MGI PROPERTIES
30 Rowes Wharf
Boston, Massachusetts 02110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 21, 1996
To the Shareholders of
MGI Properties:
Notice is Hereby Given that the Annual Meeting of Shareholders (the
"Annual Meeting") of MGI Properties (the "Trust") will be held at the Boston
Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts, on March 21, 1996 at
10:00 A.M. for the following purposes:
1. To elect three Trustees; and
2. To consider and act upon such other business as may properly come
before the Annual Meeting.
Only shareholders of record at the close of business on February 9, 1996
will be entitled to vote at the Annual Meeting.
If you do not expect to attend the Annual Meeting, please sign and
promptly mail the enclosed proxy in order that your shares may be voted for
you. A return envelope is provided for your convenience.
By Order of the Trustees,
W. Pearce Coues
Chairman of the Board of Trustees
Dated: Boston, Massachusetts
February 20, 1996
MGI PROPERTIES is a Massachusetts trust and all persons dealing with the
Trust must look solely to the property of this Trust for the enforcement of
any claims against the Trust. Neither the Trustees, officers, agents nor
shareholders of this Trust assume any personal liability for obligations
entered into on its behalf.
<PAGE>
<PAGE>
MGI PROPERTIES
30 Rowes Wharf
Boston, Massachusetts 02110
ANNUAL MEETING OF SHAREHOLDERS
March 21, 1996
PROXY STATEMENT
This Proxy Statement is being mailed to the shareholders of MGI Properties
(the "Trust") on or about February 20, 1996, in connection with the
solicitation by the Trust's Board of Trustees (the "Board of Trustees") of
proxies for the Annual Meeting of Shareholders (the "Annual Meeting") to be
held at the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts, on
March 21, 1996. The meeting has been called for the following purposes: (1)
to elect three Trustees; and (2) to consider and act upon such other business
as may properly come before the Annual Meeting.
PROXIES AND VOTING RIGHTS
The voting securities of the Trust outstanding on February 9, 1996
consisted of 11,531,336 of the Trust's Common Shares (the "Common Shares")
entitling the holders thereof to one vote per Common Share. Shareholders of
record at the close of business on February 9, 1996 are entitled to notice of
and to vote at the Annual Meeting. A majority of the outstanding Common
Shares is required to be represented to constitute a quorum for the holding
of the Annual Meeting. The affirmative vote of the holders of Common Shares
representing not less than 66-2/3% of the total votes authorized to be cast
by shares of all classes which are present in person or by proxy and entitled
to vote and voting on the election of Trustees (i.e., Proposal No. 1) is
required for the election of each of the nominees for Trustees (i.e., 66-2/3%
of the votes cast). In the event that no nominee for a particular trusteeship
receives the requisite number of votes for election to such trusteeship at
the Annual Meeting, the incumbent Trustee shall remain in office until the
next annual meeting of the Trust's shareholders and until a successor is
elected and qualified. At that annual meeting, such nominee would stand for
election for the remainder of such term, together with the nominees for the
class whose term then expires.
With regard to the election of Trustees, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on all proposals (except on
the election of Trustees) and will be counted as present for purposes of the
item on which the abstention is noted. Under the rules of the New York Stock
Exchange, brokers who hold Common Shares in street name for customers have
the authority to vote, under certain circumstances, on items when they have
not received instructions from beneficial owners. Brokers that do not receive
instructions are entitled to vote on Proposal 1.
All proxies delivered pursuant to this solicitation may be revoked by the
person executing the same by notice in writing received at the office of the
Trust at any time prior to exercise. If not revoked, the Common Shares
represented thereby will be voted at the Annual Meeting. All proxies will be
voted in accordance with the instructions specified thereon.
<PAGE>
All expenses in connection with the solicitation will be borne by the
Trust. It is expected that the solicitation will be made primarily by mail,
but regular employees or representatives of the Trust may also solicit
proxies by telephone, telecopier or in person, without additional
compensation. Beacon Hill Partners, Inc., a proxy solicitation firm, will
assist the Trust in soliciting proxies with respect to Common Shares held of
record by brokers or other nominees at a cost of $2,500 plus reasonable
out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of February 9, 1996, all of the current Trustees and executive officers
as a group owned approximately 6.4% of the outstanding Common Shares
(including Common Shares underlying presently exercisable options). See
"Election of Trustees" for information on the number of Common Shares
beneficially owned by each of the Trust's Trustees (including the nominees
for election as Trustees) and by such Trustees and executive officers as a
group.
Based on a Schedule 13G dated January 26, 1996, Welch & Forbes, Inc., a
Massachusetts corporation with its principal place of business located at 45
School Street, Boston, Massachusetts 02108 ("Welch & Forbes"), beneficially
owned 683,168 of the outstanding Common Shares, representing 5.9% thereof as
of such date. Of such Common Shares, Welch & Forbes has (i) sole voting power
with respect to 646,640 of such shares, (ii) shared voting power with respect
to 36,528 of such shares and (iii) sole dispositive power with respect to all
such shares. Except for the foregoing, there was no person who, to the
knowledge of the Trust's management, owned beneficially more than five
percent of the outstanding Common Shares as of February 9, 1996.
PROPOSAL NO. 1
ELECTION OF TRUSTEES
The Board of Trustees is divided into three classes. Each class is elected
by the shareholders.
Unless authority is specifically withheld, proxies will be voted for the
election of the nominees named below to serve as Trustees for the term
indicated herein and until their successors are elected and qualified. The
three nominee-Trustees have consented to serve if elected; however, should
any nominee not be a candidate at the time of the Annual Meeting (a situation
which is not now anticipated), proxies may be voted in favor of the remaining
nominees and may also be voted for a substitute nominee.
The following table contains certain information regarding the Trustees,
including nominees for election as Trustees:
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Common Shares
for the Past Five Years and Beneficially
Current Public Directorships Trustee Owned on Percent
or Trusteeships Since February 9, 1996 of Class
- ----------------------------------------------------------- ------ ----------------- ---------
<S> <C> <C> <C>
Trustee-Nominees:
To be elected for a term of three years, expiring on the
date of the annual meeting in 1999:
Francis P. Gunning (72) 1971 21,000 (1) (2)
Retired Executive Vice President and General Counsel,
Teachers Insurance and Annuity Association of America and
College Retirement Equities Fund (insurance and annuity
business).
2
<PAGE>
Name, Age, Principal Occupation Common Shares
for the Past Five Years and Beneficially
Current Public Directorships Trustee Owned on Percent
or Trusteeships Since February 9, 1996 of Class
- ----------------------------------------------------------- ------ ----------------- ---------
George M. Lovejoy, Jr. (65) 1993 20,300 (1) (2)
President, Fifty Associates (a real estate investment
trust); currently Trustee of the following mutual funds:
Scudder Cash Investment Trust; Scudder GNMA Fund; Scudder
Growth & Income Fund; Scudder Quality Growth Fund; Scudder
Income Fund; Scudder Balanced Fund; Scudder Managed
Municipal Bonds; Scudder High Yield Tax Free Fund and
Scudder Tax Free Money Fund; Director, Latin American
Dollar Income Fund.
To be elected for a term of one year, expiring on the date
of the annual meeting in 1997:
William F. Murdoch, Jr. (65) -- 1,000 (1)
Principal, Murdoch Associates (a real estate consulting
firm) for more than five years; currently Trustee of
Rockefeller Center Properties, Inc. (a real estate
investment trust).
Trustees Continuing in Office:
To continue in office for a term of two years, expiring on
the date of the annual meeting in 1998:
W. Pearce Coues (55) 1982 336,825 2.8% (3)
Chairman of the Board of Trustees and Chief Executive
Officer of the Trust
Herbert D. Conant (71) 1988 20,500 (1) (4)
Retired Chairman of the Board and Chief Executive Officer,
The Turner Corporation, from 1985 through February 1989.
George S. Bissell (66) 1995 21,000 (1) (2)
Chairman of the Board and previously Chief Executive
Officer, Keystone Group, Inc.
To continue in office for a term of one year, expiring on
the date of the annual meeting in 1997:
Rodger P. Nordblom (68) 1984 21,000 (1) (2)
Chairman of the Board and previously President, Nordblom
Company (a real estate development and management firm)
for more than five years.
Colin C. Hampton (73) 1984 26,000 (1) (2)
Retired Chairman of the Board and Chief Executive Officer,
UNUM Corporation.
</TABLE>
- --------------------
(1) Less than 1% of the outstanding Common Shares.
(2) Includes presently exercisable options to purchase an aggregate of 20,000
Common Shares granted pursuant to the 1982 Trustees' Plan and the 1988
Trustees' Plan.
