.
(Continued)
8
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
(4) Mortgage and Other Loans Payable
Mortgage and other loans payable at November 30 follow:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage loans, maturing 2000 through 2014,
at effective
interest rates ranging from 7.56% to 8.85% $ 66,756,000 $ 52,224,000
Mortgage loan at an effective variable
interest rate of 8.1%
at November 30, 1994 -- 10,884,000
Housing revenue bond, maturing 2007, at 5.70% and
5.40% at November 30, 1995 and 1994, respectively 5,750,000 5,750,000
Amounts outstanding under lines of credit, at an
effective interest rate of
8.40% and 9.10% at November 30, 1995
and 1994, respectively 12,000,000 2,000,000
Other, with interest at 7.50% at
November 30, 1994 -- 96,000
------------- -------------
$ 84,506,000 $ 70,954,000
============= =============
Weighted average interest rate 7.99% 8.48%
==== ====
</TABLE>
The mortgage loans payable are nonrecourse and are collateralized by certain
real estate investments having a net carrying value of $107 million and
the Trust's guarantee of $4.5 million. Loans require monthly principal
amortization and/or a balloon payment at maturity.
The housing revenue bond is tax exempt and is secured by real estate having
a net carrying value of $4.8 million. The bond is also secured by a letter
of credit which is collateralized by $2.6 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
3.75% at November 30, 1995 (an effective interest rate of 5.7% due to the
payment of fees).
The Trust has lines of credit of $30.0 million and $15.0 million maturing
August 1998 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 having
a net carrying value of $53.1 million and are subject to a variable
interest rate. A fee in the amount of .25% per annum is charged on the
unused amounts.
Principal payments on mortgage and other loans payable due in the next five
years and thereafter are as follows: $7.8 million in 1996, $1.9 million in
1997, $8.0 million in 1998, $2.2 million in 1999, $13.9 million in 2000,
and $50.7 million thereafter.
(Continued)
9
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
(5) Shareholders' Equity
(a) Stock Option Plans
Under the Trust's 1994 and 1988 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:
1995 1994 1993
---- ---- ----
Balance at beginning of year 549,632 464,532 467,000
Granted 132,000 101,000 24,000
Exercised (7,221) (15,900) (14,468)
Expired (5,000) -- (12,000)
------- ------- -------
Balance at end of year 669,411 549,632 464,532
======= ======= =======
Shares reserved for granting
future options 458,325 590,325 121,325
======= ======= =======
The weighted average exercise price per option at November 30, 1995, 1994
and 1993 was $13.02, $12.62 and $12.16, respectively. The shares reserved
expire by April 2004 and all outstanding options expire by April 2005. Of
the options granted in fiscal 1995, 56,000 became exercisable in December
1995. Subsequent to November 30, 1995, 132,500 options were granted, of
which half are currently exercisable and half are exercisable in December
1996. 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
Under the Trust's Dividend Reinvestment and Share Purchase Plan shareholders
of record who own 100 shares or more 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 is 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 is 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. During the years ended November 30, 1995 and
1994 the Trust issued 18,828 shares and 4,121 shares of common stock
through its Dividend Reinvestment and Share Purchase Plan, respectively.
(Continued)
10
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
(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
$.90 per share ($10.3 million) in 1995, and 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.
On December 19, 1995, the Trust declared a dividend of $.24 per share
payable on January 12, 1996 to shareholders of record on January 5, 1996.
(7) Commitments
As of November 30, 1995, the Trust had commitments to purchase three
industrial buildings located in Massachusetts totaling 224,000 square
feet for an aggregate purchase price of $9.8 million. The three
acquisitions were completed in December 1995. In addition, the Trust is
contractually committed to approximately $2.9 million of capital and
tenant improvements which are expected to be completed during 1996.
