UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1998
Commission file number 1-6833
MGI PROPERTIES
(Exact name of Registrant as specified in its charter)
Massachusetts 04-6268740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Winthrop Square, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 422-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares New York Stock Exchange
(par value $l per share)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of January 28, 1999, the aggregate market value of the voting shares of the
Registrant held by non-affiliates of the Registrant was $378,873,000.
Common Shares Outstanding as of January 28, 1999: 13,774,221
The information required by Part III of Form 10-K will be incorporated by
reference to a definitive proxy statement involving the election of Trustees
which is expected to be filed by the Registrant pursuant to Regulation 14A
within 120 days after the close of its fiscal year ended November 30, 1998.
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TABLE OF CONTENTS
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Page
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PART I .............................................................. 1
Item 1. Business................................................. 1
Item 2. Properties...............................................10
Item 3. Legal Proceedings........................................12
Item 4. Submission of Matters to a Vote of Security Holders......12
PART II .............................................................13
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters..........................13
Item 6. Selected Financial Data..................................14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............15
Item 8. Financial Statements and Supplementary Data..............22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................22
PART III ............................................................23
PART IV .............................................................24
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K .................................24
POWER OF ATTORNEY ...................................................27
SIGNATURES ..........................................................27
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PART I
ITEM 1. BUSINESS
GENERAL
MGI Properties[RegTM] (the "Trust" or "MGI") is an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts. MGI[RegTM]
commenced operations in 1971 as a real estate investment trust (a "REIT").
Since that time, the Trust has elected to be treated as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), and expects to continue to operate in a manner which will entitle the
Trust to be so treated. For each taxable year in which the Trust qualifies as a
REIT under the Internal Revenue Code, taxable income distributed to the holders
of its Common Shares will not be taxable to the Trust (other than certain items
of tax preference which are subject to minimum tax in the hands of the Trust).
See "Adoption of Liquidation Plan," "Investment and Operating Policies" and
"Portfolio" below and the description of dividend policy included under Item 5
of this Annual Report on Form 10-K for the year ended November 30, 1998 (the
"Report").
References herein to the Trust include its wholly-owned subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
MGI is a self-administered equity REIT that owns and operates a diversified
portfolio of income producing real estate, which as of November 30, 1998,
consisted of 66 commercial properties and three multi-family residential
properties. The commercial portfolio consists of 5.6 million square feet, 87% of
which is comprised of office, office/research and development and industrial
properties. The multi-family properties consist of three residential communities
aggregating 959 units. At November 30, 1998, the commercial and residential
properties were 97.9% and 94.5% leased, respectively. Since 1992, the Trust has
focused on the commercial segment of the real estate market, specifically
office, office/research and development and industrial properties located in New
England. At November 30, 1998, 66%, based upon cost, of the Trust's real estate
assets were located in New England. During the fiscal year ended November 30,
1997, the Trust began the internalization of the property management function of
its New England properties. As of November 30, 1998, the Trust had 4.1 million
square feet of space under management.
The Trust, formerly known as Mortgage Growth Investors[RegTM], initially
operated as a hybrid REIT with a significant portion of its assets invested in
mortgage loans. In 1985, the Trust began the conversion to an equity REIT,
which has direct ownership of income producing properties. The conversion was
completed by January 1993.
The Trust currently employs 39 persons.
ADOPTION OF LIQUIDATION PLAN
On June 18, 1998, the Trust publicly announced that its Board of Trustees had
decided to undertake a review of strategic alternatives available to the Trust
to maximize shareholder value, including a possible liquidation of the Trust's
properties. The Trustees ultimately determined that the appropriate course for
the Trust to maximize shareholder value was to pursue the sale of its assets
pursuant to a plan of complete liquidation of the Trust. Accordingly, on August
12, 1998, the Trustees unanimously approved a Plan of Complete Liquidation and
Termination of the Trust (the "Plan") and directed that the Plan be submitted
to the Trust's shareholders for approval. The shareholders of the Trust
approved the Plan at a special meeting held on October 14, 1998.
The Trust's primary business objective is to sell its assets pursuant to
the Plan. Based upon management's current estimates, the Trustees expect that
sales of the Trust's assets pursuant to the Plan will be made at prices that
will yield aggregate net cash liquidation proceeds at approximately the lower
end of the originally announced range of between $30 and $33 per share;
however, no assurance can be given that per share net cash proceeds will be
within this range or will reach this range. The current revised estimate of
liquidation proceeds takes into consideration the lingering effects of the fall
1998 credit crisis which adversely impacted the national credit and real estate
markets, but which now seems to be receding to some degree. Such estimate does
not anticipate renewal of such adverse or other unstable economic conditions.
The timing of any distributions of such net cash proceeds will be affected by,
among other things, the timing of sales of assets, income tax considerations
and the establishment of reserves. Accordingly, no assurances can be made as to
the timing of such distributions, which could be made over a substantial period
of time; provided, however,
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that in accordance with the Plan, the final distribution shall be made no later
than October 14, 2000 (albeit such distribution could be made to a liquidating
trust for the benefit of shareholders).
To date, no definitive agreements have been entered into with any
prospective buyers with respect to the terms of any liquidating sales of Trust
properties, although the Trust has received indications of interest. It is not
expected that properties would be sold to any persons deemed to be affiliates
of the Trust, though it is possible that one or more shareholders of the Trust
who could be deemed "affiliates" of the Trust could purchase properties by
virtue of submitting the highest bids in respect of such properties. Each offer
to purchase the Trust's assets must be acted upon by the Board of Trustees.
As part of the Plan, existing debts and obligations of the Trust will be
satisfied from existing cash balances and the proceeds of the sale of the
Trust's assets. In addition, reserves may be established, as the Board of
Trustees deems necessary, for liabilities or expenses, contingent or otherwise,
that may arise. The remaining proceeds will be distributed on a schedule
established by the Board of Trustees, on a pro rata basis, to the Trust's
shareholders, as full payment for the Common Shares held by each shareholder.
Although it is expected that the Trust will continue to qualify under the
Internal Revenue Code as a REIT for the period prior to the distribution of the
Trust's assets to shareholders (including the possible transfer of assets to a
liquidating trust if the liquidation is not completed within two years), no
assurance can be given that the Trust will not lose or terminate its status as
a REIT as a result of unforeseen circumstances.
In the event that the Trust is unable to dispose of all of its assets
within the 24 months after adoption of the Plan or if it is otherwise
advantageous or appropriate to do so, the Trustees may establish a liquidating
trust to which the Trust could distribute in kind its unsold assets. The
Trustees would not expect to transfer assets to a liquidating trust except (i)
when such a transfer is required to avoid the imposition of federal income
taxes on the Trust or (ii) to establish reserves for liabilities and
obligations of the Trust (contingent or otherwise) out of amounts that would
otherwise be distributed to shareholders.
The Plan gives the Trust's Board of Trustees the power to sell any and all
of the assets of the Trust without further approval by the shareholders. The
Trustees intend to conduct the sale of the Trust's assets in an orderly manner,
and are seeking offers for specific pools of assets, although individual sales
of assets may be effected and offers for the entire portfolio of investments
may be sought. It is currently estimated that substantially all of the
properties will be sold within 9-12 months, however, no assurances can be made
as to the actual timing of such sales and subsequent distributions, which could
be made over a substantial period of time.
It is impossible to determine at this time with any precision the
aggregate net proceeds that may ultimately be available for distribution to the
Trust's shareholders upon liquidation. That amount will depend upon a variety
of factors, including national and/or local economic conditions, including the
availability of financing upon reasonable terms, the timing of and the net
proceeds realized from the sale of the Trust's assets, as well as the ultimate
amounts of liquidation-related expenses and other obligations and liabilities
that must be satisfied out of the Trust's assets.
The assets could be sold to one or more purchasers, in one or more
transactions over a period of time, in which case the Trust would continue to
operate until all investments are sold or transferred to a liquidating trust.
It is the current objective of the Trustees to sell the Trust's assets at
aggregate sales prices that will yield net cash proceeds within or as close to
the originally announced range of between $30 and $33 per share as possible,
however, no assurance can be given that this will be the case. Moreover, in
view of the fact that assets may be sold in multiple transactions, the
possibility exists that there could be unforeseen events that adversely impact
the price of the remaining (unsold) assets, and no assurance can be given that
the net proceeds per share will therefore equal such amount. The Trustees also
reserve the right to abandon the Plan at any time, due to adverse or unstable
real estate or financial market conditions.
Reference is made to the Trust's definitive Proxy Statement, dated
September 10, 1998, in respect of the Special Meeting of Shareholders held on
October 14, 1998, which is incorporated herein by reference and filed as an
exhibit hereto, for a discussion of the Trust's Plan of Liquidation, including
the risk factors and certain other considerations
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associated therewith, as well as the income tax consequences of the Plan to
shareholders and to the Trust. See also "Risk Factors" below.