3
<PAGE>
(3) Includes 246,500 presently exercisable options and excludes 22,500
options not presently exercisable, to purchase an aggregate of 269,000
Common Shares granted pursuant to the 1988 Employee Plan, the 1982
Incentive Plan, the 1982 Trustees' Plan, the 1988 Trustees' Plan and the
1994 Employee Plan. Also includes 207 Common Shares owned by Mr. Coues'
wife, as to which Mr. Coues disclaims beneficial ownership.
(4) Includes presently exercisable options to purchase an aggregate of 18,000
Common Shares granted pursuant to the 1982 Trustees' Plan and the 1988
Trustees' Plan.
All of the current Trustees and executive officers as a group (10 persons)
owned, or held presently exercisable options to purchase, an aggregate of
780,221 Common Shares, approximately 6.4% of the outstanding Common Shares
(129,810 Common Shares outstanding plus 650,411 Common Shares subject to such
options) as of February 9, 1996. Except as specified above, each of the
aforementioned Trustees has voting and investment power (directly or
indirectly) with respect to the outstanding Common Shares indicated. In
addition, such executive officers (excluding Mr. Coues) hold options not
presently exercisable to purchase an aggregate of 37,500 Common Shares.
The Board of Trustees held four meetings during the year ended November
30, 1995. In addition, there is one Committee of the Board of Trustees, the
Administrative-Audit Committee (the "Administrative-Audit Committee"), which
in addition to fulfilling the functions of an audit committee, has
supervisory responsibility for personnel, Trustee nominations, compensation,
including stock options, and Trust administration. The Administrative-Audit
Committee, which is comprised of Messrs. Gunning, who serves as Chairman,
Conant and Hampton, met three times during the year ended November 30, 1995.
The Administrative-Audit Committee may also make recommendations to the Board
of Trustees and does not have the power to bind the Trust, except that such
Committee is empowered to function as the Compensation and Stock Option
Committee in administering all of the Trust's stock option plans and in
determining the compensation of executive officers. On May 24, 1995, without
admitting or denying the allegations in a complaint filed by the Securities
and Exchange Commission (which complaint did not relate to the Trust), Mr.
Conant consented to the entry of a final judgment in the U.S. District Court
for the Middle District of Florida permanently enjoining him from violating
Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 thereunder and requiring payment of a total of $28,405 in gains, civil
penalties and interest.
The Trust's policy effective December 1, 1995, is to pay each Trustee
other than Mr. Coues (i) a $12,000 annual fee and (ii) $1,000 per Board of
Trustees or committee meeting attended; provided, however, that each of the
Trustees receive $500 for each committee meeting attended on the same day a
Board meeting is held. Trustees have been provided with the option to receive
their $12,000 annual retainer, or a portion thereof, in advance for the sole
purpose of making open market purchases of Common Shares as legally
permissible.
The following table contains certain information regarding additional
executive officers of the Trust:
Executive
Officer's Name Age Principal Occupation
- ----------------- -- ------------------------------------------------
Robert Ware 57 Executive Vice President since December 1989;
Senior Vice President from April 1986 to
December 1989.
Phillip C. Vitali 45 Executive Vice President since December 1989;
Senior Vice President from January 1987 to
December 1989; Treasurer and Chief Financial
Officer since March 1986.
4
<PAGE>
Executive
Officer's Name Age Principal Occupation
- ----------------- -- ------------------------------------------------
Karl W. Weller 38 Senior Vice President since March 1993; for
more than five years prior thereto, Vice
President, Aetna Life & Casualty Company and
Managing Director, real estate investment
group.
EXECUTIVE COMPENSATION
The following table provides information regarding compensation (including
option/SAR grants) of executive officers of the Trust for the fiscal year
ended November 30, 1995.
SUMMARY COMPENSATION TABLE((1))
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation Awards
----------------------- -------------
All Other
Name and Principal Position Year Salary Bonus (2) Options (3) Compensation (4)
- ----------------------------- ----- --------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
W. Pearce Coues 1995 $262,000 $80,625 50,000 $57,500
Chairman of the Board and 1994 $261,414 $68,125 35,000 $60,137
Chief Executive Officer 1993 $249,084 $80,250 -- $56,986
Phillip C. Vitali 1995 $161,462 $40,313 18,000 $22,500
Executive Vice President; 1994 $154,269 $21,800 8,000 $24,872
Treasurer and Chief
Financial Officer 1993 $145,950 $29,425 -- $21,656
Robert Ware 1995 $157,231 $40,313 18,000 $37,500
Executive Vice President 1994 $147,188 $21,800 8,000 $39,994
1993 $139,874 $29,425 -- $28,428
Karl W. Weller (5) 1995 $149,385 $40,313 16,000 $22,500
Senior Vice President 1994 $141,794 $20,438 6,000 $21,300
1993 $102,363 $24,075 12,000 $ 8,567
</TABLE>
(1) This Table covers all executive officers receiving compensation of at
least $100,000. The Table does not include columns for Other Annual
Compensation, Restricted Stock Awards and Long Term Incentive Plan
Payouts as there was no information to report with respect to these
columns.
(2) All of these bonuses were paid in the form of Common Shares (except for a
portion of Mr. Vitali's 1993 bonus).
(3) Options awarded under the Trust's 1988 Stock Option and Stock
Appreciation Rights Plan for Key Employees may include a tandem grant of
stock appreciation rights ("SARs"). An SAR is exercisable at any time the
option to which it relates can be exercised, but only upon a showing of
"hardship" by the optionee and upon consent of the Administrative-Audit
Committee. In addition, an SAR may be exercised only if prior to the
exercise, the optionee has exercised or exercises an equivalent number of
options granted pursuant to the plan. A Hostile Change in Control, as
defined, abrogates the hardship requirement and the prior or simultaneous
option exercise requirement. SARs terminate when the related option is
exercised. Mr. Coues was granted in tandem with stock options, 25,000
SARs in 1995 and 1,500 SARs in 1994. Messrs. Vitali and Ware were each
granted in tandem with stock options, 9,000 SARs in 1995 and 4,000 SARs
in 1994. Mr. Weller was granted in tandem with stock options, 8,000 SARs
in 1995, 3,000 SARs in 1994 and 6,000 SARs in 1993.
5
<PAGE>
(4) All Other Compensation is comprised of contributions to the respective
Simplified Employee Pension Plan (SEPP) of each individual and amounts
accrued by or payments made by the Trust to the accounts of participants
in the Trust's Supplemental Retirement Plan (SERP). The SEPP contribution
for Mr. Coues was $22,500 in 1995, $25,137 in 1994 and $30,000 in 1993.
The SERP contribution for Mr. Coues was $35,000 in each of 1995 and 1994
and $26,986 in 1993. All amounts listed for Mr. Vitali are SEPP
contributions. The SEPP contributions for Mr. Ware were $22,500, $24,994
and $21,472 in 1995, 1994 and 1993, respectively. The SERP contribution
for Mr. Ware was $15,000 in each of 1995 and 1994 and $6,956 in 1993. All
amounts listed for Mr. Weller are SERP contributions.
(5) Mr. Weller's employment commenced on March 1, 1993 and he was appointed
an executive officer in December 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants For Option Term (1)
------------------------------------------------------ --------------------------
% of Total
Options/SARs
Granted to Exercise
Options Employees in Price Expiration
Name Granted (2) Fiscal Year Per Share Date 5% 10%
- ----------------- ----------- ------------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Pearce Coues 50,000 44.6% $14.25 12/14/04 $387,500 $1,037,500
Phillip C. Vitali 18,000 16.1% $14.25 12/14/04 $139,500 $ 373,500
Robert Ware 18,000 16.1% $14.25 12/14/04 $139,500 $ 373,500
Karl W. Weller 16,000 14.3% $14.25 12/14/04 $124,000 $ 332,000
</TABLE>
(1) Options will have no actual value unless, and then only to the extent
that, the stock price of the Common Shares appreciates from the grant
date to the exercise date.
(2) Options awarded under the Trust's 1994 and 1988 Stock Option and Stock
Appreciation Rights Plans for Key Employees may include a tandem grant of
SARs. An SAR is exercisable at any time the option to which it relates
can be exercised, but only upon a showing of "hardship" by the optionee
and upon consent of the Administrative- Audit Committee. In addition, an
SAR may be exercised only if prior to the exercise, the optionee has
exercised or exercises an equivalent number of options granted pursuant
to such plan. SARs granted in tandem with 1995 stock option awards were
25,000 to Mr. Coues, 9,000 each to Messrs. Vitali and Ware and 8,000 to
Mr. Weller (representing 44.6%, 16.1%, 16.1% and 14.3% of the SARs
granted in fiscal 1995).