(8) Quarterly Financial Information (Unaudited)
Quarterly results of operations for the years ended November 30, 1995 and
1994 follow:
<TABLE>
<CAPTION>
Quarter Ended
-------------
1995 February 28 May 31 August 31 November 30
---- ----------- ------ --------- -----------
<S> <C> <C> <C> <C>
Total income $ 10,937,000 $ 11,299,000 $ 11,295,000 $ 11,858,000
Total expenses 8,331,000 8,379,000 8,462,000 9,048,000
------------ ------------ ------------ ------------
Income before
net gains 2,606,000 2,920,000 2,833,000 2,810,000
Net gains 1,400,000 -- -- 1,750,000
------------ ------------ ------------ ------------
Net income $ 4,006,000 $ 2,920,000 $ 2,833,000 $ 4,560,000
============ ============ ============ ============
Net income per share $ .35 $ .25 $ .25 $ .40
====== ===== ====== ======
Quarter Ended
-------------
1994 February 28 May 31 August 31 November 30
---- ----------- ------ --------- -----------
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>
11
<PAGE>
Schedule III
MGI PROPERTIES
Real Estate and Accumulated Depreciation
November 30, 1995
<TABLE>
<CAPTION>
Gross amounts at which
carried at close of period
Initial cost Costs -------------------------------
------------ capitalized Building
Building and subsequent to and
Description Encumbrances Land improvements acquisition Land improvements Total
----------- ------------ ---- ------------ ----------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Office Building:
Charlotte, NC $ -- $ 150,000 $ 933,000 $ 106,000 $ 150,000 $ 1,039,000 $ 1,189,000
Naperville, IL -- 1,400,000 3,318,000 1,458,000 1,400,000 4,776,000 6,176,000
Greenville, SC -- 246,000 2,490,000 359,000 246,000 2,849,000 3,095,000
Greenville, SC -- 213,000 1,647,000 538,000 213,000 2,185,000 2,398,000
Ann Arbor, Ml -- 686,000 5,618,000 1,804,000 686,000 7,422,000 8,108,000
Tampa, FL -- 2,667,000 8,980,000 217,000 2,667,000 9,197,000 11,864,000
Somerset, NJ -- 3,264,000 13,379,000 1,233,000 3,264,000 14,612,000 17,876,000
Boston, MA (A) 1,730,000 6,925,000 524,000 1,730,000 7,449,000 9,179,000
Framingham, MA (A) 2,105,000 5,109,000 350,000 2,105,000 5,459,000 7,564,000
Boston, MA -- 691,000 1,145,000 92,000 691,000 1,237,000 1,928,000
Andover, MA -- 1,263,000 6,417,000 -- 1,263,000 6,417,000 7,680,000
Boston, MA -- 839,000 486,000 -- 839,000 486,000 1,325,000
---------- ---------- ---------- --------- ---------- ---------- ----------
-- 15,254,000 56,447,000 6,681,000 15,254,000 63,128,000 78,382,000
---------- ---------- ---------- --------- ---------- ---------- ----------
Retail:
Hagerstown, MD -- 364,000 1,459,000 -- 364,000 1,459,000 1,823,000
Nashville, TN (A) 1,570,000 2,655,000 505,000 1,570,000 3,160,000 4,730,000
Baltimore, MD (A) 2,000,000 5,710,000 (9,000) 1,832,000 5,869,000 7,701,000
Tampa, FL 5,121,000 2,600,000 6,540,000 485,000 2,600,000 7,025,000 9,625,000
Aurora, IL 13,171,000 12,576,000 15,372,000 1,763,000 12,576,000 17,135,000 29,711,000
Peabody, MA -- 4,705,000 5,753,000 -- 4,705,000 5,753,000 10,458,000
---------- ---------- ---------- --------- ---------- ---------- ----------
18,292,000 23,815,000 37,489,000 2,744,000 23,647,000 40,401,000 64,048,000
---------- ---------- ---------- --------- ---------- ---------- ----------
Apartments:
Harrison Township, Ml (A) 700,000 1,948,000 9,540,000 700,000 1,488,000 12,188,000
Tampa, FL 5,231,000 1,850,000 7,009,000 843,000 1,850,000 7,852,000 9,702,000
Tampa, FL 5,750,000 1,178,000 4,466,000 157,000 1,178,000 4,623,000 5,801,000
