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 Quarterly Period Ended: August 31, 1998 Commission File Number: 1-6833
--------------- ------
MGI PROPERTIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
MASSACHUSETTS 04-6268740
- --------------------------------------------- ------------------------------------
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
One Winthrop Square, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 422-6000
-----------------------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Common shares outstanding as of October 9, 1998: 13,761,307
Page 1 of 15 pages
Exhibit Index appears on Page 13
<PAGE>
MGI PROPERTIES
INDEX
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<CAPTION>
<S> <C>
PART I: FINANCIAL INFORMATION Page No.
--------
Item 1: Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II: OTHER INFORMATION
Items 1 - 6 13
Signatures 14
Exhibit 11: Computation of Earnings Per Share 15
</TABLE>
- 2 -
<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
August 31, 1998 November 30, 1997
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate
Land $ 83,129,000 $ 82,989,000
Buildings and improvements 317,599,000 288,095,000
Tenant improvements 13,925,000 10,859,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total real estate, at cost 414,653,000 381,943,000
Accumulated depreciation and amortization (48,824,000) (47,158,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment in real estate 365,829,000 334,785,000
Cash and cash equivalents 11,946,000 13,964,000
Accounts receivable 4,384,000 3,654,000
Other assets 10,955,000 9,641,000
- ------------------------------------------------------------------------------------------------------------------------------------
$393,114,000 $362,044,000
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and loans payable $131,252,000 $113,171,000
Other liabilities 7,246,000 6,488,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 138,498,000 119,659,000
Shareholders' equity:
Common shares -- $1 par value; 17,500,000 shares authorized;
13,761,307 issued (13,625,489 at November 30, 1997) 13,761,000 13,625,000
Additional paid-in capital 208,207,000 207,031,000
Undistributed net income 32,648,000 21,729,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 254,616,000 242,385,000
- ------------------------------------------------------------------------------------------------------------------------------------
$393,114,000 $362,044,000
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------------------- -------------------------------------
August 31, 1998 August 31, 1997 August 31, 1998 August 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental $18,166,000 $16,028,000 $51,891,000 $46,286,000
Interest 111,000 117,000 458,000 521,000
- --------------------------------------------------------------------------------------------------------------------------------
Total income 18,277,000 16,145,000 52,349,000 46,807,000
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating expenses 4,219,000 3,817,000 12,145,000 11,288,000
Real estate taxes 2,030,000 1,890,000 6,022,000 5,562,000
Depreciation and amortization 3,074,000 2,744,000 8,642,000 7,883,000
Interest 2,635,000 2,324,000 7,627,000 7,220,000
General and administrative 999,000 826,000 2,713,000 2,391,000
Strategic review 430,000 -- 430,000 --
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses 13,387,000 11,601,000 37,579,000 34,344,000
- --------------------------------------------------------------------------------------------------------------------------------
Income before net gains 4,890,000 4,544,000 14,770,000 12,463,000
Net gains 350,000 -- 8,375,000 600,000
- --------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 5,240,000 4,544,000 23,145,000 13,063,000
Extraordinary item - prepayment of debt -- -- -- (306,000)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $5,240,000 $4,544,000 $23,145,000 $12,757,000
================================================================================================================================
PER SHARE DATA
Basic earnings per share $0.38 $0.33 $1.69 $0.97
================================================================================================================================
Diluted earnings per share $0.37 $0.33 $1.65 $0.95
================================================================================================================================
Weighted average shares outstanding 13,760,024 13,605,703 13,728,003 13,179,891
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 4-
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Nine Months Ended
---------------------------------------------
August 31, 1998 August 31, 1997
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $23,145,000 $12,757,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,642,000 7,883,000
Net gains (8,375,000) (600,000)
Extraordinary item -- 306,000
Other (404,000) 1,351,000
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,008,000 21,697,000
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate (57,140,000) (25,679,000)
Additions to real estate (6,220,000) (4,185,000)
Deferred tenant charges (1,809,000) (1,684,000)
Net proceeds from sales of real estate interests 22,274,000 704,000
Other 145,000 (252,000)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,750,000) (31,096,000)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to mortgage and loans payable, net 46,550,000 15,500,000
Repayment of mortgage and loans payable (17,663,000) (42,458,000)
Mortgage prepayment penalty -- (306,000)
Cash distributions (12,226,000) (10,611,000)
Proceeds from issuance of common shares 1,063,000 41,390,000
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 17,724,000 3,515,000
- -------------------------------------------------------------------------------------------------------
Net decrease in cash and short-term investments (2,018,000) (5,884,000)
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Beginning of period 13,964,000 15,140,000
- -------------------------------------------------------------------------------------------------------
End of period $11,946,000 $ 9,256,000
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Additional
Common Paid-In Undistributed
Shares Capital Net Income
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 30, 1997 $13,625,000 $207,031,000 $21,729,000
Net income -- -- 23,145,000
Distributions -- -- (12,226,000)
Options exercised and other 136,000 1,176,000 --
- ---------------------------------------------------------------------------------------------------------------
Balance at August 31, 1998 $13,761,000 $208,207,000 $32,648,000
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: The results of the interim period are not necessarily
- ------ indicative of results to be expected for the entire fiscal year.