6
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Common Shares
Underlying Value of Unexercised
Common Shares Unexercised Options/SARs In-the-Money
Acquired On Value At Fiscal Year- Options/SARs At
Name Exercise Realized($) End (1) (2) Fiscal Year-End (1)
- ----------------- ------------- ------------ -------------------------- --------------------
<S> <C> <C> <C> <C>
W. Pearce Coues -- -- 224,000 $705,875
Phillip C. Vitali 521 $3,777 106,911 $368,119
Robert Ware -- -- 107,500 $362,625
Karl W. Weller -- -- 34,000 $ 46,250
</TABLE>
(1) All options are presently exercisable.
(2) Outstanding SARs, all of which were granted in tandem with stock options,
aggregated at fiscal year-end 64,598 for Mr. Coues, 43,052 for Mr.
Vitali, 43,347 for Mr. Ware and 17,000 for Mr. Weller.
STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return on the
Common Shares to the total returns in the Standard and Poor's 500 Stock Index
and the National Association of Real Estate Investment Trusts ("NAREIT")
Total Return Indices for Equity REITs. The graph assumes that the value of
the investment in the Common Shares and each index was $100 on November 30,
1990 and that all dividends thereon were reinvested. There can be no
assurance that the Common Shares' total return will continue into the future
with the same or similar trend depicted in this graph.
MGI S&P 500 NAREIT-EQUITY
1990 1000 1000 1000
1991 1508 1203 1262
1992 1833 1425 1522
1993 2306 1569 1858
1994 2489 1586 1783
1995 2998 2171 2091
7
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REPORT OF ADMINISTRATIVE-AUDIT COMMITTEE
ON EXECUTIVE COMPENSATION
The Administrative-Audit Committee, which serves as the Trust's
Compensation and Stock Option Committee, is composed entirely of independent,
non-management Trustees. The Administrative-Audit Committee is responsible
for adopting, implementing and administering the policies which govern annual
compensation and short-term and long-term incentive programs, including stock
option plans.
The Administrative-Audit Committee annually evaluates the Trust's
operating performance and financial position, annual salary and incentive
compensation and stock option matters and compares the Trust's overall
performance within its own industry and with real estate companies in
general.
The Administrative-Audit Committee meets without the Chief Executive
Officer present for the purpose of evaluating his performance and reports
their deliberations and determinations to all of the independent Trustees of
the Board. The Administrative-Audit Committee receives recommendations made
by the Chief Executive Officer with respect to the remaining executive
officers and such Committee reviews these recommendations in light of the
factors set forth below. The Administrative-Audit Committee's actions (with
respect to executive compensation matters) are generally reported to and
ratified by the full Board of Trustees (absent the Chief Executive Officer,
who is the sole non-independent Trustee).
In establishing fiscal 1995 compensation levels for executive officers,
including the Chief Executive Officer, the Administrative-Audit Committee
considered several factors. These factors involved both internal and external
measurements and comparisons bearing upon the overall operating performance
and financial position of the Trust. The performance measure reviewed by the
Administrative-Audit Committee were actual funds from operations as compared
to budget, management's leasing success relative to market occupancy levels
and market rents and relative to the magnitude of scheduled maturities, and
property net operating income versus budget and prior year levels. The
Administrative-Audit Committee also considers the management of the liability
side of the Trust's balance sheet, including the flexibility attained with
respect to available financial resources and the maintenance of the overall
quality levels of tenants and properties.
From time to time, the Administrative-Audit Committee also considers the
advice of an outside compensation consultant with respect to comparable REIT
and non-REIT organizations and with respect to executive compensation matters
generally. In setting fiscal 1995 salaries, the Committee also considered the
most recent executive compensation survey by the National Association of Real
Estate Investment Trusts. The Trust has not established a policy with regard
to Section 162(m) of the Internal Revenue Code of 1986, as amended, since the
Trust has not and does not currently anticipate paying compensation in excess
of $1 million per annum to any employee.
The Administrative-Audit Committee determined to make annual share bonus
awards to the executive officers with respect to fiscal 1995 premised upon
performance factors which they believed would serve the short-term and
long-term interests of shareholders. Eligible recipients were determined to
be the four executive officers of the Trust and two other officers. In
December 1994, the Administrative-Audit Committee voted to continue a
discretionary guideline providing criteria for the award of short-term
incentive share bonuses to these officers. The Administrative-Audit Committee
set two measurement categories, shareholders' Total Return (i.e., increase or
decrease in stock price plus dividends) and Funds from Operations, as the
determinants for this annual stock bonus, of which up to 30% can be taken in
cash by a recipient. Funds from Operations was given 75% weight, and the
Total Return element was given 25% weight. "Minimum," "Budget," "Target" and
"Stretch" thresholds for each measurement category were established.
Based upon the Trust's fiscal 1995 results and stock performance,
short-term share bonuses were awarded in December 1995. The calculation of
1995 bonuses reflected 1995 results which approached the "target" threshold
8
<PAGE>
with respect to Funds from Operations (which increased by 7% compared to
fiscal 1994) and was midway between the "target" and "stretch" thresholds in
respect of Total Return and resulted in stock awards of more than 20% of 1995
salary in the case of the Chief Executive Officer and more than 14% of salary
to the remaining executive officers. In the exercise of its discretion as
permitted under the guidelines and taking into consideration the overall
positive results for fiscal 1995, the 1995 share bonus awarded to the Chief
Executive Officer was increased to approximately 31% of his 1995 salary and
the share bonuses awarded to the other three executives were increased to a
range of between 25% and 27% of their respective salaries. See "Summary
Compensation Table."
In December 1994, the Committee also determined the amount of its SEPP and
SERP contributions with respect to the 1995 plan fiscal year, see Summary
Compensation Table.
Stock options were granted by the Administrative-Audit Committee in
December 1995 to all executive officers under the Trust's 1994 Employee Plan
in furtherance of the Committee's practice and policy of making stock option
awards as a means of reinforcing management's identity of interest with
shareholders and creating long-term incentives for growing Trust asset value.
The executives referred to in the Summary Compensation Table received such
options as follows: W. Pearce Coues, 45,000; Robert Ware, 25,000; Phillip C.
Vitali, 25,000 and Karl W. Weller, 25,000. All of the stock options granted
in December 1995 vest as to one-half immediately and the balance upon the
first anniversary thereof in December 1996. SARs may be exercised, under
certain circumstances, as to one-half of the amount of such options.
Francis P. Gunning, Chairman
Herbert D. Conant
Colin C. Hampton
Stock Option Plans
As of February 9, 1996, executive officers and Trustees as a group (10
persons) held presently exercisable options to purchase a total of 650,411
Common Shares under all of the Trust's stock option plans at exercise prices
ranging from $7.375 to $16.125 per Common Share. In addition, the members of
such group hold options not presently exercisable to purchase an aggregate of
60,000 Common Shares. Of all outstanding options, 62,416 were granted
pursuant to the 1982 Incentive Plan, 228,323 pursuant to the 1988 Employee
Plan, 167,672 pursuant to the 1994 Employee Plan, 52,284 pursuant to the 1982
Trustees' Plan and 139,716 pursuant to the 1988 Trustees' Plan.
Severance Compensation Plan
Effective June 11, 1987, and as amended on December 19, 1989, the Board of
Trustees adopted a severance compensation plan for officers in the event of a
"hostile takeover," which includes the following events, if not approved by
two-thirds of the members of the Board of Trustees in office immediately
prior to the occurrence of any such event: (i) the election as Trustee(s) in
any year of one or more persons not nominated by at least two-thirds of the
Board of Trustees in office prior to such election; (ii) a business
combination such as a merger; (iii) the acquisition of 15% or more of the
voting power of the Trust's securities by any person or entity; or (iv) the
failure of the Trust to qualify as a "REIT" for tax purposes by reason of
more than 50% in value of the Trust's voting securities outstanding being
held by five or fewer individuals.
All full time officers who have completed a minimum of thirty-six months of
continuous employment with the Trust are eligible under the plan. An eligible
officer is entitled to severance benefits if (i) such individual terminates
his or her employment within two years after a hostile takeover for reasons
such as a reduction in compensation, discontinuance of employee benefit
plans, change in duties or status and certain changes in job location or (ii)
if the individual is terminated for reasons other than "just cause" as
defined in the plan. The severance payment is equal to three months
compensation for each twelve months of employment based on the highest total
annual compensation rate earned prior to the Hostile Change in Control (up to
a maximum of 24 months of compensation payable at such rate, but 36 months in
the case of Messrs. Coues, Ware and Vitali). Fringe benefits are also
continued for the number of months for which compensation is paid.