Bloomfield Hills, Ml 11,093,000 4,325,000 12,126,000 2,065,000 4,325,000 14,191,000 18,516,000
Laurel, MD 9,501,000 613,000 12,722,000 (340,000) 613,000 12,382,000 12,995,000
Mount Clemens, MI -- 25,000 -- -- 25,000 -- 25,000
---------- ---------- ---------- --------- ---------- ---------- ----------
31,575,000 8,691,000 38,271,000 12,265,000 8,691,000 50,536,000 59,227,000
========== ========= ========== ========== ========= ========== ==========
Accumulated
epreciation
and Date Depreciable
Description Eamortization acquired life (years)
----------- ------------- -------- ------------
Office Building:
<S> <C> <C> <C>
Charlotte, NC $ 343,000 1/85 40
Naperville, IL 1,642,000 8/86 20
Greenville, SC 887,000 11/86 20
Greenville, SC 793,000 11/86 20
Ann Arbor, Ml 1,348,000 12/88 40
Tampa, FL 2,593,000 12/88 25
Somerset, NJ 2,947,000 12/88 40
Boston, MA 447,000 6/93 40
Framingham, MA 307,000 9/93 40
Boston, MA 28,000 12/94 40
Andover, MA 27,000 10/95 40
Boston, MA -- 11/95 40
----------
11,362,000
----------
Retail:
Hagerstown, MD 400,000 12/84 40
Nashville, TN 938,000 8/86 40
Baltimore, MD 1,230,000 7/87 40
Tampa, FL 1,498,000 12/87 40
Aurora, IL 2,728,000 5/90 40
Peabody, MA 48,000 8/95 40
----------
6,842,000
----------
Apartments:
Harrison Township, Ml 5,091,000 11/74 40
Tampa, FL 1,970,000 10/86 40
Tampa, FL 938,000 3/88 40
Bloomfield Hills, Ml 4,135,000 1/89 40
Laurel, MD 1,702,000 9/90 40
Mount Clemens, MI --
----------
13,836,000
----------
</TABLE>
12
<PAGE>
Schedule III
(Continued)
MGI PROPERTIES
Real Estate and Accumulated Depreciation
November 30, 1995
<TABLE>
<CAPTION>
Gross amounts at which
carried at close of period
Initial cost Costs --------------------------
------------ capitalized Building
Building and subsequent to and
Description Encumbrances Land improvements acquisition Land improvements Total
----------- ------------ ---- ------------ ----------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial Properties
N. Charleston, SC -- 300,000 2,738,000 52,000 300,000 2,790,000 3,090,000
Blue Ash, OH -- 176,000 549,000 10,000 176,000 559,000 735,000
Blue Ash, OH -- 129,000 398,000 71,000 129,000 469,000 598,000
St. Louis, MO 1,074,000 218,000 1,171,000 252,000 218,000 1,423,000 1,641,000
St. Louis, MO 1,120,000 360,000 1,337,000 100,000 360,000 1,437,000 1,797,000
Bedford, MA (A) 512,000 2,062,000 33,000 512,000 2,095,000 2,607,000
St. Louis, MO 1,444,000 570,000 1,695,000 38,000 570,000 1,733,000 2,303,000
St. Louis, MO 766,000 500,000 708,000 -- 500,000 708,000 1,208,000
St. Louis, MO 1,027,000 300,000 1,321,000 -- 300,000 1,321,000 1,621,000
St. Louis, MO 1,264,000 613,000 1,347,000 34,000 613,000 1,381,000 1,994,000
Wilmington, MA 4,622,000 2,390,000 4,638,000 209,000 2,390,000 4,847,000 7,237,000
Billerica, MA (A) 376,000 1,749,000 68,000 376,000 1,817,000 2,193,000
Wilmington, MA (A) 1,394,000 3,208,000 -- 1,394,000 3,208,000 4,602,000
Bedford, MA (A) 662,000 1,585,000 -- 662,000 1,585,000 2,247,000
Andover, MA 4,696,000 1,441,000 5,799,000 5,000 1,441,000 5,804,000 7,245,000
Westwood, MA -- 548,000 967,000 18,000 548,000 985,000 1,533,000
Billerica, MA (A) 752,000 3,611,000 -- 752,000 3,611,000 4,363,000
Billerica, MA (A) 420,000 1,652,000 -- 420,000 1,652,000 2,072,000
Andover, MA 4,000,000 1,185,000 5,307,000 -- 1,185,000 5,307,000 6,492,000
Chelmsford, MA -- 354,000 1,567,000 119,000 354,000 1,686,000 2,040,000
Wilmington, MA (A) 501,000 2,013,000 61,000 501,000 2,074,000 2,575,000
St. Louis, MO 2,626,000 526,000 3,617,000 -- 526,000 3,617,000 4,143,000
