UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: February 28, 1997 Commission File Number: 1-6833
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MGI PROPERTIES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6268740
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Winthrop Square, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 422-6000
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N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Common shares outstanding as of April 11 , 1997: 13,595,454
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<PAGE>
MGI PROPERTIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Exhibit A: Computation of Earnings Per Share 12
PART II: OTHER INFORMATION
Items 1 - 6 13
Signatures 14
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<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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February 28, 1997 November 30, 1996
(unaudited)
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<S> <C> <C>
ASSETS
Real estate, at cost $362,750,000 $356,024,000
Accumulated depreciation and amortization (46,289,000) (44,810,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investments in real estate 316,461,000 311,214,000
Cash and cash equivalents 20,391,000 15,140,000
Accounts receivable 3,677,000 3,665,000
Other assets 10,561,000 9,645,000
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$351,090,000 $339,664,000
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage loans payable $108,593,000 $138,547,000
Other liabilities 5,732,000 6,682,000
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Total liabilities 114,325,000 145,229,000
Shareholders' equity:
Common shares -- $1 par value; 17,500,000 shares authorized;
13,595,454 issued (11,563,199 at November 30, 1996) 13,595,000 11,563,000
Additional paid-in capital 206,663,000 167,185,000
Undistributed net income 16,507,000 15,687,000
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Total shareholders' equity 236,765,000 194,435,000
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$351,090,000 $339,664,000
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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February 28, 1997 February 29, 1996
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<S> <C> <C>
INCOME
Rental and other income $14,882,000 $12,699,000
Interest 206,000 85,000
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Total income 15,088,000 12,784,000
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EXPENSES
Property operating expenses 3,664,000 3,368,000
Real estate taxes 1,819,000 1,511,000
Depreciation and amortization 2,552,000 2,316,000
Interest 2,623,000 1,891,000
General and administrative 775,000 733,000
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Total expenses 11,433,000 9,819,000
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Income before net gains and exchange item 3,655,000 2,965,000
Net gains 600,000 --
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Income before extraordinary item 4,255,000 2,965,000
Extraordinary item - loss on prepayment of debt (306,000) --
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Net income $3,949,000 $2,965,000
================================================================================================================================
PER SHARE DATA
Net income $0.32 $0.26
================================================================================================================================
Weighted average shares outstanding 12,316,733 11,517,710
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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February 28, 1997 February 29, 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,949,000 $2,965,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,552,000 2,316,000
Net gain (600,000) --
Extraordinary item 306,000 --
Other (532,000) (886,000)
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Net cash provided by operating activities 5,675,000 4,395,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate (6,622,000) (10,344,000)
Additions to real estate (1,475,000) (1,059,000)
Deferred tenant charges (679,000) (189,000)
Net proceeds from sales of real estate interests 619,000 --
Other (46,000) 9,000
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Net cash used in investing activities (8,203,000) (11,583,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Additions to mortgage loans payable, net 11,000,000 9,500,000
Repayment of mortgage loans payable (40,954,000) (429,000)
Mortgage prepayment penalty (306,000) --
Cash distributions (3,129,000) (2,763,000)
Proceeds from issuance of common shares 41,168,000 211,000
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Net cash provided by financing activities 7,779,000 6,519,000
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Net increase/(decrease) in cash and short-term investments 5,251,000 (669,000)
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CASH AND CASH EQUIVALENTS
Beginning of period 15,140,000 7,045,000
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End of period $20,391,000 $6,376,000
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Additional
Common Paid-In Undistributed
Shares Capital Net Income
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<S> <C> <C> <C>
Balance at November 30, 1996 $11,563,000 $167,185,000 $15,687,000
Net income -- -- 3,949,000
Distributions -- -- (3,129,000)
Sale of common shares 2,000,000 39,075,000 --
Options exercised and other 32,000 403,000 --
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Balance at February 28, 1997 $13,595,000 $206,663,000 $16,507,000
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: The results of the interim period are not necessarily indicative of
results to be expected for the entire fiscal year. The figures
contained in this interim report are unaudited and may be subject to
year-end adjustments. Certain prior year amounts have been reclassified
to conform with the current year presentation. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations have been included and
such adjustments include only the normal accruals.