9
<PAGE>
INDEPENDENT PUBLIC AUDITORS
It is expected that the accounting firm of KPMG Peat Marwick will again be
selected as the independent auditors for the Trust for the current fiscal
year ending November 30, 1996. A representative of that firm, which served as
the Trust's independent auditors for the fiscal year ended November 30, 1995,
is expected to be present at the Annual Meeting and, if he so desires, will
have the opportunity to make a statement, and in any event will be available
to respond to appropriate questions.
SHAREHOLDER PROPOSALS
To the extent required by law, for a shareholder proposal to be included
in the proxy statement for next year's annual shareholders' meeting, it must
be received at the Trust's principal executive offices prior to October 28,
1996.
OTHER MATTERS
So far as now known, there is no business other than that described above
to be presented for action by the shareholders at the Annual Meeting, but it
is intended that the proxies will be voted upon any other matters and
proposals that may legally come before the Annual Meeting or any adjournment
thereof, in accordance with the discretion of the persons named therein.
The Annual Report for the fiscal year ended November 30, 1995 is being
mailed herewith. If, for any reason, you did not receive your copy of the
report, please advise the Trust and another will be sent to you.
By Order of the Trustees,
W. Pearce Coues
Chairman of the Board
Dated: Boston, Massachusetts
February 20, 1996
The Trust will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended November 30, 1995 (as filed with the
Securities and Exchange Commission) to shareholders as of February 9, 1996
who make written request therefor to Ms. Jean M. Harrington, Vice President,
MGI Properties, 30 Rowes Wharf, Boston, Massachusetts 02110.
10
<PAGE>
MGI Properties
February 20, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held at 10:00 a.m. on Thursday, March 21, 1996, at Boston Harbor Hotel, 70 Rowes
Wharf, Boston Massachusetts. Detailed information as to the business to be
transacted at the meeting is contained in the accompanying Notice of Annual
Meeting and Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that your
shares be voted. Accordingly, we ask that you sign and return your proxy as soon
as possible in the envelope provided.
Sincelely,
W. Pearce Coues
Chairman of the Board and
Chief Executive Officer
MGI 2F DETACH HERE DETACH HERE MGI 2F
[X] Please mark votes as in this example. ---
|
|
1. Election of Three Trustees as recommended in Management's Proxy Statement.
Nominees: Francis P. Gunning, George M. Lovejoy, Jr. and William F. Murdoch, Jr.
FOR WITHELD
[ ] [ ]
[ ]
- -------------------
TO WITHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) PRINT NAME(S) ABOVE.
2. In their discretion, upon such other business as may properly come before
the meeting.
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE AY LEFT
Please insert date and sign exactly as name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. Corporations are required to sign their name by their President or
other authorized officer. All joint owners should sign.
Proxies will be voted for the election of Trustees as recommended in the Proxy
Statement unless contrary instructions are hereinabove indicated. Discretionary
authority is granted the Proxy Agents as to other matters that may come before
the meeting. Management knows of no such other matters. Receipt of the MGI
PROPERTIES Proxy Statement is hereby acknowledged. All proxies heretofore signed
by the undersigned are hereby revoked.
Signature Date Signature Date
------------------- -------------- ------------- ------
<PAGE>
MGI F DETACH HERE DETACH HERE MGI F
PROXY
MGI PROPERTIES
Proxy solicited on behalf of the Board of
Trustees for Annual Meeting on March 21, 1996
The undersigned hereby appoints W. PEARCE COUES and PHILLIP C. VITALI, and each
of them with power in each to vote in the absence of the other, as the Proxy
Agents of the undersigned, with full power of substitution and with all the
powers the undesigned would possess if personally present to vote all the Common
Shares of the undersigned in MGI PROPERTIES at the Annual Meeting of the
Shareholders scheduled to be held on March 21, 1996 and at all adjournments
thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
|SEE REVERSE|
| SIDE |
[FRONT COVER]
<PAGE>
1995
MGI Properties
Annual Report
<PAGE>
MGI Properties
MGI Properties is an equity real estate investment trust owning a diversified
portfolio of fifty-four real estate investments. MGI has a low dividend pay-out
and a primary investment objective of investing in properties believed to be
capable of producing stable and rising income and having capital appreciation
potential. Office and industrial properties comprise sixty percent of the real
estate portfolio.
<PAGE>
MGI Properties 1995 Annual Report
Financial
Highlights
- --------------------------------------------------------------------------------
Year Ended November 30,
--------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Total income $ 45,389,000 $ 43,880,000 $ 36,898,000*
- --------------------------------------------------------------------------------
Net gains $ 3,150,000 $ 4,480,000 --
Net income $ 14,319,000 $ 14,491,000 $ 7,957,000*
Net income per share $ 1.25 $ 1.26 $ .75*
- --------------------------------------------------------------------------------
Book value per share $15.70 $15.36 $14.96
- --------------------------------------------------------------------------------
Real estate investments,
at cost $293,469,000 $267,530,000 $258,663,000
Total assets $274,651,000 $255,971,000 $246,700,000
Mortgage and other loans payable $ 84,506,000 $ 70,954,000 $ 66,949,000
Shareholders' equity $180,540,000 $176,095,000 $171,039,000
- --------------------------------------------------------------------------------
Shares outstanding 11,502,271 11,465,842 11,448,152
================================================================================
* Includes a $1.0 million, or $.10 per share, fee received in connection with a
lease assignment and amendment.
Funds from Operations
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Net income $14,319,000 $14,491,000 $ 7,957,000*
Less net gains 3,150,000 4,480,000 --
Plus depreciation 6,856,000 6,659,000 5,801,000
Plus tenant improvements
amortization 958,000 995,000 1,186,000
Plus equity method
partnership loss -- -- 45,000
- --------------------------------------------------------------------------------
$18,983,000 $17,665,000 $14,989,000*
- --------------------------------------------------------------------------------
Per share $1.65 $1.54 $1.42*
================================================================================
* Includes a $1.0 million, or $.10 per share, fee received in connection with a
lease assignment and amendment.
Dividends
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Cash distributions paid $10,337,000 $9,848,000 $8,460,000
- --------------------------------------------------------------------------------
Per share $.90 $.86 $.81
================================================================================
<TABLE>
<CAPTION>
1995 Leasing
- -------------------------------------------------------------------------------------------------------------------------------
1996 Expirations
1995 1995 Vacancy at -------------------------------
Total Beginning Expira- Potential November 30, 1995 Total 1997
Sq.Ft. Vacancy* tions* Vacancy Leased Sq.Ft. Percent Scheduled Preleased Remaining Expirations
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial 2,734,200 55,300 350,100 405,400 405,400 -- 0.0% 571,400 224,600 346,800 114,100
Office 932,600 115,900 109,200 225,100 141,900 83,200 8.9% 106,900 22,800 84,100 132,500
Retail 806,800 13,400 125,800 139,200 110,200 29,000 3.6% 99,400 4,900 94,500 14,600
- -------------------------------------------------------------------------------------------------------------------------------
4,473,600 184,600 585,100 769,700 657,500 112,200 2.5% 777,700 252,300 525,400 261,200
===============================================================================================================================
</TABLE>
* Beginning vacancy and expirations adjusted to reflect vacancies of properties
acquired and sold during 1995.
[ 1 ]
<PAGE>
MGI PROPERTIES 1995 ANNUAL REPORT
Letter to
Shareholders
During fiscal 1995, MGI shareholders received a total return for the year of
approximately 20.5%. This performance, which measures stock appreciation from
the start of the year to completion, together with dividends paid, is in the top
20% of the real estate investment trust industry. Over a five fiscal year
period, MGI has now recorded a total return for shareholders of approximately
200% -- an average of 40% per year.
While our one- and five-year results are impressive, short-term measurements
must be tempered over the longer-term test of time. Euphoric as the 1995 stock
market may have been, stocks do not consistently deliver returns in excess of
20%; neither do real estate investment trusts, which have high income
characteristics. A shareholder called me this summer when the stock market was
hitting daily highs noting that MGI was relatively unexciting within an
otherwise torrid stock market. Real estate, however, is a slow methodical
business. Through up and down stock markets, I believe that well run real estate
companies are likely to have secure, handsomely rewarded shareholders.
In this report, I explain why we perceive significant opportunity within our
existing portfolio and continuing opportunity from future real estate
acquisitions. I also summarize the Trust's current investment strategy and
address how MGI intends to maintain its above-average performance.