Billerica, MA -- 681,000 4,130,000 14,000 681,000 4,144,000 4,825,000
Tewksbury, MA -- 1,739,000 8,994,000 -- 1,739,000 8,994,000 10,733,000
Northborough, MA -- 514,000 1,810,000 -- 514,000 1,810,000 2,324,000
Marlborough, MA -- 1,040,000 1,303,000 8,000 1,040,000 1,311,000 2,351,000
Littleton, MA -- 285,000 2,091,000 -- 285,000 2,091,000 2,376,000
Chelmsford, MA -- 946,000 3,680,000 -- 946,000 3,680,000 4,626,000
---------- ---------- ---------- --------- ---------- ---------- ----------
22,639,000 19,432,000 71,047,000 1,092,000 19,432,000 72,139,000 91,571,000
---------- ---------- ---------- --------- ---------- ---------- ----------
72,506,000 $67,192,000 $203,254,000 $22,782,000 $67,024,000 $226,204,000 293,228,000
=========== ============ =========== =========== ============
Lines of credit 12,000,000
----------
Partnerships
San Bruno, CA 225,000
Washington, D.C. 16,000
------
241,000
-------
$84,506,000 $293,469,000
=========== ============
Accumulated
depreciation
and Date Depreciable
Description amortization acquired life (years)
----------- ------------ -------- ------------
<S> <C> <C> <C>
Industrial Properties
N. Charleston, SC 778,000 12/84 40
Blue Ash, OH 142,000 11/85 40
Blue Ash, OH 120,000 11/85 40
St. Louis, MO 359,000 12/86 40
St. Louis, MO 299,000 5/87 40
Bedford, MA 187,000 10/92 40
St. Louis, MO 145,000 12/92 40
St. Louis, MO 59,000 12/92 40
St. Louis, MO 110,000 12/92 40
St. Louis, MO 114,000 12/92 40
Wilmington, MA 315,000 5/93 40
Billerica, MA 145,000 7/93 40
Wilmington, MA 185,000 8/93 40
Bedford, MA 83,000 11/93 40
Andover, MA 296,000 11/93 40
Westwood, MA 73,000 11/93 40
Billerica, MA 181,000 12/93 40
Billerica, MA 83,000 12/93 40
Andover, MA 210,000 4/94 40
Chelmsford, MA 52,000 11/94 40
Wilmington, MA 57,000 11/94 40
St. Louis, MO 98,000 11/94 40
Billerica, MA 112,000 11/94 40
Tewksbury, MA 68,000 3/95 40
Northborough, MA 26,000 5/95 40
Marlborough, MA 14,000 6/95 40
Littleton, MA 9,000 9/95 40
Chelmsford, MA 15,000 10/95 40
-------
4,335,000
---------
$36,375,000
===========
</TABLE>
(A) These properties collateralize the Trust's $45 million credit facilities.
13
<PAGE>
Schedule III
(Continued)
MGI PROPERTIES
Real Estate and Accumulated Depreciation
Years ended November 30, 1995, 1994 and 1993
A summary of real estate investments and accumulated depreciation and
amortization for the three years ended November 30 follows:
<TABLE>
<CAPTION>
Real Estate Investments
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 267,530,000 $ 258,663,000 $ 209,905,000
Add:
Investments 38,302,000 31,786,000 47,692,000
Building improvements 1,825,000 2,157,000 1,688,000
Tenant improvements 2,542,000 1,051,000 984,000
------------- ------------- -------------
310,199,000 293,657,000 260,269,000
Deduct:
Real estate dispositions 15,385,000 24,312,000 --
Other 1,345,000 1,815,000 1,606,000
------------- ------------- -------------
Balance at end of year $ 293,469,000 $ 267,530,000 $ 258,663,000
============= ============= =============
Accumulated Depreciation and Amortization
Balance at beginning of year $ 32,029,000 $ 29,992,000 $ 24,583,000
Add:
Depreciation and amortization 7,798,000 7,638,000 6,969,000
Deduct:
Real estate dispositions 1,701,000 3,920,000 --
Other 1,751,000 1,681,000 1,560,000
------------- ------------- -------------
Balance at end of year $ 36,375,000 $ 32,029,000 $ 29,992,000
============= ============= =============
</TABLE>
The aggregate cost for Federal income tax purposes of the above investments at
November 30, 1995 is approximately $283 million.