INVESTMENT AND OPERATING POLICIES
The Trust's primary business objective, prior to the adoption of the Plan, had
been to increase funds from operations ("FFO"), while building additional value
of its real estate investments through income growth and capital appreciation.
The Trust's policies have been subject to ongoing review by the Board of
Trustees and may be modified from time to time to take into consideration
changes in business or economic conditions or otherwise as circumstances
warrant.
Prior to the adoption of the Plan, the cornerstones of the Trust's
operating policies were (1) the active management of its real estate, (2) a
focus on maintaining the quality of its properties and the demand for its
properties at a level that will support high occupancy rates, leasing
attractiveness to quality tenants and increasing rental rates and (3) the
acquisition of high quality properties. During the last several years, the
Trust's investment focus with respect to type of property has been directed
primarily toward the commercial segment of the New England real estate market,
particularly industrial, office/research and development and office properties.
MGI's philosophy has been to seek what management believes to be
value-creating opportunities by frequently acquiring quality properties that
have not met their full potential, at a cost believed to be below replacement
value. Management believes that its investments can be actively managed to
create a total return which includes current income and capital appreciation.
MGI's commercial portfolio is generally comprised of general purpose,
functional buildings rather than properties characterized by demand limited to
a specific type and size of tenant. Many of the Trust's properties are easily
divisible so as to accommodate users of various amounts of space. A significant
number of MGI's properties are located in recognized business parks or at nodes
with easy access to highways and commercial areas and sufficient residential
support.
MGI's leasing, maintenance and tenant and capital improvement activities
have been designed to attract and retain quality tenants and maintain high
occupancy rates. Management believes that the internalization of the property
management function with respect to its New England properties has improved
service, reduced operating costs and provided a strategic competitive
advantage. With regard to certain properties outside of New England, MGI
believes that using local property management companies currently provides cost
effective management and has resulted in improved access to significant market
information and improved tenant satisfaction as a result of the personnel
dedicated solely to MGI's properties. MGI's officers typically work with local
property managers to actively manage these properties. Generally, MGI is
directly involved in establishing the strategic direction for each property,
identifying new tenants, negotiating leases, budgeting and monitoring operating
performance and implementing and directing significant renovations and
rehabilitations.
MGI has sought to maintain a well-balanced, conservative and flexible
capital structure by: (i) maintaining a conservative dividend pay-out ratio
that enables MGI to both reinvest in capital and tenant improvements for
existing properties and increase cash available for investment; (ii) borrowing
primarily at fixed rates; (iii) extending and sequencing the maturity dates of
its debt; and (iv) maintaining conservative debt service coverage ratios.
Management believes that these strategies have enabled the Trust to access debt
and/or equity capital markets for its long-term investment requirements, upon
satisfactory terms.
The Trust's business has been limited to investments in real estate,
direct or indirect, including investments in real estate companies. To the
extent that the Trust has assets not otherwise invested in real estate, the
Trust may invest such assets in other securities, including United States
government obligations and commercial paper, so long as, in the opinion of the
Trustees, such securities may be held without jeopardizing the Trust's
qualification as a REIT under the Internal Revenue Code.
Funds necessary to conduct operations have been provided from rental and
interest income, mortgaging of equity investments, lines of credit, corporate
borrowings, the sale of marketable securities, loan repayments and
amortization. Such operations include the Trust's continuous incurrence of
costs, reimbursed and unreimbursed, for improvements and renovations of its
existing properties in order to maintain and enhance their value. The Trust has
operated on a
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leveraged basis by incurring indebtedness in order to increase its capital
available for investment when, in the Board of Trustees' judgment, the Trust
would benefit thereby (see "Risk Factors--Leverage"). The Trust has employed
short-term or long-term borrowings to fund some of its investments. The Trust's
Debt to Total Assets ratio was 33% at November 30, 1998. Reference is made to
Note 5 of the Notes to Consolidated Financial Statements included in Item 14
below.
PORTFOLIO
The Trust's portfolio at November 30, 1998 consisted of investments in 66
commercial properties and three multi-family residential properties.
The Trust's real estate investments can be classified by type of
properties and geographic location. As of November 30, 1998, the Trust's real
estate investments were diversified by property type as follows:
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<CAPTION>
% of Portfolio
% of Based on
Number of Square Feet/ Portfolio 1998 Property %
Properties Units Based on Cost Operating Income Leased
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office 24 1,813,900 39.9% 37.7% 97.6%
Office/R&D 17 1,394,000 17.0% 19.2% 100.0%
Industrial 16 1,684,800 16.4% 20.0% 97.6%
Retail 5 755,400 14.7% 11.0% 95.4%
Land and Other 4 - .7% 1.0% 100.0%
- -----------------------------------------------------------------------------------------------------
Total Commercial 66 5,648,100 88.7% 88.9% 97.9%
=====================================================================================================
Multi-family 3 959 11.3% 11.1% 94.5%
- -----------------------------------------------------------------------------------------------------
Total Portfolio 69 100.0% 100.0% 97.3%
=====================================================================================================
</TABLE>
As of November 30, 1998, the Trust's real estate investments were
diversified by geographic region as follows:
<TABLE>
<CAPTION>
% of Portfolio
Square Feet of % of Based on
Number of Commercial Apartment Portfolio 1998 Property %
Location Properties Property Units Based on Cost Operating Income Leased
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New England 55 4,521,300 - 65.8% 71.1% 98.5%
Mid-West 5 442,500 722 17.7% 14.1% 93.4%
Southeast 5 318,800 - 6.8% 5.7% 92.8%
Mid-Atlantic 4 365,500 237 9.7% 9.1% 99.0%
- -------------------------------------------------------------------------------------------------------
Total Portfolio 69 5,648,100 959 100.0% 100.0% 97.3%
=======================================================================================================
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Lease terms relating to the Trust's properties range from
tenancies-at-will up to 17 years. The Trust leases commercial space to 375
commercial tenants, including 233 office tenants, 63 retail tenants, 49
industrial tenants and 30 office/research and development tenants.
Additional information concerning the Trust's real estate investments is
set forth under Item 2 and in Notes 1, 2, 3, 4 and 5 in the Notes to
Consolidated Financial Statements and Schedule III of the Financial Statement
Schedule included in Item 14 below.
COMPETITION, REGULATION AND OTHER FACTORS
The success of the Trust's operations has been dependent, among other factors,
upon general economic conditions and trends, including interest rates,
availability of credit, real estate trends, construction costs, income tax
laws, governmental regulations and legislation, increases or decreases in
operating expenses, zoning laws, population trends and the abil-
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ity of the Trust to attract tenants and keep its properties leased at
profitable levels. The Trust does not consider its real estate business to be
seasonal in nature.
In the areas of investment permitted to the Trust, there have been a wide
variety of competing investors and lenders. The Trust has competed with life
insurance companies, REITs, pension funds, other financial institutions,
partnerships, corporations, individuals and other business entities, both
domestic and foreign. With respect to properties presently owned by the Trust,
or in which the Trust has an investment, the Trust competes with other owners
of properties for tenants. The Trust's properties compete for tenants primarily
on the basis of location, rent and the condition and design of improvements.
Its properties compete with similar properties located in their geographic
area, and such properties may be newer and larger than those in which the Trust
has an interest. There are no statistics readily available which would enable
the Trust to determine its position with respect to its competitors in the real
estate investment industry.
The Trust has been able to compete effectively despite recessionary
conditions in certain regions from time to time and management believes that
this will continue principally by reason of the diverse make-up of the Trust's
income producing properties and the diversity of its tenant base. However,
recessionary economic conditions in certain regions (particularly New England,
where 80% of the Trust's commercial properties, based on square footage, are
located) or any adverse changes in local, national or international economic
conditions could result in the inability of some existing tenants of the Trust
to meet their lease or other obligations and could otherwise adversely affect
the Trust's ability to attract or retain tenants. Management believes, however,
that by reason of the factors stated above and the Trust's financial strength
and operating practices, particularly its ability to implement renovations and
improvements, it will be able to maintain occupancies and, over time, increase
rental income from its properties, although there can be no assurance thereof.
RISK FACTORS
Factors Pertaining to Plan of Liquidation
No Assurances of Distributions. There can be no assurance that the Trust will
be successful in disposing of properties for values approximating those
currently estimated by the Trust or that related liquidating distributions will
occur within the original timetable. If values of the Trust's assets decline or
the costs and expenses related to such sales and to the liquidation process
exceed those which are currently estimated by the Trust, the liquidation may
not yield distributions as great as or greater than the recent market prices of
the Common Shares. No assurances can be made as to the actual amount and timing
of distributions, which could be made over a substantial period of time.
The implementation of the Plan, including the actual amount and timing of
distributions, could be affected by negative or unstable global, national or
local economic conditions, including the lingering effects of the fall 1998
credit crisis which has adversely impacted the national credit and real estate
markets.
Decreasing Liquidity. As assets of the Trust are sold and proceeds are
distributed, the market capitalization and "float" will diminish further and
market interest in the Common Shares by the investment community may diminish,
thereby reducing or effectively eliminating the market demand and liquidity for
the Common Shares, which would adversely affect the market price for the Common
Shares. At a later stage of the liquidation process, the New York Stock
Exchange will cause the common shares to be delisted.