Earnings
Total returns have been impressive, along with MGI's growth in earnings. Funds
from operations (FFO) have grown from $14,989,000 in fiscal 1993 to $17,665,000
in 1994 and to $18,983,000 in 1995. On a per-share basis, FFO in 1993 was $1.42,
rising to $1.54 in 1994 and to $1.65 in 1995. Earnings are supported by
fifty-two equity properties that form a broadly based, diversified income
stream. The seven percent annual FFO growth in 1995, while noteworthy in itself,
is more so in light of asset quality and value levels that appear to be evolving
steadily upward.
The growth in FFO compares favorably to many REITs and reflects a number of
factors. Properties owned for the full period in 1994 and 1995 generated
approximately $750,000 more in income in 1995 than in 1994. The improvement
reflects stronger occupancy in the office and residential sectors and higher
apartment rents. In addition, the Trust's weighted cost of its $84,506,000 of
debt (of which $66,756,000 is now at fixed rates) was reduced from an average
8.5% interest rate to 8% by year end. Adding to earnings momentum, newly
acquired investments -- $32,000,000 in 1994 and $38,000,000 in 1995 -- are
making a significant contribution. The combined $70,000,000 of properties
produced an annual 12% return by 1995 year end. Unlike most REITs that pay out
almost all cash flow, MGI has in the last two years retained approximately
$4,100,000 per annum for reinvestment and debt amortization. This retention has
provided a strategic advantage in improving subsequent earnings growth and
capital appreciation.
[3 photos: Boston Mayor Thomas Menino shaking hands with W. Pearce Coues;
Mr. Coues; several people holding balloons on strings]
[Caption]
Boston's Mayor Thomas M. Menino (left) and W. Pearce Coues, Chairman
of MGI Properties, at the 1995 dedication of the renovation of the Trust's One
Winthrop Square Park. The Mayor noted, "The Park is an oasis in the middle of
one of the City's busiest commercial areas."
[ 2 ]
<PAGE>
One Winthrop Square won the 1995 Building Owners and Managers Association award
for historic buildings. The judges said, "One Winthrop Square typifies how a
thoughtful renovation can complement classic architecture and successfully
reposition the future of an important Boston landmark."
[Photo: One Winthrop Square building, with gardens and statue in foreground]
[ 3 ]
<PAGE>
[Old photo: One Winthrop Square, full exterior shot of building front]
[Caption]
One Winthrop Square was rebuilt and opened in 1874 after Boston's Great Fire.
Earnings and dividends are clearly key components that give value to owning a
real estate trust. MGI seeks to complement these components with capital
appreciation and periodic gain recognition. In 1995, our earnings were enhanced
by recognized gains of $3,150,000, equal to $.27 per share. In 1994, the Trust
also recognized gains of $4,480,000, or $.39 per share. These gains were
realized on assets that were extraneous to our investment focus or, in certain
cases, commanded prices that exceeded our estimated current value. We have not
sold properties where we believe the values are likely to be higher two or three
years hence. Strategically, we perceive future upward momentum in many of our
real estate markets as rent levels rebuild.
Net income in 1995, after depreciation and amortization expense and
including gains, was $14,319,000, or $1.25 per share, compared to $14,491,000,
or $1.26 per share, in 1994. Net income in 1995 included the previously noted
gain of $3,150,000, or $.27 per share, compared to $4,480,000, equal to $.39 per
share, in 1994.
Funds from Operations
REITs typically discuss operations and performance in terms of funds from
operations. This measure excludes non-cash charges for depreciation and
amortization and gains or losses from property sales. The industry's trade
association, the National Association of Real Estate Investment Trusts (NAREIT),
has spent several years evaluating this definition in an effort to standardize
what is included and excluded in calculating FFO. The new definition, which does
not affect the calculation of net income, specifies that deferred leasing
expenses, primarily leasing commissions, are to be capitalized and treated in
the same manner as tenant improvements. Although most REITs, including MGI,
capitalize tenant improvements and amortize the cost over a tenant's lease term,
we have traditionally deducted lease commissions in calculating funds from
operations. Although we believe our more conservative interpretation of
deducting lease commissions was correct, the issue is modest and we will adopt
the new standard guidelines effective for 1996. As a
**********************************[BAR CHART]**********************************
Three Year FFO Growth Per Share
1995 $1.65
1994 $1.54
1993 $1.42
*******************************************************************************
[ 4 ]
<PAGE>
Earnings
- --------------------------------------------------------------------------------
The growth in earnings over the past several years reflects favorably on the
soundness of the portfolio. The portfolio, together with future acquisitions,
should provide the foundation for future growth in value and earnings.
- --------------------------------------------------------------------------------
result of NAREIT's new guidelines, many trusts will report modest reductions in
funds from operations. MGI will implement the new definition in fiscal 1996 and,
unlike the more prevalent downward adjustment, MGI will see FFO increase by
about $.01 per quarter (or $.04 per year) above where they would have been prior
to the new guidelines.
While on the subject of cash flows, many REITs have paid out dividends at 90% to
95% of funds from operations. Over the past several years, as the industry has
matured and REITs have become more accepted as a public-investment vehicle, many
trusts have made a conscious and, we believe, appropriate decision to reduce
pay-out ratios. Real estate as an asset class is subject to varying levels of
depreciation; setting dividend policy without regard to possible levels of
depreciation or capital needs is a dangerous path.
MGI's dividend pay-out rate is one of the lowest in the industry and, hence, one
of the strongest in coverage. As a result, we are reinvesting significant
dollars within our portfolio out of cash flows without relying on excessive debt
to fund these necessary costs. Funds reinvested in real estate portfolios vary
from one real estate trust to another according to property age, property type
and management philosophy. In our case, of the $1.65 FFO earned in 1995, we
reinvested $.38 back into the portfolio in capital and tenant improvements. We
believe that well maintained properties will appeal to higher quality tenants
and should generally outperform the competition. Amortization of debt, which we
also regard as a good long-term strategy, totaled an additional $.12 per share.
Debt amortization enhances subsequent earnings by eliminating interest costs of
approximately 8% on the $1,400,000 of annual debt reduction. Of the $.38 in
capital and tenant improvements, an estimated $.20 should produce a yield of
approximately 10%. The $.18 balance covers nonrevenue producing items such as
roof and elevator replacement and, while not directly revenue producing, the
costs of these items are strategic for preserving and building future value.
Adding the $.38 for tenant and
[3 photos of buildings, with their respective captions:]
33 Broad Street, Boston, MA,
built in 1904 by Harvard College.
Four Andover Tech Center, Andover, MA
128,400 Square-Foot R&D Building
Ten Winthrop Square, Boston, MA,
overlooks One Winthrop Square Park.
[ 5 ]
<PAGE>
Acquisitions
- --------------------------------------------------------------------------------
MGI's acquisition activity over the last three years has been timely and
focused. During this period, over 90% of new acquisitions have been industrial
and office properties, principally in Massachusetts, which represents 38%
of the portfolio.
- --------------------------------------------------------------------------------
capital improvements to the $.12 for amortization of debt totals $.50, which
when deducted from the $1.65 FFO leaves $1.15 for dividends and cash retention.
Of that amount, we paid $.90 in dividends and $.25 was retained for additional
reinvestment in our future.
Acquisitions
Over the past three years, MGI has acquired $111,000,000 of real estate. All the
properties, except for one, have been in Massachusetts, which several years ago
experienced one of the steepest price declines in the United States. The
precipitous price decline, coupled with our strategic focus on the Boston
market, has and continues to be a major tactical advantage.
MGI's $111,000,000 in new acquisitions since 1993 are 99% occupied and producing
a 13% yield. Acquisitions have typically been from institutional sellers who
tended to be involuntary owners due to the extreme price decompression in the
early 1990s. Investments in 1995 included eight separate properties and
aggregated $38,000,000. The prices of the 1995 acquisitions tend to be at
material discounts to replacement cost and are expected to produce initial
entrance returns of 12%, which we hope will escalate over time. We believe that
it is not how much you buy, but how you buy that will set the foundation for
above-average performance.
By purchasing eight different properties, we have broadened asset
diversification and our foundation for income and value growth. Our average
price was $4,125,000 per new property. It has been our experience that real
estate pricing within this asset size has been less efficient and therefore,
provides improved opportunity. Most institutions focus their acquisitions
efforts above $10,000,000.
Because real estate as an investment is subject to cycles affecting what to buy
and when to buy, it is instructive to highlight several MGI operating policies.