Note 2: On March 27, 1997, the Board of Trustees declared a quarterly dividend
of $.27 per share, payable April 17, 1997, to shareholders of record
April 8, 1997. This dividend payment will aggregate $3.7 million.
Note 3: Subsequent to the end of the quarter, the Trust acquired for a price of
$3.5 million a 107,600 square-foot industrial building located in
Westford, Massachusetts. The building is 100% leased to a single
tenant.
Note 4: Cash paid for interest amounted to $2.6 million and $1.9 million for
the three-month periods ended February 28, 1997 and February 29, 1996,
respectively.
Note 5: At February 28, 1997, options to purchase an aggregate of 965,461
common shares at exercise prices ranging from $7.375 to $21.00 per
share were outstanding under MGI's stock option plans for key employees
and trustees. All options outstanding at February 28, 1997 expire by
December 2006.
Note 6: During the quarter ended February 28, 1997, the Trust prepaid a $12.3
million mortgage and incurred a $306,000 penalty ($.03 per share),
which was recorded as an extraordinary loss.
Note 7: MGI intends to qualify for the year ended November 30, 1997 as a real
estate investment trust under the provisions of Sections 856-860 of the
Internal Revenue Code of 1986, as amended. Accordingly, no provision
has been made for Federal income taxes.
-7-
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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Shareholders' equity at February 28, 1997 was $236.8 million, compared
to $194.4 million at November 30, 1996. The increase primarily reflects net
proceeds of $41.1 million from an equity offering resulting in the issuance of
2,000,000 common shares as well as the excess of net income over distributions
paid in the first quarter. At February 28, 1997, financial liquidity was
provided by $20.4 million in cash and cash equivalents and by unused lines of
credit aggregating $45.0 million.
In December 1996 the Trust acquired for $6.6 million two industrial
buildings totaling 145,500 square feet which are 100% leased. These acquisitions
were part of a tax-deferred exchange in which approximately $5.0 million of the
purchase price was funded with the proceeds of two sales in the fourth quarter
of 1996. Subsequent to the end of the quarter, the Trust acquired a 107,600
square-foot industrial building located in Westford, Massachusetts for a price
of $3.5 million. Additionally, the Trust has signed contracts to acquire three
additional New England properties at prices aggregating $15.5 million. Subject
to the completion of due diligence and the satisfaction of certain other
conditions, it is anticipated these investments will close late in the second
quarter, although there is no assurance that MGI will acquire these properties.
Mortgage and other loans payable totaled $108.6 million at February 28,
1997, a net decrease of $29.9 million, compared to $138.5 million at November
30, 1996. The Trust utilized $28.0 million of the offering proceeds to repay the
outstanding balances on its lines of credit. In addition, the Trust refinanced a
$12.3 million, 9.3% mortgage with an $11.0 million loan bearing interest at a
rate of 8.12%. The balance of the change represents scheduled principal
payments. Scheduled loan principal payments due within twelve months of February
28, 1997 total $3.1 million. MGI believes it will continue to be able to extend
or refinance maturing mortgage loans upon satisfactory terms.
Cash requirements during the balance of fiscal 1997 include
distributions to shareholders, capital and tenant improvements and other leasing
expenditures required to maintain MGI's occupancy levels and other investment
undertakings. Currently, the Trust is contractually committed to approximately
$1.9 million of capital and tenant improvement projects, which are anticipated
to be completed during the next two fiscal quarters.
Principal sources of funds in the future are expected to be from
property operations, mortgaging or refinancing of existing mortgages on
properties and MGI's portfolio of investment securities. Other potential sources
of funds include the proceeds of public or private offerings of additional
equity or debt securities of the Trust or the sale of real estate investments.