Sales of Assets Not Subject to Shareholder Approval. The Trustees have the
authority to sell any and all of the Trust's assets on such terms as the Board
of Trustees determines appropriate. Notably, the shareholders will have no
subsequent opportunity to vote on such matters and will, therefore, have no
right to approve or disapprove the terms of such sales.
Qualification as a REIT. The calculation of the estimated liquidation
price per share set forth herein, assumes that the Trust will continue to
qualify as a REIT under the Code during the entire liquidation process and,
therefore, no provision has been made for federal income taxes. Although the
Trust expects to maintain such REIT qualification, there can be no assurance
thereof. See "Adverse Consequences of Failure to Qualify as a REIT and Other
Tax Risks" below.
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Risks of Abandonment of Plan. In the event the Plan is abandoned by the
Trustees (at any time during the liquidation process) due to unstable or
unfavorable real estate or financial market conditions and at a time when the
Trust is significantly reduced in size, certain operating risks will increase,
as will the risk that the Trust's share price will trade at a greater discount
to the perceived underlying value of its real estate holdings.
Leverage
The Trust's obligations for borrowed money totaled $130.5 million at November
30, 1998, representing 33% of its total assets. The formation documents of the
Trust do not contain any limitation on the amount or percentage of indebtedness
the Trust might incur. The Trustees reserve the right to increase such leverage
in the event (not now anticipated) investment activities are resumed. Increases
in the Trust's leverage could increase the risk of default under its
outstanding indebtedness. The Trust's failure to pay its debt obligations when
due could result in the Trust's loss of the properties collateralizing such
indebtedness or otherwise adversely affect the Trust.
The Trust's debt obligations subject to floating interest rates at
November 30, 1998 aggregated approximately $35 million at a weighted average
interest rate of approximately 6.5% and represented 26.8% of the Trust's
outstanding debt. Significant increases in interest rates on floating rate debt
would adversely affect the net income, funds from operations and cash available
for distribution to shareholders. These risks may inhibit the Trust's ability
to raise capital, a situation no longer anticipated.
Geographic Concentration
The Trust's operating income and the value of its properties may be affected by
a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for commercial or other properties). At
November 30, 1998, approximately 80% of MGI's commercial real estate assets,
based on square footage (66% based upon cost), were located in New England,
primarily in the suburban Boston area. The Trust's performance and its ability
to make distributions to shareholders have been largely dependent on the
economic conditions in the markets where the Trust's properties are located.
There can be no assurance as to the continued growth of the economy in these
markets or other markets upon which the Trust's tenants depend. Negative
economic changes in these markets may, therefore, adversely affect the Trust.
Miscellaneous Real Estate Investment Considerations
Real property investments are subject to varying degrees of risk. The returns
available from equity investments in real estate depend in large part on the
amount of income generated and expenses incurred. If the Trust's properties do
not generate revenues sufficient to meet operating expenses, including debt
service, tenant improvements, leasing commissions and other capital
expenditures, the Trust may have to borrow additional amounts to cover costs,
and the Trust's cash flow and ability to make distributions to its shareholders
will be adversely affected.
The Trust's operating income and the value of its properties may be
adversely affected by a number of factors, including the national economic
climate (including the availability of financing upon reasonable terms); the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Trust to provide adequate management, maintenance and insurance; and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
Numerous office and industrial properties compete with the Trust's
properties in attracting tenants to lease space. Some of these competing
properties are newer or are in more desirable locations than some of the
Trust's properties. Significant development of office or industrial properties
in a particular area could have an adverse effect, material or otherwise, on
the Trust's ability to lease space in its properties and on the rents charged.
The Trust is subject to the risks that upon expiration of leases for space
located in its properties, the leases may not be renewed, the space may not be
re-let or the terms of renewal or re-letting (including the cost of required
renovations) may be less favorable than current lease terms. In addition,
certain leases provide for early cancellation in certain
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events. If the Trust were unable to promptly re-let or renew the leases for all
or a substantial portion of this space or if the rental rates upon such renewal
or re-letting were significantly lower than expected, the Trust's cash flow and
ability to make distributions to shareholders may be adversely affected.
Although the Trust believes its properties are generally multi-purpose and
could be re-let to other tenants, some properties could require reconfiguration
or remodeling before the property could be re-let to other tenants. Any such
required activity could delay immediate occupancy by the re-letting tenant.
Equity real estate investments are relatively illiquid. Such illiquidity
will tend to limit the ability of the Trust to vary its portfolio promptly in
response to changes in economic or other conditions. Furthermore, the tax laws
impose a 100% tax on net gain from "prohibited transactions," i.e., sales of
property held primarily for sale to customers in the ordinary course of a trade
or business. The 100% tax is not imposed on net gain from sales of property
held for at least four years, if certain other conditions are met, including a
limitation as to the number of such sales per year. Generally, the potential
application of the 100% tax limits the Trust's ability to sell properties
without adversely affecting returns to the holders of Common Shares. Although
the Trust believes that the sale of the Trust's assets pursuant to the Plan of
Liquidation should not be subject to the 100% tax, the Trust will nevertheless
attempt to structure the sale or other disposition of the Trust's assets in a
manner that will prevent such sales or dispositions from being taxed as
prohibited transactions.
Because increases in certain taxes and expenses are not always passed
through to tenants under leases, such increases may adversely affect the
Trust's cash flow and its ability to make distributions to shareholders. The
Trust's properties are also subject to various federal, state and local
regulatory requirements, such as the Americans with Disabilities Act and state
and local fire and life safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. The Trust believes that
the properties are currently in compliance with all such regulatory
requirements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed that would require
significant unanticipated expenditures by the Trust and could have an adverse
effect on the Trust's cash flow and distributions.
Financial Condition (and Bankruptcy) of Tenants
The Trust's net income, funds from operations and cash available for
distribution would be adversely affected if a significant tenant or a
significant number of tenants becomes unable to meet their obligations. In the
event of a default by a tenant, the Trust could experience delays and incur
substantial costs in enforcing its rights as lessor. Upon such a default, the
Trust's cash flow could also be reduced if the Trust was unable to re-lease,
upon satisfactory terms, any significant portion of its properties.
At any time, a tenant of the Trust's properties may seek the protection of
the bankruptcy laws, which could result in the rejection and termination of
such tenant's lease and thereby cause a reduction in the Trust's net income,
funds from operations and cash available for distribution. No assurance can be
given that tenants will not file for bankruptcy protection in the future or, if
any tenants file, that they will affirm their leases and continue to make
rental payments in a timely manner. Furthermore, protection of the Trust's
investments may require foreclosure or other action leading to acquisition of
title to properties underlying its mortgage loans or similar investments. As of
November 30, 1998, one significant tenant, Bradlees, Inc., is operating under
Chapter 11 of the Federal Bankruptcy Code and its plan of reorganization has
been confirmed. Although its lease with the Trust has been affirmed, there can
be no assurance that future operating performance will not be adversely
affected by developments with respect to Bradlees, Inc., which is expected to
emerge from bankruptcy as early as February 1999.
Potential Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations, such
as the Comprehensive Environmental Response Compensation and Liability Act or
"CERCLA," and common laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental
fines and injuries to persons and property. Such laws often impose such
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liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate such substances
properly, may adversely affect the owner's or operator's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials into the air and third parties may
seek recovery from owners or operators of real property for personal injuries
associated with asbestos-containing materials.
Substantially all of the Trust's properties have been subjected to Phase I
or similar environmental audits by independent environmental consultants. These
environmental audit reports have not revealed any potential significant
environmental liability, nor is the Trust aware of any environmental liability
with respect to its properties that it believes would have a material adverse
effect on the Trust's business, properties or results of operations. This
evaluation however, could prove to be incorrect depending on certain factors.
For example, the Trust's assessments may not reveal all environmental
liabilities or there may be material environmental liabilities of which the
Trust is unaware. In addition, assumptions regarding groundwater flow and the
existence of contamination are based on available sampling data, and there are
no assurances that the data is reliable in all cases. Moreover, there can be no
assurance that (i) future laws, ordinances or regulations will not impose any
material environmental liability on the Trust or (ii) the current environmental
condition of the Trust's properties will not be affected by tenants, by the
condition of land or operations in the vicinity of the Trust's properties (such
as the presence of underground storage tanks), or by third parties unrelated to
the Trust.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases
to comply with all applicable laws and have agreed to indemnify the Trust for
any claims resulting from noncompliance, and the Trust is not aware of any
environmental problems resulting from the tenants' use or generation of
hazardous substances. There are no assurances that all tenants will comply with
the terms of their leases or remain solvent and that the Trust may not at some
point be responsible for contamination caused by such tenants.