First, we prefer to invest in higher quality functional properties -- those that
appeal to recognized or emerging growth companies. Although yields may be
seemingly lower, such properties tend to outperform
[3 photos of buildings, with their respective captions:]
261 Cedar Hill, Marlborough, MA
59,400 Square-Foot R&D Building
One Executive Drive, Chelmsford, MA
108,500 Square-Foot R&D Building
450 Whitney Avenue, Northborough, MA
102,300 Square-Foot R&D Building
[ 6 ]
<PAGE>
[Photo of building & caption]
25 Porter Road, Littleton, MA -- 66,500 Square-Foot R&D Building
older buildings that may have seen their better days. Secondly, we believe that
returns and capital appreciation potential appear far stronger today in the
industrial/office sector (particularly in the Massachusetts market), which
represents the lion's share of our recent investment focus. Finally, we believe
the Massachusetts real estate market is in the sixth or seventh inning of a
recovery. At this stage, rents have not yet risen to levels that justify new
construction. As a result, rents will tend to strengthen due to limited new
competition. Further, when market rents reach a level to support reproduction
values, lenders and the development community are not likely to forget the
lessons earned painfully in the 1980s; most will be slow to build new property.
Accordingly, we believe that rents on quality property in the Massachusetts
market should generally be in an upward mode for at least a three-year period.
This trend is evidenced in rising occupancy levels, which have and should
continue to exert upward pressure on rents. Eliminating dated and obsolete
property from statistics, vacancy in our Massachusetts markets has gone from 20%
three years ago to less than 10% today. Currently only a limited supply of
quality space remains available for lease.
Tenants added to our rent roll in 1995 provide improved depth and quality to our
income stream. It has been frequently observed that the economy is being driven
not by the General Motors of the world, but by emerging growth companies. While
not every one of our tenants will grow to become a major national credit, the
evolving list of our tenants is impressive. When we invest in property, we
consider not only tenant credit worthiness, but the underlying market demand and
rental value of the space leased. Should any of our tenant's economic fortunes
decline, which they will on occasion, the Trust's second and best defense is the
market appeal of the space, which we hope will have an equal or higher value for
replacement tenants. Without mentioning all the tenants joining MGI in 1995, a
representative partial list includes: Allmerica Property and Casualty, AT&T,
Avid Technology,
**********************************[PIE CHART]**********************************
FFO Allocation
Dividend $0.90
Capital and Tenant Improvements $0.38
Reinvestment $0.25
Debt Amortization $0.12
*******************************************************************************
[ 7 ]
<PAGE>
[Photo of building & caption]
55 Middlesex Turnpike, Bedford, MA -- 93,200 Square-Foot R&D Building
Bradlees, Borden, CDI Corporation, Chevron, Computer Associates, Diebold, Ford
Motor Credit, Frito-Lay, Progress Software, The Rockport Company, Siemens,
Standard Register, Staples and Telebit.
A review of four representative acquisitions effected prior to 1995 helps
illustrate the efficacy of our operating strategies. These acquisitions were
modest in size and may not have appeared particularly noteworthy at the time.
However, three years of individual acquisitions combine to form an impressive
and difficult-to-replicate portfolio. The discussion gives insight as to our
enthusiasm for the portfolio's earnings potential and likelihood of capital
appreciation.
In October 1992, we acquired 55 Middlesex Turnpike in Bedford, Massachusetts,
our first re-entry into the Massachusetts market. The purchase price was a
modest $2,574,000, equal to $27.77 per square foot. This transaction may have
represented the bottom or floor of the market. In 1995, this 93,200 square-foot
building provided the Trust with a 15.2% yield on our depreciated cost of $25.97
per square foot. Based on comparable sales, low vacancy in the area and
generally rising rents, the value range of this property if exposed to the
market would likely be $40 to $45 per square foot. If we take the more
conservative of these estimates, the value is approximately $1,150,000 over our
purchase price, an increase of 45%.
Two 1993 acquisitions bear note. In the first, MGI acquired a 77,400 square-foot
industrial building, 47 Harvard Street in Westwood, Massachusetts. The building
was purchased for $1,515,000 ($19.57 per square foot) from a lender, who had
foreclosed on the property prior to our acquisition. When we negotiated to
acquire the building, it was vacant. During our negotiation with the seller, we
leased half the building to a new tenant who shortly thereafter took the full
space. During 1995, this building generated a yield on our depreciated cost of
18.1%. We are currently negotiating a lease renewal and the building's value
should be solidified following a long-term lease
**********************************[BAR CHART]**********************************
Portfolio Distribution by Property Type
Industrial 33.9%
Office 26.1%
Retail 22.3%
Apartments 17.7%
*******************************************************************************
[ 8 ]
<PAGE>
Value Creation
- --------------------------------------------------------------------------------
Value creation is a long-term process that begins with the initial property
acquisition. It first involves the recognition of an unmet need or unfulfilled
market demand, followed by the vision to capitalize on the opportunity.
- --------------------------------------------------------------------------------
renewal. However, comparable sales suggest that the building's value today
should approximate $35 per square foot or more. Taking this value in relation to
our original investment suggests that the present value is materially over our
cost.
In October 1993, early in the office recovery cycle, MGI acquired Point West
Place in Framingham, Massachusetts. The purchase price for this 107,000
square-foot office building was $7,214,000, equal to $66.18 per square foot. The
property had once sold for $19,667,000, equal to $180 per square foot. At the
time of our acquisition, office rents were averaging $14 per square foot and
have recovered rather dramatically to $19 to $20 per square foot today. During
1995, MGI's yield on this investment was 11.6% from rents in place that are well
under market. Reflecting the recovery, today's value is significantly higher
than it was when we purchased the building.
In November 1994, we acquired 234 Ballardvale Street, Wilmington, Massachusetts,
a 100,200 square-foot industrial flex-type property with offices in the front
and distribution in the rear. The purchase price was $2,514,000, equal to $25.09
per square foot. The building was 50% occupied by a publicly traded company,
Datawatch Corporation, listed on the NASDAQ Stock Exchange. Shortly after the
acquisition, MGI leased the balance of the space for five years to Progress
Software, which has invested significantly in improvements to the space. During
the partial lease year in 1995, MGI's return from this building was 12.2%, which
should escalate to about 15% in 1996 when Progress Software will be in occupancy
for the full year. We believe the building's value to be in the range of $38 to
$42 per square foot. Based on the lower figure, the value is approximately 50%
in excess of our cost.
Portfolio/Leasing
MGI is a diversified Trust, owning industrial, office, apartment and retail
properties. While our holdings of various asset categories will periodically
expand and contract, reflecting varying levels of market opportunity, MGI will
remain diversified. Within this context and under the present economic
[3 photos of buildings, with their respective captions:]
234 Ballardvale Street, Wilmington, MA
100,200 Square-Foot R&D Building
Point West Place, Framingham, MA
107,000 Square-Foot Office Building
47 Harvard Street, Westwood, MA
77,400 Square-Foot Distribution Building
[ 9 ]
<PAGE>
Portfolio
Leasing
- --------------------------------------------------------------------------------
Our leasing success has its roots in favorable acquisition prices and in the
quality of properties. This is enhanced by consistent asset management with a
commitment to tenant satisfaction and responsiveness to the market.
- --------------------------------------------------------------------------------
environment, our percentage of assets allocated to industrial and office
properties (60%) is likely to continue increasing in the near future, as we
perceive favorable discounts in this sector and superior returns. Further, the
recovery, or more properly the creation of value, should be highest in this
sector. MGI identified those emerging opportunities early, as evidenced by our
entry into the Massachusetts market and the industrial and office markets at
least two years prior to the conventional wisdom. REITs that are restricted to a
lone property type or market -- a practice we have avoided -- can become myopic
and thus lose the ability to assess relative market differences and
opportunities. In today's rapidly evolving markets, one must sell on strength
and purchase on weakness.
During 1995, we sold an apartment complex in suburban New Orleans, Louisiana.
This asset dated back to the origins of the Trust. We sold the property because
it was not part of our long-term strategy as to location and quality. Given a
strong market demand for apartments, the sale was at $12,000,000 and the Trust
recognized a gain of $1,600,000. The proceeds have been fully reinvested in
higher quality assets with improved gain potential. We also sold an industrial
building in Nashville, Tennessee for a $1,400,000 profit. Originally acquired in
1992 for $3,431,000, our annual yield over a three-year holding period was 28%,
including the gain.