The figures contained in this interim report are unaudited and may
be subject to year-end adjustments. Certain prior year amounts
have been reclassified to conform with the current year
presentation. In the opinion of management, all adjustments
necessary for a fair presentation of financial position and
results of operations have been included and such adjustments
include only the normal accruals.
Note 2: During the third quarter, the Board of Trustees completed a
- ------ review of strategic alternatives available to MGI to maximize
shareholder value, and on August 12, 1998, voted to approve a plan
of complete liquidation and termination of the Trust ("the Plan"),
with a Special Meeting of Shareholders scheduled for October 14,
1998. A proxy statement describing the Plan, has been mailed to
shareholders of record as of September 1, 1998. It is currently
estimated that the net proceeds from the sale of the Trust's
properties and other assets pursuant to the Plan would permit the
Trust to make net cash distributions to shareholders aggregating
between $30 to $33 per share, although there can be no assurance
thereof. As noted in the proxy statement, management believes that
substantially all of the properties will be sold within 12 to 15
months of the adoption of the Plan by shareholders.
Note 3: On September 17, 1998, the Board of Trustees declared a cash
- ------ dividend of $.33 per common share payable on October 9, 1998 to
shareholders of record on September 30, 1998. This dividend
payment will aggregate $4.5 million.
Note 4: Cash paid for interest amounted to $2.6 million and $2.3 million
- ------ for the three-month periods ended August 31, 1998 and August 31,
1997, respectively. During fiscal 1998, the Trust sold two
properties that were secured by mortgages totaling $10.8 million
and which were assigned to the purchasers at closing. Only the
cash portions of the transactions are reflected in the
accompanying consolidated statements of cash flows.
Note 5: At August 31, 1998, options to purchase an aggregate of
- ------ 1,507,725 common shares at exercise prices ranging from $7.375 to
$26.50 per share were outstanding under MGI's stock option plans
for key employees and trustees. All options outstanding at August
31, 1998 expire by August 2008.
Note 6: Diluted earnings per share amounts are computed based on the
- ------ weighted average number of shares actually outstanding plus the
shares that would be outstanding assuming the exercise of dilutive
stock options, all of which are considered to be common stock
equivalents. The number of shares that would be issued from the
exercise of stock options has been reduced by the number of shares
that could have been purchased from the proceeds at the average
market price of the Trust's stock. Refer to Part I - Exhibit 11 -
Computation of Earnings Per Share (page 15).
Note 7: MGI intends to quality for the year ended November 30, 1998 as
- ------ a real estate investment trust ("REIT") 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
Overview
- --------
MGI is a self-administered equity REIT that owns and operates a
diversified portfolio of income producing real estate consisting of 65
commercial properties and three multi-family residential properties. The
commercial portfolio consists of 5.7 million square feet, 87% of which is
comprised of office, office/r&d and industrial properties. The multi-family
properties consist of three residential communities aggregating 959 units. At
August 31, 1998, the commercial and residential properties were 98.2% and 95.0%
leased, respectively. Since 1992, the Trust has focused on the commercial
segment of the real estate market, specifically industrial and office properties
located in New England. At August 31, 1998, 66%, based upon cost, of MGI's real
estate assets were located in New England. During fiscal 1997, the Trust began
the internalization of the property management function for its New England
properties. As of August 31, 1998, the Trust had 4.0 million square feet of
space under management.