Insurance
Although there can be no assurance thereof, MGI carries comprehensive general
liability coverage and umbrella liability coverage on all of its properties
with limits of liability deemed adequate to insure against liability claims and
provide for cost of defense. The Trust is also insured against the risk of
physical loss in amounts estimated to be adequate to reimburse it on a
replacement cost basis for costs incurred to repair or rebuild each property,
including loss of rental income during the reconstruction period. However,
there can be no assurance that this coverage will be adequate or that it will
insure all of the risks to which the Trust's properties are subject. By reason
of the high cost of earthquake and flood insurance and the fluctuations in the
price and availability, management has determined that the risk of loss due to
earthquake and flood does not currently justify the cost of such coverage,
however, management may periodically reconsider its position. In the event of
an uninsured loss or a loss in excess of uninsured limits, the Trust could lose
its equity in the subject property, as well as the anticipated future revenue
from such property.
Adverse Consequences of Failure to Qualify as a REIT and Other Tax Risks
The Trust believes that it has operated in a manner that permits it to qualify
as a REIT under the Internal Revenue Code for each taxable year since its
formation. No assurance can be given that the Trust will be able to continue to
operate in a manner so as to qualify or remain so qualified. Qualification as a
REIT involves the application of highly technical Internal Revenue Code
provisions for which there are only limited judicial or administrative
interpretations and the determination of various factual matters and
circumstances not entirely within the Trust's control. For example, in order to
qualify as a REIT, at least 95% of the Trust's gross income in any year must be
derived from qualifying sources and the Trust must make dividend distributions
to shareholders equal to 95% of its REIT taxable income (excluding net capital
gains). Distributions pursuant to the Plan made within 24 months after adoption
of the Plan will
8
<PAGE>
satisfy this requirement. No assurance can be given that new legislation,
regulations or administrative decisions will not change the tax laws with
respect to REIT qualification or the Federal income tax consequences of such
qualification.
If the Trust fails to qualify as a REIT, it will be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income (including gains recognized in connection with liquidating sales of the
Trust's assets) at corporate rates. Unless entitled to relief under certain
statutory provisions, the Trust could also be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
is lost. This treatment would reduce the net earnings available for investment
or distribution to shareholders because of the additional tax liability for the
year or years involved. In addition, distributions would no longer be required
to be made. To the extent that distributions to shareholders have already been
made in anticipation of its assumed qualification as a REIT, the Trust could be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. The failure to qualify as a REIT may also constitute a default
under certain Trust indebtedness.
The Plan contemplates a sale of the Trust's assets for cash. So long as
the Trust continues to qualify as a REIT, any net gain from "prohibited
transactions" (i.e., sales of property held primarily for sale to customers in
the ordinary course of a trade or business) would be subject to a 100% tax.
Whether a real estate asset is property held primarily for sale to customers in
the ordinary course of a trade or business, the sale of which would be a
prohibited transaction for a REIT, is a highly factual determination. The Trust
does not believe that any of its property should be so characterized but rather
that all its properties are all held for investment and the production of
rental income. Nevertheless, the Trust will attempt to structure the
dispositions of the Trust's assets in furtherance of the Plan in a manner that
will prevent such dispositions from being treated as prohibited transactions.
9
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Trust's
properties at November 30, 1998.
<TABLE>
<CAPTION>
Carrying Value Percentage Weighted
INDUSTRIAL Sq. Ft. Dollars Per Sq. Ft. Leased Average Rent
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flex
Tewksbury, MA 189,200 $10,373,000 $ 54.83 100% $ 9.00
Nashua, NH 150,400 5,028,000 33.43 81% 5.19
Wilmington, MA 109,500 4,296,000 39.23 100% 5.79
Methuen, MA 106,800 4,697,000 43.98 100% 5.28
Wilmington, MA 100,200 2,355,000 23.50 100% 4.07
Franklin, MA 100,000 4,871,000 48.71 100% 5.94
Nashua, NH 98,100 3,084,000 31.44 88% 4.09
Bedford, MA 93,200 2,352,000 25.24 100% 7.26
Franklin, MA 83,500 3,628,000 43.45 100% 5.64
Andover, MA 82,500 4,501,000 54.56 100% 6.39
Marlborough, MA 75,000 3,001,000 40.01 100% 7.22
Marlborough, MA 59,400 2,468,000 41.55 100% 6.63
Hopkinton, MA 39,000 1,924,000 49.33 100% 6.50
Methuen, MA 38,700 1,707,000 44.11 100% 6.00
Distribution and Manufacturing
Wilmington, MA 294,000 6,595,000 22.43 100% 4.26
Franklin, MA 65,300 3,071,000 47.03 100% 6.00
- -----------------------------------------------------------------------------------
Total 1,684,800 $63,951,000 $ 37.96 98% $ 5.79
===================================================================================
<CAPTION>
Scheduled Lease
Expirations Number Lease
INDUSTRIAL 1999 2000 of Tenants Principal Tenant Expiration
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flex
Tewksbury, MA - - 1 Avid Technology, Inc. 06/30/10
Nashua, NH 32% - 7 Logicraft, Inc. 12/31/00
Wilmington, MA - - 3 United Shoe Machinery Corp. 12/31/01
Methuen, MA - - 2 Microtouch Systems, Inc. 04/30/03
Wilmington, MA 52% 48% 2 Datawatch Corporation 04/30/99
Franklin, MA - - 1 Thermo Instruments Systems 01/31/06
Nashua, NH 44% 40% 9 Pure Distributors, Inc. 02/14/00
Bedford, MA - 51% 3 Imaging Technology, Inc. 07/31/01
Franklin, MA - - 2 Chromatic Technologies, Inc. 06/30/02
Andover, MA 24% - 4 LANcity Corporation 04/30/01
Marlborough, MA - - 4 The Concorde Group 09/30/02
Marlborough, MA - - 4 Diebold Incorporated 08/31/03
Hopkinton, MA - - 1 SCP Pool Corp. 12/31/03
Methuen, MA - - 2 Larson Juhl, Inc. 10/31/03
Distribution
Wilmington, MA 14% 36% 3 MVP Sports 02/05/03
Franklin, MA - - 1 Massachusetts Electric Company 12/31/02
- -------------------------------------------------------------------------------------------
Total 12% 14% 49
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
OFFICE/RESEARCH & DEVELOPMENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tewksbury, MA 140,000 $ 8,471,000 $ 60.51 100% $ 9.30
Andover, MA 128,400 5,900,000 45.95 100% 5.00
Billerica, MA 122,300 4,397,000 35.95 100% 4.67
Chelmsford, MA 110,100 4,485,000 40.74 100% 8.92
Andover, MA 105,500 6,534,000 61.93 100% 11.60
Billerica, MA 100,000 4,937,000 49.37 100% 12.00
Hudson, NH 76,800 3,484,000 45.36 100% 5.61
Hopkinton, MA 76,100 5,255,000 69.05 100% 10.09
Chelmsford, MA 70,900 1,905,000 26.87 100% 9.05
Bedford, MA 70,600 2,127,000 30.13 100% 3.65
Littleton, MA 66,800 2,532,000 37.90 100% 10.33
Andover, MA 60,600 3,829,000 63.18 100% 7.01
Billerica, MA 60,000 1,896,000 31.60 100% 4.75
Westford, MA 59,700 3,411,000 57.14 100% 5.50
Billerica, MA 56,300 1,871,000 33.23 100% 3.85
Raynham, MA 49,100 2,525,000 51.54 100% 7.34
Hopkinton, MA 40,800 2,817,000 69.04 100% 10.08
- -----------------------------------------------------------------------------------
Total 1,394,000 $66,376,000 $ 47.62 100% $ 7.57
===================================================================================
<CAPTION>
OFFICE/RESEARCH & DEVELOPMENT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tewksbury, MA - - 1 Avid Technology, Inc. 06/30/10
Andover, MA - 100% 1 Hewlett-Packard Company 07/31/00
Billerica, MA - - 1 PRI Automation, Inc. 07/31/01
Chelmsford, MA - 75% 3 ITK Telecom 12/31/99
Andover, MA 100% - 1 ISI Systems, Inc. 04/30/99
Billerica, MA - - 1 Peritus Software Services 02/28/06
Hudson, NH - - 1 Atrium Medical Corp. 06/30/04
Hopkinton, MA - - 1 Zymark Corporation 12/31/05
Chelmsford, MA - - 5 Biscom, Inc. 02/28/03
Bedford, MA - 100% 1 Atex Media Solutions, Inc. 07/31/00
Littleton, MA - - 4 Inforonics 05/31/03
Andover, MA - - 1 Cabletron Systems, Inc. 05/31/01
Billerica, MA - 100% 1 Bay Networks, Inc. 03/30/00
Westford, MA - - 2 Hewlett-Packard Company 05/14/01
Billerica, MA - 100% 1 Bay Networks, Inc. 12/31/99
Raynham, MA 61% 19% 4 Johnson & Johnson, Inc. 07/31/99