Industrial properties represent our largest asset category. These properties are
carried at $87,236,000 (34% of the portfolio) and produced a solid 13.3% return
in 1995. Office properties are our second largest category. These properties
represent 26% of our portfolio at $67,020,000 and produced a 10.5% yield in
1995. Retail, at $57,206,000 and likely to decline as a percent of assets,
produced a return of 7.8%. Although we will consider selective retail sales, we
will do so from strength and at such time as a property is favorably positioned
for sale. The return on the retail portfolio should rise in 1996, providing an
improving foundation for future valuation. The residential portfolio, now at
$45,366,000 and our longest-held category,
[3 photos of buildings, with their respective captions:]
Bradlees, Peabody, MA
106,900 Square-Foot Retail Building
Fox Hills Apartments, Bloomfield, MI
346-Unit Residential Complex
555 Briarwood Circle, Ann Arbor, MI
80,000 Square-Foot Office Building
[ 10 ]
<PAGE>
[Photo of building & caption]
1925 Andover Street, Tewksbury, MA -- 189,200 Square-Foot R&D Building
yielded 12.2% in 1995. This sector is not likely to increase as an asset
category in 1996 because entrance yields are 200 to 300 basis points below
office and industrial entrance yields.
The benefits of diversification are apparent in the contribution of our quality
apartments, where the rents can be adjusted annually, versus industrial and
office buildings, where leases tend to run for longer terms. While the combined
industrial and office portfolio produced a solid 12% in 1995, apartments owned
through both years earned their keep, producing $426,000 more in net income in
1995 than was generated in 1994. Looking at the combined portfolio of fifty-two
properties at fiscal year end, the yield was 11.3%, up from 10.9% last year. All
yields, or returns, are calculated by dividing property operating income by the
depreciated costs as of year end.
Updating leasing and occupancy, the commercial portfolio finished the year at a
solid 97.5% leased. Our residential portfolio was also very solid at 96%
occupancy. Commercial leases signed in 1995 totaled 657,500 square feet, with
new lease rents up an average 4% over the prior rents. In addition, early lease
renewals for 1996 expirations totaled 252,300 square feet. Remaining scheduled
1996 lease expirations and vacant space to lease at year end total 637,600
square feet, which is 14% of the commercial portfolio and represents a
traditional annual turnover. Existing rental rates on the space expiring in 1996
indicate that the rents in place tend to be modestly below current market. As a
result, we should be able to hold occupancy levels and, we hope to see some
rental rate increases on renewals.
Dividends and Dividend Reinvestment Plan
With earnings and values demonstrating solid growth during the year, the
quarterly dividend was increased in June 1995 from an annualized rate of $.88 to
$.92 per share. The dividend was again increased to $.96 in December 1995. As
noted, MGI has one of the best-covered dividends in the industry at 58% of
1995's FFO. At the $.96 annual dividend level, the pay out approximates
estimated taxable income after depreciation charges. In computing taxable
income, it should be noted that
**********************************[BAR CHART]**********************************
Dividend and FFO Per Share
FFO Dividend
1995 $1.65 $0.90
1994 $1.54 $0.86
1993 $1.42 $0.81
*******************************************************************************
[ 11 ]
<PAGE>
realized gains have frequently been deferred for tax purposes through property
exchanges.
Our dividend rate is designed to provide the potential for periodic increases as
the portfolio demonstrates continued earnings momentum and longer-term capital
gains. Based on a conservative pay out and the ability to reinvest cash to
improve our asset quality, capital gain creation should be a significant benefit
over time.
The Trust's Dividend Reinvestment Plan implemented in October 1994 has thus far
increased shareholders' equity by approximately $415,000. If you share my belief
that the stock has been trading at a discount to the inherent value of the
Trust's portfolio and view MGI as a long-term investment, the dividend
reinvestment creates an advantageous way of building value. In addition, newly
issued shares purchased for the Plan are at a 3% discount from market price. For
shareholders who wish to join the Plan, we have enclosed a form for completion
and mailing to our Plan Agent, the Bank of Boston, who will send you a
Prospectus.
Outlook
In last year's Annual Report, we stated our objective of having a real estate
portfolio value not less than $24 per share, net of debt, by the year 2000. This
objective was reviewed in our annual update of the Trust's strategic plan. The
update noted that the Trust's five-year total return of 200%, off a low base,
has been impressive, but the challenges ahead must be identified and overcome
just as they were five years ago. While respectful of these challenges, we have
accomplished much and MGI appears to be well positioned for significant future
opportunities.
As we move forward, the momentum of the existing portfolio should not be
overlooked. Our acquisition prices appear to be materially below evolving
values. Using conservative assumptions about value growth and cumulative cash
retention, we project continuing solid momentum as to where MGI should be in the
year 2000. Complementing this foundation for growth, we expect to acquire
additional assets on a one-by-one basis, which is a relatively low-risk
business. Such additional acquisitions should enhance our progress toward the
base goals for the year 2000. With real estate entrance yields of 10% plus or
minus and a reasonable likelihood of capital appreciation over that amount,
continued acquisition performance should be rewarding. These rewards can be
magnified with long-term mortgage debt at favorable rates. We view debt with
respect and will limit leverage to an upper range of 40% to 45% of total assets,
which appears to be less when viewed in light of the current asset values.
Against this solid foundation, MGI is likely to see expanding horizons of
opportunity in the real estate arena. With MGI's rising income stream and
momentum, which may not be common for all real estate entities, MGI will
consider acquiring other portfolios, public or private. Such strategic
acquisitions will be considered only if they accelerate the Trust's
opportunities without jeopardizing growth in value for our shareholders.
/s/ W. Pearce Coues
W. Pearce Coues
Chairman of the Board of Trustees
January 22, 1996
[ 12 ]
<PAGE>
The acquisition of One Andover Tech Center, a multi-tenant, Class A suburban
office building complements the other two properties MGI owns in the Andover
Tech Center Park. MGI is now the dominant owner in the Park, which is
strategically located at the intersection of Interstate 495 and 93.
[Photo of One Andover Tech Center]
[ 13 ]
<PAGE>
MGI Properties 1995 Annual Report
Summary of
Properties
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Scheduled
Lease Number
Net Carrying Value Percentage Expirations of Lease
Industrial Sq.Ft. Dollars Sq.Ft. Leased 1995 1996 Tenants Principal Tenant Expiration
- --------------------------------------------------------------------------------------------------------------------------------
Distribution and Manufacturing
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
North 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 PB 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, Inc. 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, Inc. 3/30/99
Billerica, MA 56,300 1,989,000 35.33 100% -- -- 1 Bay Networks, Inc. 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
================================================================================================================================
</TABLE>
[ 14 ]
<PAGE>
Summary of
Properties
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Scheduled
Lease Number
Net Carrying Value Percentage Expirations of Lease
Office Sq.Ft. Dollars Sq.Ft. Leased 1995 1996 Tenants Principal Tenant Expiration
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 78.34 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 K mart 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 $ 7,097,000 $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 $45,366,000 $33,981 96%
================================================================================================================================
Net
Partnership Units Carrying Value
- --------------------------------------------------------------------------------------------------------------------------------
Washington, DC (4%) 778 $ 16,000
San Bruno, CA (2%) 430 225,000
- --------------------------------------------------------------------------------------------------------------------------------
Total 1,208 $241,000
================================================================================================================================
</TABLE>
[ 15 ]
<PAGE>
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
============================================
Use 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:
Fiscal 1995 Acquisitions
- ----------------------------------------------------------------------
Date Square
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
(Additions) 8/95 106,900 5,000,000
- ----------------------------------------------------------------------
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
======================================================================
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
[ 16 ]
<PAGE>
Management's Discussion
and Analysis of Financial Condition
and Results of Operations
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 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
======================================================
[ 17
<PAGE>
Management's Discussion
and Analysis of Financial Condition
and Results of Operations
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
- ------------------------------------------------------
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 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
[ 18 ]
<PAGE>
Management's Discussion
and Analysis of Financial Condition
and Results of Operations
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 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.
[ 19 ]
<PAGE>
MGI Properties 1995 Annual Report
Consolidated
Balance Sheets
- --------------------------------------------------------------------------------
November 30,
---------------------
1995 1994
- --------------------------------------------------------------------------------
Assets
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
================================================================================
See accompanying notes to consolidated financial statements.
[ 20 ]
<PAGE>
MGI Properties 1995 Annual Report
Consolidated
Statements of Earnings
- --------------------------------------------------------------------------------
Year Ended November 30,
---------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
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
================================================================================
See accompanying notes to consolidated financial statements.
[ 21 ]
<PAGE>
MGI Properties 1995 Annual Report
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.
[ 22 ]
<PAGE>
MGI Properties 1995 Annual Report
Consolidated
Statements of Changes
in Shareholders'Equity
- --------------------------------------------------------------------------------
Undistributed
Additional (Distributions
Common Paid-in in Excess of)
Shares Capital Net Income
- --------------------------------------------------------------------------------
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
================================================================================
See accompanying notes to consolidated financial statements.