During the third quarter, the Board of Trustees completed a review of
strategic alternatives available to MGI to maximize shareholder value, and on
August 12, 1998, voted to approve a plan of complete liquidation and termination
of the Trust ("the Plan"), with a Special Meeting of Shareholders scheduled for
October 14, 1998. A proxy statement describing the Plan has been mailed to
shareholders of record as of September 1, 1998. It is currently estimated that
the net proceeds from the sale of the Trust's properties and other assets
pursuant to the Plan would permit the Trust to make net cash distributions to
shareholders aggregating between $30 to $33 per share, although there can be no
assurance thereof. As noted in the proxy statement, management believes that
substantially all of the properties will be sold within 12 to 15 months of the
adoption of the Plan by shareholders.
Liquidity and Capital Resources
- -------------------------------
Shareholders' equity at August 31, 1998 was $254.6 million, compared to
$242.4 million at November 30, 1997. The increase primarily reflects the excess
of net income over distributions paid. At August 31, 1998, financial liquidity
was provided by $11.9 million in cash and cash equivalents and by a $40.0
million unused balance on its line of credit.
During fiscal 1998, the Trust has acquired 12 properties totaling
740,000 square feet for an aggregate price of $57.1 million - the acquisitions
were completed by April 1998. All of the properties are located in New England
and include seven office properties totaling 458,300 square feet, four
office/research and development properties totaling 242,700 and an industrial
building of 39,000 square feet. Additionally, the Trust sold seven properties
for an aggregate sales price of $23.1 million, of which $10.8 million was
provided in the form of the assumption of mortgage loans secured by two of the
sold properties. Proceeds from five of the sales have been reinvested in
property acquisitions through tax-deferred like kind exchanges.
Mortgage and other loans payable totaled $131.3 million at August 31,
1998, a net increase of $18.1 million, when compared to the $113.2 million
outstanding at November 30, 1997. During the second quarter of fiscal 1998, MGI
entered into a $75 million unsecured credit facility which replaced two secured
lines of credit that totaled $45 million. The Trust currently has $35.0 million
outstanding under the line of credit whereas at November 30, 1997, there was
$15.5 million outstanding under the then existing lines. In addition, the Trust
closed on an $11.6 million mortgage loan secured by a Michigan
- 8 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
apartment complex and loans totaling $10.8 million were assumed by the purchaser
in conjunction with the sale of properties. The balance of the change represents
scheduled principal payments. Scheduled loan principal payments due within 12
months of August 31, 1998 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 1998 include
distributions to shareholders, capital and tenant improvements and other leasing
expenditures required to maintain MGI's occupancy levels and other investment
undertakings. Should the Trust not proceed, for whatever reason, with its plan
of liquidation, principal sources of funds in the future are expected to be from
property operations, lines of credit, 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, 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.
The Trust presently anticipates that primarily cash, short-term
investments and debt will finance the purchase of additional properties. MGI
believes the combination of available cash and short-term 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
- ---------------------
Net income for the fiscal quarter ended August 31, 1998, was $5.2
million, or $.38 per share (basic), as compared to $4.5 million, or $.33 per
share (basic), in the corresponding quarter of 1997. Included in the 1998 third
quarter net income was $0.4 million of gain recognized from the property sales.
Income before net gain and extraordinary item was $4.9 million and $4.5 million
for the quarters ended August 31, 1998 and August 31, 1997, respectively.
Net income for the nine months ended August 31, 1998, was $23.1
million, or $1.69 per share (basic), as compared to $12.8 million, or $.97 per
share (basic), a year ago. Income before net gain and extraordinary item was
$14.8 million and $12.5 million for the nine months ended August 31, 1998 and
August 31, 1997, respectively. Included in 1998 year-to-date net income were net
gains of $8.4 million from the sale of seven properties. Included in the 1997
year-to-date net income was a net gain of $0.6 million which was partially
offset by an extraordinary loss of $0.3 million incurred in connection with a
loan refinancing prepayment fee.