Refer to Note 1 regarding the Trust's accounting policies on real estate
investments and depreciation and amortization.
14
<PAGE>
Schedule IV
MGI PROPERTIES
Mortgage and Other Loans on Real Estate
Years ended November 30, 1995, 1994 and 1993
A summary of mortgage and other loan activity for the years ended November
30 follows:
1995 1994 1993
---- ---- ----
Balance at beginning of year $ -- $ -- $ 5,880,000 (a)
Add:
Additions and advances -- -- 79,000
----------- ----------- ----------
-- -- 5,959,000
Less:
Other principal reductions -- -- (5,959,000)(a)
----------- ----------- ----------
Balance at end of year $ -- $ -- $ --
=========== =========== =============
Notes:
(a) The face value of this wrap-around mortgage loan was $6,613,000 and was
carried net of four first mortgage loans. At November 30, 1992, the
Trust had reached agreement with the borrower to purchase the four
industrial properties securing this loan. The acquisition was completed
on December 31, 1992.
15
<PAGE>
Exhibit XI
MGI PROPERTIES
Computation of Net Income Per Share
Assuming Full Dilution
Year ended November 30,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income before net gains $ 11,169,000 $ 10,011,000 $ 7,957,000 $ 5,604,000 $ 6,178,000
Net gains 3,150,000 4,480,000 -- 1,644,000 --
------------ ------------ ----------- ----------- -----------
Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000
============ ============ =========== =========== ===========
Weighted average number
of common shares
outstanding 11,487,677 11,450,451 10,574,104 9,402,476 9,396,992
Additional number of share
equivalents assuming
exercise of options and
support 82,408 91,834 55,312 20,274 16,941
------------ ------------ ----------- ----------- -----------
Weighted average
number of shares
assuming full
dilution 11,570,085 11,542,285 10,629,416 9,422,750 9,413,933
============ ============ =========== =========== ===========
Net income per share
assuming full dilution:
Income before net gains $ .97 $ .87 $ .75 $ .60 $ .66
Net gains .27 .39 -- .17 --
------ ------ ----- ----- -----
Net income per
share assuming
full dilution $ 1.24 $ 1.26 $ .75 $ .77 $ .66
====== ====== ===== ===== =====
</TABLE>
16
<PAGE>
Consent of Independent Auditors
The Board of Trustees
MGI Properties:
We consent to incorporation by reference in the registration statements (Nos.
33-21584, 2-97270, 33-65844, 33-53433 and 33-63901) on Form S-8 of MGI
Properties and subsidiaries of our report dated December 29, 1995, relating to
the consolidated balance sheets of MGI Properties and subsidiaries as of
November 30, 1995 and 1994, and the related consolidated statements of
earnings, changes in shareholders' equity, and cash flows and related schedules
for each of the years in the three-year period ended November 30, 1995, which
report appears in the November 30, 1995 annual report on Form 10-K of MGI
Properties and subsidiaries.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 7,045
<SECURITIES> 000
<RECEIVABLES> 3,354
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 7,158
<PP&E> 293,469
<DEPRECIATION> 36,375
<TOTAL-ASSETS> 274,651
<CURRENT-LIABILITIES> 5,905
<BONDS> 84,506
<COMMON> 11,502
000
000
<OTHER-SE> 169,038
<TOTAL-LIABILITY-AND-EQUITY> 274,651
<SALES> 0
<TOTAL-REVENUES> 45,389
<CGS> 000
<TOTAL-COSTS> 28,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 5,807
<INCOME-PRETAX> 11,169
<INCOME-TAX> 000
<INCOME-CONTINUING> 11,169
<DISCONTINUED> 0
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 14,319
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