[ 23 ]
<PAGE>
MGI Properties 1995 Annual Report
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 discounted cash flow analysis and quoted market prices. Such
financial instruments include short-term investments, U.S. Government
securities, mortgage and other loans payable and mortgage notes receivable which
were received in connection with transactions not qualifying as sales for
financial accounting purposes and accordingly not reflected in the Trust's
consolidated balance sheet. The excess of the aggregate fair value of the
Trust's financial instruments over their aggregate carrying amounts is not
material.
G. Net Income Per Share
Net income per share is computed based on the weighted average number of common
shares outstanding.
H. Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
[ 24 ]
<PAGE>
MGI Properties 1995 Annual Report
Notes to Consolidated
Financial Statements
2--Investments
A. Real Estate
A summary of real estate investments follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Accumulated
Buildings Depreciation Net Carrying Amount
and and ---------------------------
Type of Investment Land Improvements Amortization 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
==========================================================================================
</TABLE>
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.
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 a
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.
[ 25 ]
<PAGE>
MGI Properties 1995 Annual Report
Notes to Consolidated
Financial Statements
3--Leases
All leases relating to real estate investments are operating leases;
accordingly, rental income is reported when earned.
Future minimum lease payments on noncancelable operating leases at commercial
properties at November 30, 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.
4--Mortgage and Other Loans Payable
Mortgage and other loans payable at November 30 follow:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
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%
================================================================================
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.
[ 26 ]
<PAGE>
MGI Properties 1995 Annual Report
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.
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.
[ 27 ]
<PAGE>
MGI Properties 1995 Annual Report
Notes to Consolidated
Financial Statements
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 improvement 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:
- --------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------
1995 February 28 May 31 August 31 November 30
- --------------------------------------------------------------------------------
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
================================================================================
[ 28 ]
<PAGE>
MGI Properties 1995 Annual Report
Independent
Auditors' Report
To the Board of Trustees and Shareholders of MGI Properties:
We have audited the accompanying consolidated balance sheets of MGI Properties
and subsidiaries as of November 30, 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.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
December 29, 1995
[ 29 ]
<PAGE>
MGI Properties 1995 Annual Report
Selected
Financial Data*
<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 cost $293,469,000 $267,530,000 $258,663,000 $209,905,000 $208,011,000
- ---------------------------------------------------------------------------------------------------------------
Total assets $274,651,000 $255,971,000 $246,700,000 $214,161,000 $217,428,000
- ---------------------------------------------------------------------------------------------------------------
Mortgage and other loans payable $ 84,506,000 $ 70,954,000 $ 66,949,000 $ 60,571,000 $ 67,852,000
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity $180,540,000 $176,095,000 $171,039,000 $145,748,000 $145,873,000
- ---------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 11,487,677 11,450,451 10,574,104 9,402,476 9,396,992
===============================================================================================================
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
===============================================================================================================
Dividend $ .90 $ .86 $ .81 $ .80 $ .80
===============================================================================================================
</TABLE>
* The Selected Financial Data should be read in conjunction with the
consolidated financial statements and the related notes appearing elsewhere
herein.
[ 30 ]
<PAGE>
MGI Properties 1995 Annual Report
Officers and Trustees
OFFICERS
W. Pearce Coues
Chairman of the Board of Trustees and
Chief Executive Officer
Robert Ware
Executive Vice President
Phillip C. Vitali
Executive Vice President and Treasurer
Karl W. Weller
Senior Vice President
James P. O'Malley
Senior Vice President
Jean M. Harrington
Vice President and Secretary
David P. Morency
Controller
TRUSTEES
W. Pearce Coues
Chairman of the Board of Trustees and
Chief Executive Officer
Former President of National Association
of Real Estate Investment Trusts, Inc.
George S. Bissell
Chairman of the Board,
Keystone Funds
Herbert D. Conant
Member of the Administrative-Audit Committee
Former Chairman,
The Turner Corporation
Francis P. Gunning, Esq.
Chairman of the Administrative-Audit Committee
Former Executive Vice President and General Counsel, Teachers Insurance
and Annuity Association of America and College Retirement Equities Fund
Colin C. Hampton
Member of the Administrative-Audit Committee
Former Chairman and Chief Executive Officer, UNUM Corporation
George M. Lovejoy, Jr.
President and Director, Fifty Associates;
Director, Latin America Dollar Income Fund;
Director, Scudder World Income Opportunities Fund;
Trustee or Director
of Various Scudder Mutual Funds;
Former President, The Counselors
of Real Estate
Rodger P. Nordblom
Chairman and Director,
Nordblom Company;
Former President,
Society of Industrial and Office Realtors
[ 31 ]
<PAGE>
MGI Properties 1995 Annual Report
Shareholder
Information
ANNUAL MEETING
The Annual Meeting of the Shareholders will be held on March 21, 1996 at
10:00 A.M. in the Boston Harbor Hotel,
70 Rowes Wharf, Boston, Massachusetts.
STOCK LISTING
New York Stock Exchange -- Symbol MGI
MEMBER
National Association of Real Estate
Investment Trusts, Inc.
GENERAL COUNSEL
Olshan Grundman Frome &
Rosenzweig LLP
AUDITORS
KPMG Peat Marwick LLP
"MGI Properties",(R) "MGI"(R) and
"Mortgage Growth Investors"(R) are registered
trademarks of MGI Properties.
[Recycle symbol] Recycled paper
FORM 10-K
Shareholders of MGI Properties may, without charge, request a copy of the Annual
Report on Form 10-K as reported to the Securities and Exchange Commission.
Written requests should be sent to:
Jean M. Harrington
Vice President and Secretary
MGI Properties
30 Rowes Wharf
Boston, Massachusetts 02110-3337
TRANSFER AGENT AND
REGISTRAR
Bank of Boston
c/o BostonEquiServe, L.P.
Transfer Processing
Mail Stop 45-01-20
P.O. Box 644
Boston, Massachusetts 02102-0644
617-575-3120 or 800-730-6001
Bank of Boston maintains shareholder records and can answer questions regarding
shareholders' accounts. Shareholders wishing to transfer shares or to change the
name on a certificate should contact Bank of Boston for instructions.
Share certificates are valuable and should be safeguarded, since replacement
takes time and requires payment by the shareholder of a surety bond premium. If
a certificate is lost, stolen, or destroyed, Bank of Boston should be notified.
Registered mail should be used whenever a certificate is mailed.
DIVIDEND
REINVESTMENT PLAN
MGI Properties offers a Dividend Reinvestment and Share Purchase Plan which
allows its shareholders to automatically invest dividends, as well as make
voluntary cash payments for the purchase of additional shares. To receive more
information, contact Bank of Boston (BostonEquiServe, L.P.): 617-575-3120 or
800-730-6001.
SHAREHOLDER INCOME TAX
INFORMATION
The 1995 quarterly allocation of dividends paid per share for individual
shareholders' income tax purposes was as follows:
- ---------------------------------------------------
Long-Term
Date Paid Ordinary Capital Total
in 1995 Income Gain Dividend
- ---------------------------------------------------
January 11 $.220 -- $.22
April 13 .220 -- .22
July 13 .230 -- .23
October 12 .011 $.219 .23
- ---------------------------------------------------
$.681 $.219 $.90
===================================================
Shareholders should consult their individual tax advisors regarding the
appropriate reporting of these dividend payments.
[ 32 ]
<PAGE>
[INSIDE BACK COVER]
[Stylized photo--looking up at decorative columns and other details of a
building facade]
<PAGE>
[BACK COVER]
Corporate Office
30 Rowes Wharf
Boston, Massachusetts 02110-3337
617-330-5335
Regional Office
Harrison Township, Michigan
810-468-2690
<PAGE>
[BUSINESS REPLY CARD--FRONT]
NO POSTAGE NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 3736 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
Bank Of Boston
Dividend Reinvestment
MS: 45-01-20
P.O. Box 1681
Boston, Ma 02105-9867
<PAGE>
[BUSINESS REPLY CARD--BACK]
Dividend
Reinvestment
Plan
MGI Properties offers a Dividend
Reinvestment Plan which enables its
shareholders to automatically invest
dividends, as well as make voluntary
cash payments towards the purchase of
additional shares.
Please send me a Prospectus and Enrollment Card for your Dividend Reinvestment
Plan.
[ ] I am a registered shareholder with shares held in my name.
[ ] I am a shareholder with my shares held by a nominee such as a broker, bank
or other similar organization.
Name:_________________________________________________________________________
(Type or print, please)
Address:______________________________________________________________________
City:__________________________________State:__________________Zip:___________
Telephone Number:_____________________________________________________________
Note: Even if your shares are held by a nominee (such as a broker, bank or other
similar organization), you are eligible to participate in the Plan.
However, you need to contact them for their specific enrollment
procedures. You will only receive a Prospectus upon return of this card.