Funds from operations ("FFO") totaled $8.3 million in the third quarter
of fiscal 1998, compared to $7.3 million in the corresponding quarter of 1997.
Funds from operations for the nine months ended August 31, 1998 and 1997 were
$23.7 million and $20.3 million, respectively. 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, joint ventures and
significant non-recurring items. MGI believes FFO is an appropriate supplemental
measure of operating performance.
- 9 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The following is a reconciliation of net income to FFO:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $5,240,000 $4,544,000 $23,145,000 $12,757,000
Less net gain and extraordinary item (350,000) -- (8,375,000) (294,000)
Plus building depreciation 2,347,000 2,131,000 6,631,000 6,223,000
Strategic review 430,000 -- 430,000 --
Plus tenant improvement and commission
amortization 681,000 582,000 1,880,000 1,585,000
---------- ---------- ----------- -----------
FFO $8,348,000 $7,257,000 $23,711,000 $20,271,000
========== ========== =========== ===========
</TABLE>
The change in FFO is attributable to the same factors that affected
income before net gain and extraordinary item in such periods, with the
exception of depreciation and amortization expense.
In comparing the third quarter of fiscal 1998 to that of the previous
year, net income before net gain and extraordinary item increased by $.4
million. This growth resulted from a $1.6 million increase in property operating
income which was offset by costs of $0.4 million incurred in conjunction with
the Trust's strategic review and increases in interest expense and depreciation
and amortization of $0.3 million and $0.3 million, respectively. The increase in
interest expense is due to the higher average balance of debt outstanding in
1998. In addition, general and administrative expenses have increased by $0.2
million reflecting higher personnel costs and professional fees. Property
operating income is defined as rental and other income less property operating
expenses and real estate taxes. The change in property operating income reflects
the additional income of $2.2 million from the acquisition of properties, a
9.0%, or $0.8 million, increase in income from "same store" properties owned
throughout the third quarters of both fiscal 1998 and 1997, offset, in part, by
the income effect of $1.4 million due to the sale of properties. With respect to
the comparable properties, the increase in property operating income is
primarily due to increased revenues, particularly in the office and
office/research & development properties, reflecting the adjustment to market
rents as leases rollover.
- 10 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
Change in Property Operating Income for Quarter Ended August 31, 1998 versus August 31, 1997
- --------------------------------------------------------------------------------------------
Properties Held 1998 and 1997 1998 and 1997
Both Fiscal Quarters Acquisitions Sales Net Change
-------------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Office $207,000 $1,415,000 $ (325,000) $1,297,000
Office R&D 207,000 490,000 -- 697,000
Industrial 105,000 306,000 (604,000) (193,000)
Apartment 43,000 -- (338,000) (295,000)
Retail 86,000 -- (122,000) (36,000)
Land and Other 126,000 -- -- 126,000
-------- ---------- ----------- ----------
$774,000 $2,211,000 $(1,389,000) $1,596,000
======== ========== =========== ==========
</TABLE>
For the nine months ended August 31, 1998 property operating income
from properties held in both fiscal years had increased by $2.1 million,
approximately 8.4%, when compared to the comparable 1997 period. The increase in
operating income was mostly driven by increased rental revenue. Base rents on
commercial leases renewed or released in the first three quarters of 1998 are
expected to increase approximately 36%, as such new leases become effective.
Scheduled lease expirations and completed leasing (in square feet) for
the portfolio as a whole are as follows at August 31, 1998:
<TABLE>
<CAPTION>
Scheduled Expirations
--------------------------------------
Property Percentage 1998 Remaining Scheduled
Type Leased Leasing 1998 1999
---- ------ ------- ----- ----
<S> <C> <C> <C> <C>
Industrial 97.9% 242,600 6,100 204,800
Office 97.8% 225,100 47,100 129,900
Office/R&D 100.0% 324,900 46,200 105,500
Retail 96.3% 121,400 2,500 25,100
----- ------- ------- -------
Total 98.2% 914,000 101,900 465,300
===== ======= ======= =======
</TABLE>
The remaining fiscal 1998 scheduled lease expirations represent 2% of
MGI's total commercial portfolio. Scheduled expirations for New England
properties total 68,300 and 406,700 square feet, including 55,600 and 234,442
square feet for Massachusetts properties for the balance of 1998 and in 1999,
respectively. At this time, the Trust's scheduled expirations for the year 2000
total 1,060,000 square feet, with 970,000 square feet related to New England
properties. Existing rent levels relative to most New England space coming up
for renewal appear to be generally below prevailing market rents.