Hopkinton, MA - - 1 Zymark Corporation 12/31/05
- -------------------------------------------------------------------------------------------
Total 10% 38% 30
===========================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Carrying Value Percentage Weighted
OFFICE Sq. Ft. Dollars Per Sq. Ft. Leased Average Rent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Somerset, NJ 178,600 $ 13,891,000 $ 77.78 100% $16.86
Hopkinton, MA 159,800 12,458,000 77.96 100% 7.60
Portland, ME 149,200 16,156,000 108.28 99% 19.42
Manchester, NH 127,900 10,930,000 85.46 100% 15.73
Tampa, FL 122,400 8,617,000 70.40 92% 12.65
Boston, MA 114,300 10,145,000 88.76 91% 26.44
Framingham, MA 109,800 7,144,000 65.06 100% 23.15
Portland, ME 101,900 11,738,000 115.19 100% 19.08
Andover, MA 97,700 7,555,000 77.33 100% 15.89
Ann Arbor, MI 81,500 6,005,000 73.68 100% 12.59
Farmington, CT 68,100 5,503,000 80.81 100% 15.80
Nashua, NH 66,200 4,532,000 68.46 95% 12.17
South Portland, ME 56,100 5,072,000 90.41 100% 14.28
Greenville, SC 49,600 1,839,000 37.08 95% 10.47
Greenville, SC 46,300 1,293,000 27.93 89% 11.09
Glastonbury, CT 40,900 3,771,000 92.20 98% 19.86
Glastonbury, CT 39,900 3,607,000 90.40 100% 18.51
Peabody, MA 37,000 4,255,000 115.00 100% 19.79
Nashua, NH 36,000 2,404,000 66.78 99% 14.69
South Portland, ME 31,800 3,292,000 103.52 100% 15.97
Raynham, MA 27,300 2,574,000 94.29 79% 17.40
Boston, MA 27,100 1,595,000 58.86 100% 22.41
Nashua, NH 26,100 1,573,000 60.27 84% 15.42
South Portland, ME 18,400 1,707,000 92.77 100% 13.26
- -----------------------------------------------------------------------------------------
Total 1,813,900 $147,656,000 $ 81.40 98% $16.18
=========================================================================================
<CAPTION>
Scheduled
Lease
Expirations Number Lease
OFFICE 1999 2000 of Tenants Principal Tenant Expiration
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Somerset, NJ 2% 9% 13 Merrill Lynch 06/30/01
Hopkinton, MA - - 1 EMC Corporation 04/30/04
Portland, ME 5% - 12 UNUM Life Insurance Co. 01/31/01
Manchester, NH - 24% 12 Fleet Bank 04/07/02
Tampa, FL 11% 41% 21 Olsten Kimberly Quality Care 02/28/02
Boston, MA 3% 4% 5 Cambridge Associates, Inc. 12/31/02
Framingham, MA 9% 42% 26 Dolphin Interconnect Solutions 11/30/00
Portland, ME 5% 1% 11 People's Heritage Bank 07/31/04
Andover, MA 15% 44% 12 Computer Associates 12/31/02
Ann Arbor, MI 13% - 2 Comshare, Inc. 02/28/05
Farmington, CT - 84% 4 McGraw-Hill Companies, Inc. 07/31/00
Nashua, NH 25% 2% 13 Hesser, Inc. 08/31/05
South Portland, ME 45% 36% 22 American Express Financial Advisors 11/30/05
Greenville, SC 26% 23% 24 S.C. Tax Commission 06/30/01
Greenville, SC 38% 14% 5 S.C. Voc. Rehab. Dept. 01/07/03
Glastonbury, CT 6% - 3 Hewlett-Packard Company 03/31/03
Glastonbury, CT - 89% 4 Equator U.S.A., Inc. 12/31/99
Peabody, MA - - 1 Oxford & Associates, Inc. 10/31/01
Nashua, NH 16% 18% 10 Puma 09/14/03
South Portland, ME - 28% 7 S.D. Warren Company 01/31/00
Raynham, MA 38% - 7 Parent, McLaughlin & Nangle 03/31/03
Boston, MA - 12% 10 Pierce, Davis, Fahey & Perritano 09/30/03
Nashua, NH 8% - 4 Promis Systems Corp. 05/31/01
South Portland, ME 31% 14% 4 Tufts Health Plan 03/31/01
- -------------------------------------------------------------------------------------------------
Total 9% 19% 233
=================================================================================================
<CAPTION>
RETAIL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aurora, IL 361,100 $ 26,842,000 $ 74.33 92% $ 8.39
Baltimore, MD 146,700 6,133,000 41.81 100% 6.35
Peabody, MA 106,900 9,876,000 92.39 100% 11.75
Temple Terrace, FL 100,500 7,550,000 75.12 95% 10.02
Hagerstown, MD 40,200 1,332,000 33.13 100% 5.22
- -----------------------------------------------------------------------------------------
Total 755,400 $ 51,733,000 $ 68.48 95% $ 8.45
=========================================================================================
<CAPTION>
RETAIL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aurora, IL 2% 2% 29 Best Buy 01/31/11
Baltimore, MD 11% 4% 14 Kmart Corp. 11/30/05
Peabody, MA - - 1 Bradlees, Inc. 10/31/15
Temple Terrace, FL 6% 7% 18 Publix Super Market, Inc. 11/30/06
Hagerstown, MD - 0% 1 Giant Food Stores, Inc. 12/31/04
- -------------------------------------------------------------------------------------------------
Total 4% 3% 63
=================================================================================================
<CAPTION>
Carrying Value Percentage
MULTI-FAMILY Sq. Ft. Dollars Per Unit Leased
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harrison Township, MI 376 $ 9,064,000 $24,106 92%
Bloomfield Hills, MI 346 13,201,000 38,153 96%
Laurel, MD 237 10,587,000 44,671 97%
- -------------------------------------------------------------------------
Total 959 $ 32,852,000 $34,257 95%
=========================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Carrying Value
LAND AND OTHER Dollars
- --------------------------------
<S> <C>
Portland, ME $ 2,321,000
Tampa, FL 427,000
Mount Clemens, MI 25,000
Hopkinton, MA 202,000
- --------------------------------
Total $ 2,975,000
================================
</TABLE>
Reference is made to Notes 1, 2, 3, 4 and 5 in the Notes to the
Consolidated Financial Statements and Schedule III of the Financial Statement
Schedule under Item 14 of this report for descriptions of the Trust's
investments and properties.
EXECUTIVE OFFICE
The Trust's headquarters, at One Winthrop Square, Boston, Massachusetts,
includes approximately 9,320 square feet. The building is owned by the Trust
and, accordingly, no rent expense or rental income has been recorded since the
Trust commenced occupying the space in April 1996.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Trust or any of its
subsidiaries are a party or with respect to which any of its properties is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 14, 1998, the Trust held a Special Meeting of Shareholders, whereby
the shareholders (i) approved the Plan and (ii) approved an amendment to the
Trust's Declaration of Trust to permit all sales of assets in liquidation
without further shareholder approval even if the assets disposed of might be
considered substantially all of the assets of the Trust. The affirmative vote
on such matters, in each case by majority of the outstanding shares, was as
follows:
1. APPROVAL OF THE PLAN: To approve the Plan of Complete Liquidation and
Termination of the Trust.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
8,988,836 211,643 70,541
</TABLE>
2. APPROVAL OF THE AMENDMENT TO THE DECLARATION OF TRUST: To approve the
amendment to the Trust's Declaration of Trust to permit any and all sales
of assets without further shareholder approval.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
8,723,189 471,460 76,370
</TABLE>
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND DIVIDENDS.
The principal market on which the Trust's common shares are traded is the New
York Stock Exchange, under the symbol MGI. The table below sets forth, for the
fiscal quarters indicated, the high and low sales prices on the New York Stock
Exchange of the Trust's common shares and dividends paid per common share.
<TABLE>
<CAPTION>
- -------------------------------------------------------
Sales Price
-----------------------
Fiscal 1998 High Low Dividends
- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $25 13/16 $23 5/8 $.29
Second Quarter $25 7/8 $23 1/2 $.29
Third Quarter $27 13/16 $23 1/16 $.31
Fourth Quarter $29 1/2 $26 1/16 $.33
</TABLE>
<TABLE>
<CAPTION>
Sales Price
---------------------
Fiscal 1997 High Low Dividends
- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $22 3/4 $20 1/8 $.27
Second Quarter $22 3/8 $20 3/8 $.27
Third Quarter $23 5/8 $20 3/4 $.28
Fourth Quarter $25 3/8 $22 1/8 $.28
</TABLE>
On December 17, 1998, the Board of Trustees declared a dividend of $.33 per
share payable on January 19, 1999 to shareholders of record on January 8, 1999.
Future dividends will be determined by the Trust's Board of Trustees and
will be dependent upon the results of the execution of the Plan, and in the
interim will also be dependent upon the earnings, financial position and cash
requirements of the Trust and other relevant factors existing at the time. The
Trust must distribute at least 95% of the Trust's taxable income in order to
enable it to qualify as a real estate investment trust for tax purposes. So
long as the Trust continues to qualify as a REIT, shareholders will, therefore,
receive in the form of dividends at least 95% of the taxable income of the
Trust.
APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Approximate Number
of Holders of Record
Title of Class (as of January 27, 1999)
- ------------------------------------------------------------
<S> <C>
Common Shares, $1.00 par value 2,054
</TABLE>
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Rental income $ 70,338,000 $ 62,567,000 $ 54,507,000 $ 44,875,000 $ 43,486,000
Property operating expenses and real
estate taxes (24,482,000) (22,827,000) (20,589,000) (17,423,000) (17,392,000)
- -------------------------------------------------------------------------------------------------------------------------
Property operating income 45,856,000 39,740,000 33,918,000 27,452,000 26,094,000
Interest income 651,000 639,000 421,000 514,000 394,000
Less expenses:
Depreciation and amortization 10,379,000 10,662,000 9,463,000 8,339,000 8,116,000
Interest 10,122,000 9,539,000 9,198,000 5,807,000 5,781,000
General and administrative 3,592,000 3,206,000 2,873,000 2,651,000 2,580,000
Liquidation plan expense 972,000 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Income before net gains 21,442,000 16,972,000 12,805,000 11,169,000 10,011,000
Net gains and extraordinary item 8,375,000 3,494,000 11,500,000 3,150,000 4,480,000
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 29,817,000 $ 20,466,000 $ 24,305,000 $ 14,319,000 $ 14,491,000
=========================================================================================================================
Basic earnings per share $ 2.17 $ 1.54 $ 2.11 $ 1.25 $ 1.26
=========================================================================================================================
Dividends per share $ 1.22 $ 1.10 $ .98 $ .90 $ .86
=========================================================================================================================
Funds from operations $ 32,626,000 $ 27,526,000 $ 22,169,000 $ 19,492,000 $ 18,111,000
=========================================================================================================================
Weighted average shares outstanding 13,736,729 13,289,781 11,540,972 11,487,677 11,450,451
=========================================================================================================================
SUMMARY OF FINANCIAL POSITION
Investments in real estate, at cost* $ 415,769,000 $ 381,943,000 $ 356,024,000 $ 293,469,000 $ 267,530,000
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 394,503,000 $ 362,044,000 $ 339,664,000 $ 274,651,000 $ 255,971,000
- -------------------------------------------------------------------------------------------------------------------------
Loans payable $ 130,517,000 $ 113,171,000 $ 138,547,000 $ 84,506,000 $ 70,954,000
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 256,822,000 $ 242,385,000 $ 194,435,000 $ 180,540,000 $ 176,095,000
=========================================================================================================================
</TABLE>
Note: Reference is made to the Index to Consolidated Financial Statements filed
as part of this report under Item 14. Item 6, Selected Financial Data,
should be read in conjunction with the Consolidated Financial Statements
and the related notes appearing elsewhere herein.
* Effective October 14, 1998 with the adoption of the Liquidation plan, the
Trust reclassified $50.2 million of accumulated depreciation and
amortization against the original cost of real estate assets, and captioned
the resulting total of $365,543,000 as "Properties held for Sale" in the
accompanying balance sheet as of November 30, 1998.
14
<PAGE>
ITEM 7. 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 66 commercial
properties and three multi-family residential properties. The commercial
portfolio consists of 5.6 million square feet, 87% of which is comprised of
office, office/research and development and industrial properties. The
multi-family properties consist of three residential communities aggregating
959 units. At November 30, 1998, the commercial and residential properties were
97.9% and 94.5% leased, respectively.
On August 12, 1998, the Board of Trustees, after completing a review of
the strategic alternatives available to MGI to maximize shareholder value,
unanimously approved a Plan of Complete Liquidation and Termination of the
Trust (the "Plan"). The shareholders of the Trust approved the Plan at a
special meeting held on October 14, 1998. In the Trust's definitive Proxy
Statement dated September 10, 1998, which was circulated to shareholders in
connection with the October 14, 1998 special meeting, the Plan is discussed,
including risk factors, income tax consequences and certain other
considerations. As part of that discussion, management estimated that
substantially all of the properties would be sold within 12 to 15 months of
shareholder adoption of the Plan and that it expected sales of the Trust's
assets would be made at prices that would yield net aggregate cash liquidation
proceeds of between $30 and $33 per share. Currently, management believes that
sales of the Trust's assets pursuant to the Plan will be made at prices that
will yield aggregate net liquidation proceeds at approximately the lower end of
the originally announced range of between $30 and $33 per share, taking into
consideration the effects of the recent credit crisis which adversely impacted
the national credit and real estate markets, and which now seems to be receding
to some degree; however, no assurance can be given that per share net cash
proceeds will be within this range or will reach this range.
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 November 30, 1998, 80%, based upon square feet (66% based upon
cost), of MGI's real estate assets were located in New England. The region
contributed approximately 71% of the Trust's property operating income for
fiscal 1998 up from 60% in fiscal 1997. A number of the properties in New
England have average rents in place that management believes to be lower than
the prevailing market rates. Much of the Trust's growth from its internal
operations is attributable to increased rental rates upon lease rollovers in
New England. As of year-end, the Trust had 4.1 million square feet under
management in New England, more than doubling the property management operation
which the Trust had initiated during the third quarter of 1997.
The following table sets forth certain information concerning the Trust's
properties at November 30, 1998:
<TABLE>
<CAPTION>
New England Other Regions
--------------------------------------- -------------------------------------
Property Type Number Total Cost Sq. Ft. Number Total Cost Sq. Ft.
- ---------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Office 19 $121,707,000 1,335,000 5 $ 43,950,000 479,000
Office/R&D 17 70,770,000 1,394,000 - - -
Industrial 16 68,231,000 1,685,000 - - -
Retail 1 10,329,000 107,000 4 50,754,000 648,000
Multi-family - - - 3 47,052,000 -
Land and Other 2 2,523,000 - 2 453,000 -
- -----------------------------------------------------------------------------------------------
Total 55 $273,560,000 4,521,000 14 $142,209,000 1,126,000
===============================================================================================
</TABLE>
During 1998 the Trust acquired 12 properties totaling 740,200 square feet, and
a parcel of land, all of which were located in New England, for an aggregate
cost of $57.1 million. In addition, the Trust sold seven properties, five of
which were located outside of New England and recognized gains of $8.4 million
with net proceeds aggregating $22.3 million.
15
<PAGE>
RESULTS OF OPERATIONS
1998 Compared to 1997
Net income for 1998 of $29.8 million, or $2.17 per share, included net gains of
$8.4 million, which resulted from the sale of seven properties. Net income for
1997 was $20.5 million, or $1.54 per share, which included gains of $3.8
million which was partially offset by an extraordinary item of $0.3 million
incurred in connection with a loan refinancing prepayment fee. Income before
net gains increased 25.9% from $17.0 million in 1997 to $21.4 million in 1998.
Funds from operations ("FFO") totaled $32.6 million for fiscal 1998
compared to $27.5 million in 1997, an 18.5% increase. 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 both unconsolidated partnerships and
joint ventures, and for significant non-recurring events (such as Liquidation
plan expenses). MGI believes FFO is an appropriate supplemental measure of
operating performance.
The following is a reconciliation of net income to FFO:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year Ended November 30,
------------------------------
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 29,817,000 $ 20,466,000
Less net gains and extraordinary item (8,375,000) (3,494,000)
Plus building depreciation 7,801,000 8,385,000
Plus tenant improvement and commission amortization 2,411,000 2,169,000
Liquidation plan expenses 972,000 -
- --------------------------------------------------------------------------------------
Funds from operations $ 32,626,000 $ 27,526,000
======================================================================================
</TABLE>
The $4.5 million increase in income before net gains, when 1998 is compared to
1997, resulted principally from a $6.1 million increase ($45.8 million versus
$39.7 million, respectively) in property operating income (which is defined as
rental income less property operating expenses and real estate taxes), offset
by increases in interest, general and administrative expenses and liquidation
plan expenses. The increase in interest expense of $0.6 million was due
primarily to debt incurred in connection with the acquisition of properties.
Additionally, general and administrative costs increased by $0.4 million,
reflecting higher personnel costs as well as increased legal expenses and the
costs associated with shareholder relations. Liquidation plan expenses of $1.0
million reflect those costs, principally professional fees associated with
developing the Plan, including the consideration of strategic alternatives, and
presenting the proposal to the Trust's shareholders. In addition, included in
the amount is the recognition of related employee severance costs which are
being recognized over a 15-month period beginning with the approval of the
Plan. Depreciation and amortization decreased by $.3 million, as the Trust
stopped depreciating its real estate assets on October 14, 1998, the date
shareholders approved the Plan. The change in 1998 FFO when compared to 1997 is
attributable to the same factors that affected income before net gains in such
periods, excluding the effect of changes in depreciation and amortization and
liquidation plan expenses.