The cost of new borrowings or issuances of the Trust's equity securities will be
measured against the anticipated returns of investments to be acquired with such
funds.
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<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Trust presently anticipates that the purchase of additional properties will
be financed primarily by cash, short-term investments and debt. MGI believes the
combination of available cash and investment securities, the value of MGI's
unencumbered properties and other resources available to it are sufficient to
meet its short- and long-term liquidity requirements.
Results of Operations
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Net income for the quarter ended February 28, 1997 was $3,949,000, or
$.32 per share on the increased average number of shares outstanding, compared
to $2,965,000, or $.26 per share, for the first quarter one year ago. Included
in 1997 first quarter net income was a gain of $600,000, or $.05 per share, from
the sale of a partnership interest in an apartment complex, which was partially
offset by an extraordinary loss of $306,000, or $.03 per share, incurred in
connection with a loan refinancing prepayment fee. Funds from operations ("FFO")
totaled $6.2 million in the first quarter of fiscal 1997, compared to $5.3
million in the corresponding quarter of 1996. MGI calculates FFO in conformity
with the NAREIT definition which is net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. MGI
believes FFO is an appropriate supplemental measure of operating performance.
The following is a reconciliation of net income to FFO:
<TABLE>
<CAPTION>
Three Months Ended
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February 28, 1997 February 29, 1996
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<S> <C> <C>
Net income $3,949,000 $2,965,000
Less net gain and extraordinary item 294,000 --
Plus building depreciation 2,041,000 1,702,000
Plus tenant improvement and commission
amortization
497,000 610,000
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FFO $6,193,000 $5,277,000
========== ==========
</TABLE>
The change in FFO, compared to the corresponding period in 1996, is attributable
to the same factors that affected income before net gains in such periods, with
the exception of depreciation and amortization expense.
-9-
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In comparing the first quarter of fiscal 1997 to that of the previous
year, the increase in net income before net gains of approximately $0.7 million
resulted principally from a $ 1.6 million increase in property operating income
which is offset, in part, by increases in interest expense and depreciation and
amortization of $0.7 million and $0.2 million, respectively. Property operating
income is defined as rental and other income less property operating expenses
and real estate taxes. The increase in interest expense is due to the higher
balance of debt primarily used to fund the acquisitions of properties. The
change in property operating income reflects the additional income from the
acquisition of properties of $1.8 million, an increase in income from properties
owned throughout the first quarters of both fiscal 1997 and 1996 of $0.1
million, offset, in part, by the income effect of $0.3 million due to the sale
of properties.
<TABLE>
<CAPTION>
Change in Property Operating Income for Quarter Ended February 28, 1997 versus February 29, 1996
- ------------------------------------------------------------------------------------------------
Property Properties Held 1997 and 1996 1997 and 1996
Type Both Fiscal Years Acquisitions Sales Net Change
---- ----------------- ------------ ----- ----------
<S> <C> <C> <C> <C>
Industrial $30,000 $ 372,000 $(126,000) $276,000
Office (4,000) 894,000 -- 890,000
Office/R&D 7,000 429,000 -- 436,000
Apartment 35,000 -- -- 35,000
Retail 62,000 -- -- 62,000
Land and Partnership -- 89,000 (203,000) (114,000)
-------- ---------- ---------- ----------
Total $130,000 $1,784,000 $(329,000) $1,585,000
======== ========== ========== ==========
</TABLE>
Substantially all of the properties acquired during 1997 and 1996 are
located in New England. As of February 28, 1997, the Trust's New England
portfolio consists of thirty four properties aggregating 3.3 million square
feet. During the first quarter of 1997, these properties produced operating
income of $5.3 million which amounts to 56% of the total from all Trust
properties. Scheduled expirations for New England properties total 147,481 and
487,806 square feet in 1997 and 1998, respectively. Existing rent levels
relative to New England space coming up for renewal appear to be generally below
prevailing market rents.