- 11 -
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Year 2000 Compliance
- --------------------
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in computer system failures or miscalculations causing
disruptions of operations. The Year 2000 issue affects almost all companies and
organizations.
MGI has conducted an assessment of its core internal computer information
systems and believes that its internal financial and information systems are
presently substantially Year 2000 compliant. Also, MGI is currently evaluating
those computer systems that do not relate to financial and other information
needs such as systems designed to operate a building, its telecommunications
systems, security systems, energy management systems and elevator systems. In
certain circumstances, MGI may be required to upgrade, modify or replace some of
its internal or operational systems. Additionally, no estimates can be made as
to any potential adverse impact resulting from the failure of tenants or
vendors, or third-party service providers, such as its banks, payroll processor
and its telecommunications providers, to prepare for the Year 2000 although MGI
is attempting to identify the risks.
Because MGI's assessment is ongoing, the total cost of bringing all internal
systems, equipment and operations into Year 2000 compliance has not yet been
fully quantified. To date, MGI has not expended significant funds to assess its
Year 2000 issues, since its evaluation of the Year 2000 issue has been conducted
by its own personnel or its third-party vendors in connection with their
servicing operations. MGI's evaluation has not been subject to any independent
verification or review process. While MGI's evaluation efforts may involve
additional costs, it believes, based on available information, that these costs
will not have a material adverse impact on the business, financial condition or
results of operations. While MGI believes it will be Year 2000 compliant by
December 31, 1999, but if the efforts by MGI or any of its material third-party
vendors and service providers are not completed on time, the Year 2000 issue
could have an adverse effect on its business. MGI is currently evaluating the
consequences of a potential failure to remediate these matters and is in the
process of developing contingency plans.
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, the risks of future action or inaction by the Board of
Trustees (and the actual results thereof) or shareholders with respect to a
possible liquidation of the Trust's properties (including the possibility of
litigation pertaining thereto); the net realizable value of the Trust's
properties in the event the plan of liquidation is implemented; the effects of
financial market conditions and general economic conditions; current market
conditions remaining the same or improving; maintaining or improving the current
occupancy and rent levels at the Trust's 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, 1997 and the factors and considerations set forth in the Trust's
definitive proxy statement dated September 10, 1998.
- 12 -
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1: Legal Proceedings: Not applicable.
Item 2: Changes in Securities and Use of Proceeds: 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:
Part I - Exhibit 11 -- Computation of Earnings Per
Share (see page 15).
b) Reports on Form 8-K: Dated June 18, 1998 - Item 5
Dated August 5, 1998 - Item 5
Dated August 12, 1998 - Item 5
- 13 -
<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGI PROPERTIES
-----------------------------------------
(Registrant)
Date: October 9, 1998 Phillip C. Vitali
--------------- -----------------------------------------
Phillip C. Vitali
Executive Vice President and Treasurer
(Chief Financial Officer)
Date: October 9, 1998 David P. Morency
--------------- -----------------------------------------
David P. Morency
Controller
(Principal Accounting Officer)
- 14 -
<PAGE>
MGI PROPERTIES
PART I - EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended August 31, Nine Months Ended August 31,
----------------------------- ----------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC
Net income $ 5,240,000 $ 4,544,000 $23,145,000 $12,757,000
==================================================================================================================================
Weighted average number of shares outstanding during the period 13,760,024 13,605,703 13,728,003 13,179,891
==================================================================================================================================
Basic earnings per share $0.38 $0.33 $1.69 $0.97
==================================================================================================================================
ASSUMING FULL DILUTION
Net income $ 5,240,000 $ 4,544,000 $23,145,000 $12,757,000
==================================================================================================================================
Weighted average number of shares
and share equivalents outstanding during the period 14,098,903 13,921,722 14,026,394 13,412,029
==================================================================================================================================
Earnings per share assuming full dilution $0.37 $0.33 $1.65 $0.95
==================================================================================================================================
</TABLE>
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
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