The change in property operating income from 1997 to 1998 reflects
improved results from comparable properties (which is defined as properties
owned throughout both 1997 and 1998), as well as the effect of the sale and
acquisition of properties, is detailed below:
16
<PAGE>
<TABLE>
<CAPTION>
Net Change in
Property
Properties Held 1998 and 1997 1998 and 1997 Operating
Property Type Both Years Acquisitions Sales Income
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office $1,069,000 $4,550,000 $ (837,000) $4,782,000
Office/R&D 704,000 1,362,000 - 2,066,000
Industrial 244,000 1,262,000 (1,855,000) (349,000)
Retail 251,000 - (373,000) (122,000)
Multi-family 280,000 - (961,000) (681,000)
Land and Other 439,000 - (16,000) 423,000
- ---------------------------------------------------------------------------------------
Total $2,987,000 $7,174,000 $ (4,042,000) $6,119,000
=======================================================================================
</TABLE>
The increase in property operating income from the 43 comparable properties
reflects leasing completed during the last two fiscal years, particularly in
New England where leases were executed at substantially higher rents. Rental
rates for leases signed during 1998 and 1997 increased by 32.6% and 30.6%,
respectively, compared to the previous rents in place. Base rents on leases
signed or renewed in 1998 are expected to generate approximately $1.5 million
of additional revenues in fiscal 1999 as such leases become effective. Rental
revenue has also been positively impacted by the portfolio's overall leased
rate which increased from 95.4% at the end of fiscal 1997 to 97.3% at November
30, 1998. For the comparable office properties, rents from leases executed in
1998 are, in the aggregate, 15% higher than rents previously in place, with
increases of approximately 20% in New England. The office properties also
experienced lower operating expenses and lower management costs due to the
internalization of property management. The retail operating results benefited
from leases executed at the Aurora, Illinois property, which increased the
overall retail leased level to 95.4%. The multi-family properties experienced
revenue growth of 5.6%, which reflected higher rents and stable occupancy
rates. The comparable office/research and development properties experienced
the largest growth in rental rates with 324,900 square feet of leases signed at
an average rate increase of 77%. Industrial properties benefited from the
combined impact of higher overall occupancy and rental rates that increased by
18%.
Commercial leases signed in 1998, the percentage of the commercial
properties leased and scheduled commercial lease expirations in 1999 and 2000
(in square feet) are as follows:
<TABLE>
<CAPTION>
1998 Leased at Scheduled Expirations
Property Type Leasing November 30, 1998 1999 2000
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office 244,300 97.6% 166,100 345,700
Office/R&D 358,200 100.0% 135,500 407,000
Industrial 242,600 97.6% 204,700 242,100
Retail 121,400 95.4% 27,500 19,200
- --------------------------------------------------------------------------
Total 966,500 97.9% 533,800 1,014,000
==========================================================================
</TABLE>
With regard to the 1998 leasing, lease renewals totaled 471,100 square feet,
leases signed with new tenants totaled 426,000 square feet of space that was
previously leased, and leases executed that were related to space that was
vacant as of December 1, 1997 totaled 69,400 square feet. Scheduled expirations
in 1999 represent 9.5% of the Trust's total commercial square feet at November
30, 1998, compared to scheduled expirations in 1998 of 769,700 square feet,
which represented 14.3% of the Trust's total commercial square feet at November
30, 1997.
The fiscal 1999 expirations are scheduled as follows: 125,300 square feet
in the first quarter, 220,200 square feet in the second quarter, 136,100 square
feet in the third quarter and 52,200 square feet in the fourth quarter. In the
Trust's New England portfolio, leases relating to 455,500 and 965,300 square
feet are scheduled to expire in 1999 and 2000,
17
<PAGE>
respectively, which management believes are subject to rents that are generally
below the current market. Included in the 1999 expirations is a 105,500 square
foot lease scheduled to expire on April 1, 1999 at an Andover, Massachusetts
office building. Management has been in discussions with the existing tenant,
as well as other potential tenants, with the resolution uncertain at this time.
1997 Compared to 1996
Net income for 1997 was $20.5 million, or $1.54 per share, which included gains
of $3.8 million which were partially offset by an extraordinary item of $0.3
million incurred in connection with a loan refinancing prepayment fee. Net
income for 1996 of $24.3 million, or $2.11 per share, included net gains of
$11.5 million, which resulted from the sale of three industrial buildings as
well as the sale of a partnership interest. Income before net gains increased
from $12.8 million in 1996 to $17.0 million in 1997.
Funds from operations ("FFO") totaled $27.5 million for fiscal 1997,
compared to $22.2 million in 1996. MGI calculates FFO in conformity with the
NAREIT definition as previously described.
The following is a reconciliation of net income to FFO:
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net income $20,466,000 $ 24,305,000
Less net gains and extraordinary item (3,494,000) (11,500,000)
Plus building depreciation 8,385,000 7,337,000
Plus tenant improvement and commission amortization 2,169,000 2,027,000
- -------------------------------------------------------------------------------------
Funds from operations $27,526,000 $ 22,169,000
=====================================================================================
</TABLE>
The $4.2 million increase in income before net gains from 1996 to 1997 resulted
principally from a $5.8 million increase ($33.9 million versus $39.7 million,
respectively) in property operating income (which is defined as rental income
less property operating expenses and real estate taxes), offset by increases in
interest and depreciation and amortization expense. The increase in interest
expense of $0.3 million was due primarily to debt incurred in connection with
the acquisition of properties. Depreciation and amortization increased by $1.2
million, reflecting the greater number of properties owned. Additionally,
general and administrative costs increased by $0.3 million, primarily
reflecting higher personnel costs. Interest income increased by $0.2 million,
reflecting higher average cash balances. The change in 1997 FFO, when compared
to 1996, is attributable to the same factors that affected income before net
gains in such periods, excluding the effect of changes in depreciation and
amortization expense.
The change in property operating income from 1996 to 1997 reflects
improved results from comparable properties (which is defined as properties
owned throughout both 1996 and 1997), as well as the effect of the sale and
acquisition of properties, as detailed below:
<TABLE>
<CAPTION>
Net Change in
Property
Properties Held 1997 and 1996 1997 and 1996 Operating
Property Type Both Years Acquisitions Sales Income
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office $ 491,000 $2,912,000 $ 28,000 $3,431,000
Industrial 64,000 2,115,000 (647,000) 1,532,000
Office/R&D (78,000) 881,000 - 803,000
Multi-family 286,000 - - 286,000
Retail 34,000 - - 34,000
Land and Other (122,000) 218,000 (360,000) (264,000)
- ---------------------------------------------------------------------------------------
Total $ 675,000 $6,126,000 $(979,000) $5,822,000
=======================================================================================
</TABLE>
18
<PAGE>
The increase in property operating income from the 40 comparable properties
largely reflects leasing completed during 1997, particularly at properties
located in Massachusetts where leases totaling 469,000 square feet were
executed at substantially higher rents. For the comparable office properties,
rents from leases executed in 1997 are, in the aggregate, 27% higher than rents
previously in place. Retail operating results were relatively unchanged from
1996. Nevertheless, retail leases executed at the Aurora, Illinois property
should positively impact in 1998 the retail properties based upon scheduled
expirations. Bradlees, Inc., which, pursuant to Chapter 11 of the Federal
Bankruptcy Code, affirmed its lease at the Peabody, Massachusetts store owned
by MGI, has obtained an extension to submit a reorganization plan until
February 1999. The multi-family properties experienced revenue growth of 4%,
which reflected higher rental rates offset by a slight decline in occupancy at
two Michigan apartment properties. Property operating income from the
office/research and development and industrial properties combined did not
change significantly from fiscal 1996 but should benefit in fiscal 1998 from
recently executed leases.