Scheduled lease expirations and completed leasing (in square feet) for
the portfolio as a whole are as follows at February 28, 1997:
<TABLE>
<CAPTION>
Scheduled Expirations
-------------------------------
Property Percentage 1997 Remaining Scheduled
Type Leased Leasing 1997 1998
---- ------- --------- -------- ------
<S> <C> <C> <C> <C>
Industrial 97.6% 319,100 100,200 676,500
Office 94.7% 46,900 98,500 116,500
Office/R&D 100.0% 6,600 -- 283,600
Retail 89.8% 6,400 11,900 79,200
------ ------- ------- ---------
Total 96.3% 379,000 210,600 1,155,800
====== ======= ======= =========
</TABLE>
-10-
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The fiscal 1998 scheduled lease expirations represent 22% of MGI's
total commercial portfolio, which is approximately 7% higher than 1997
expirations a year ago at this time. Included in the 1998 retail expirations is
53,200 square feet scheduled to expire at the 313,000 square-foot Yorkshire
Plaza in Aurora, Illinois, which is currently 77% leased. While management
believes that the center is favorably located, the lease market is soft due to
an excess supply of retail space.
Forward-Looking Statements
- --------------------------
Statements made or incorporated in this Report may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are dependent on a number of
factors which could cause actual results to differ materially from those
expressed or implied in the forward-looking statements. Such factors include,
among other things, satisfactory completion of the acquisitions, maintaining the
current occupancy and rent levels at the acquisition properties, as well as
those set forth in Risk Factors (Item 1) and Management's Discussion and
Analysis of Financial Condition and Results of Operations in MGI's Form 10-K for
the year ended November 30, 1996.
-11-
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT A
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
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February 28, 1997 February 29, 1996
<S> <C> <C>
PRIMARY
Net income $ 3,949,000 $ 2,965,000
=========== ===========
Weighted average numbers of shares outstanding
during the period 12,316,733 11,517,710
=========== ===========
Primary earnings per share $0.32 $0.26
=========== ===========
ASSUMING FULL DILUTION
Net income $ 3,949,000 $ 2,965,000
=========== ===========
Weighted average number of shares outstanding
during the period 12,316,733 11,517,710
=========== ===========
Earnings per share assuming full dilution $0.32 $0.26
=========== ===========
</TABLE>
Note: Net income per share is based upon the weighted average shares
outstanding taking into consideration common stock equivalents, if
dilutive. Outstanding stock options are not taken into account in the
computation of earnings per share as they are not materially dilutive.
-12-
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1: Legal Proceedings: Not applicable.
Item 2: Changes in Securities: Not applicable.
Item 3: Defaults upon Senior Securities: Not applicable.
Item 4: Submission of Matters to a Vote of Security Holders: None.
Item 5: Other Information: Not applicable.
Item 6: Exhibits and Reports on Form 8-K:
a) Exhibits:
Computation of Earnings Per Share (see page 12).
b) Reports on Form 8-K:
None
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<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 11, 1997 /s/ Phillip C. Vitali
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Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: April 11, 1997 /s/ David P. Morency
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David P. Morency
Controller
(Principal Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 20,391
<SECURITIES> 000
<RECEIVABLES> 3,677
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 10,561
<PP&E> 362,750
<DEPRECIATION> (46,289)
<TOTAL-ASSETS> 351,090
<CURRENT-LIABILITIES> 5,732
<BONDS> 108,593
<COMMON> 13,595
000
000
<OTHER-SE> 223,170
<TOTAL-LIABILITY-AND-EQUITY> 351,090
<SALES> 14,882
<TOTAL-REVENUES> 15,088
<CGS> 000
<TOTAL-COSTS> 8,881
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 2,623
<INCOME-PRETAX> 3,655
<INCOME-TAX> 000
<INCOME-CONTINUING> 3,655
<DISCONTINUED> 600
<EXTRAORDINARY> (306)
<CHANGES> 000
<NET-INCOME> 3,949
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