LIQUIDITY
Shareholders' equity at November 30, 1998 was $256.8 million, compared to
$242.4 million at November 30, 1997. The increase primarily reflects net income
in excess of distributions paid. At November 30, 1998, financial liquidity was
provided by $12.3 million in cash and cash equivalents and by $40.0 million
available under a line of credit of $75.0 million. The principal sources and
uses of cash in fiscal 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Sources of Cash 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Trust operations $ 30,791,000 $ 29,100,000
Sales of real estate, net 22,274,000 15,600,000
Proceeds from the issuance of common shares 1,137,000 41,600,000
New borrowings, net of fees 46,550,000 26,500,000
- ------------------------------------------------------------------------------
Total $100,752,000 $112,800,000
==============================================================================
<CAPTION>
Uses of Cash 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquisitions $ 57,140,000 $ 48,000,000
Dividends 16,766,000 14,400,000
Additions to real estate 7,482,000 5,800,000
Deferred tenant charges and other 2,665,000 2,600,000
Repayment of mortgage loans payable 18,398,000 43,200,000
- ------------------------------------------------------------------------------
Total $102,451,000 $114,000,000
==============================================================================
</TABLE>
During 1998, the Trust acquired 12 properties totaling 740,200 square feet and
a parcel of land for an aggregate cost of $57.1 million. Nine of these
properties are located in three separate business parks giving the Trust a more
significant presence in their respective markets. In addition, the Trust sold
seven properties, five of which were located outside of New England and
recognized gains of $8.4 million with net cash proceeds aggregating $22.3
million. The sale of non-New England properties reflects the Trust's strategy
of positioning its core portfolio in New England with a focus on office,
office/research and development, and industrial properties. Subsequent to the
end of fiscal 1998, the Trust completed the sale of a 40,200 square foot retail
property located in Hagerstown, Maryland for $1.2 million, which, on an
individual sale basis, is a price that falls into the estimated range of net
liquidation sales proceeds with respect to such property. A summary of 1998
real estate acquisitions follows:
19
<PAGE>
<TABLE>
<CAPTION>
Square
Property Type Location Date Acquired Feet Cost
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office South Portland, Maine 02/98 56,100 $ 5,147,000
South Portland, Maine 02/98 31,800 3,340,000
South Portland, Maine 02/98 18,400 1,732,000
Hopkinton, Massachusetts 03/98 159,800 12,627,000
Raynham, Massachusetts 03/98 27,300 2,605,000
Manchester, New Hampshire 04/98 127,900 10,978,000
Peabody, Massachusetts 04/98 37,000 4,296,000
Office/R&D Hudson, New Hampshire 03/98 76,800 3,535,000
Hopkinton, Massachusetts 03/98 76,100 5,326,000
Hopkinton, Massachusetts 03/98 40,800 2,850,000
Raynham, Massachusetts 03/98 49,200 2,552,000
Industrial Hopkinton, Massachusetts 03/98 39,000 1,950,000
Land Hopkinton, Massachusetts 03/98 - 202,000
- -------------------------------------------------------------------------------------------
Total 740,200 $57,140,000
===========================================================================================
</TABLE>
Loans payable totaled $130.5 million at November 30, 1998, a net increase of
$17.3 million, 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. At year-end, the Trust had $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, in 1998 the Trust
closed on an $11.6 million mortgage loan secured by a Michigan apartment
complex and loans totaling $10.8 million were assumed by the purchaser in
conjunction with the sale of properties. The balance of $3.0 million represents
scheduled principal payments. Scheduled loan principal payments due within 12
months of November 30, 1998 total $3.2 million. Subsequent to year-end, the
Trust repaid a $12.3 million loan which had a stated rate of 8.5% and which was
secured by an Aurora, Illinois retail center and subsequently drew an
additional $13.5 million from its line primarily to fund the Yorkshire loan
repayment and capital improvements. MGI believes it will continue to be able to
extend or refinance maturing mortgage loans upon satisfactory terms.
Cash requirements in 1999 will include liquidating distributions to
shareholders, capital and tenant improvements and leasing expenditures. Under
the provisions of the Code, distributions made within 24 months of the adoption
of the Plan are considered liquidating distributions and will not be dividend
income when received by shareholders. Distributions in liquidation should first
be used to reduce a shareholder's basis in his or her shares of MGI with any
excess constituting a capital gain if the shares were held as a capital asset.
If the sum of all liquidating distributions is less than a shareholder's basis,
the difference will constitute a capital loss.
During 1998, expenditures for capital and tenant improvements totaled $3.8
million and $3.7 million, respectively. Included in the amount for capital
improvements were $2.0 million of costs associated with building renovations.
The Trust is committed to approximately $3 million for capital and tenant
improvements relating to leasing activity completed in 1998 and through fiscal
1999 to date. Of this amount, approximately $2.0 million is for a 60,000 square
foot expansion of an office/research and development building located in
Hudson, New Hampshire.
In connection with the Plan, MGI anticipates incurring a variety of costs
and fees including costs related to sales, fees to advisors and other
professionals, severance compensation, payments to holders of stock options,
and other expenses related to liquidation. Among the costs is an estimated $4.2
million of employee severance compensation, which includes a base and incentive
component. Payment of employee severance compensation is contingent upon the
20
<PAGE>
employee's continuing employment and is being recognized as an expense over a
15-month period beginning October 14, 1998. The Trust has entered into
agreements with a financial advisor and with an exclusive property sales agent.
Each agreement provides for a fee of $1.5 million to be paid in the event of a
complete liquidation or merger, with a minimum of $400,000 to be paid to each.
In addition, the Trust has agreed to reimburse their out-of-pocket expenses up
to $650,000 in the aggregate, of which $132,000 has been paid to date.
Sources of funds in the future are expected to be derived from property
operations, sales of properties, mortgaging or refinancing of existing
mortgages on properties, borrowing under MGI's lines of credit and MGI's
portfolio of investment securities. MGI believes the combination of available
cash and cash equivalents, the value of MGI's unencumbered properties and other
resources are sufficient to meet its liquidity requirements while implementing
the Plan.
OTHER
Inflation
During the past three years, the impact of inflation on MGI's operations and
investment activity has not been significant.
Real Estate Considerations
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 or 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, in the past, 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 modest diversification by property type and
its diverse tenant base somewhat reduce the risks associated with these factors
and enhances opportunities for cash flow growth and capital gains potential,
although there can be no assurance thereof.
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 buildings, 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 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, although there can be no assurance thereof.
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.
21
<PAGE>
Market Risk
The Trust is exposed to interest rate changes primarily as a result of its line
of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Trust's real estate investment portfolio and
operations. The Trust's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. The Trust does not enter into derivative or interest
rate transactions. The carrying values of financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and notes payable,
approximate fair value because of the short maturity of these instruments. The
Trust's obligations for borrowed money totaled $130.5 million at November 30,
1998, representing 33% of its total assets. At November 30, 1998, fixed rate
mortgage loans totaled $95.5 million with an average rate of 7.9%. It is
management's belief that as of the date of the report, similar financing would
be available at rates ranging from approximately 6.75% to 7.0%, prior to the
impact of prepayment fees. The Trust's debt obligations subject to floating
interest rates at November 30, 1998 aggregated approximately $35 million at a
weighted average interest rate of approximately 6.5% and represented 26.8% of
the Trust's outstanding debt. Significant increases in interest rates on
floating rate debt would adversely affect the net income, FFO and cash
available for distribution to shareholders. The carrying value of long-term
debt approximates its fair value, as estimated by using discounted future cash
flows based on the Trust's current incremental borrowing rates for similar
types of borrowing arrangements and the estimated time to complete the Plan.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements, estimates or plans
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of MGI to be materially different from
results or plans expressed or implied by such forward-looking statements. Such
factors generally include, among other things, adverse changes in the real
estate markets; risk of default under the Trust's outstanding indebtedness;
financial condition and bankruptcy of tenants; environmental/safety
requirements; adequacy of insurance coverage; and general and local economic
and business conditions. With respect, in particular, to the Plan, such factors
include, among other things, the risks of future action or inaction by the
Board of Trustees (and the actual results thereof) with respect to the Plan
(including the possibility of litigation pertaining thereto), the net
realizable value of the properties in the event the Plan is implemented, the
effects of financial market conditions and general economic conditions,
maintaining the current occupancy and rent levels at the properties, as well as
those risk factors set forth in the definitive Proxy Statement relating to the
Trust's Special Shareholders' Meeting held on October 14, 1998, which is
incorporated herein by reference and filed as an exhibit hereto. Investors
should review the more detailed risks and uncertainties set forth under the
captions Risk Factors and Competition, Regulation and Other Factors in this
report. Although the Trust believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included or incorporated by reference in this
report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Trust or any
other person that the objectives and plans of the Trust will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14 of
this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of this Part III has been
omitted from this Report since the Registrant intends to file with the
Securities and Exchange Commission a definitive proxy statement which involves
the election of Trustees not later than 120 days after the close of the
Registrant's last fiscal year.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) 1. Consolidated Financial Statements
INDEX
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets, November 30, 1998 and 1997
Consolidated Statements of Earnings, Years ended November 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows, Years ended November 30, 1998, 1997
and 1996
Consolidated Statements of Changes in Shareholders' Equity, Years ended
November 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule
Financial Statement Schedule (as of or for the year ended November 30, 1998):
Schedule III, Real Estate and Accumulated Depreciation
Exhibit XI - Computation of Diluted Earnings per Share
Exhibit XXVII - Financial Data Schedule for year ended November 30, 1998 (EDGAR
filing only)
Other schedules are omitted for the reasons that they are not required, are not
applicable, or the required information is set forth in the financial
statements or notes thereto.
3. Exhibits
3(a) Second Amended and Restated Declaration of Trust, incorporated by
reference to Exhibit 3 of the Trust's Annual Report on Form 10-K for the
fiscal year ended November 30, 1981 (the "1981 10-K").
(b) Certificate of First Amendment of Second Amended and Restated
Declaration of Trust, incorporated by reference to Exhibit 3 of the 1981
10-K.
(c) Certificate of Second Amendment of Second Amended and Restated
Declaration of Trust, incorporated by reference to the Trust's Report on
Form 8-K, filed on January 13, 1983.
(d) Certificate of Third Amendment of Second Amended and Restated
Declaration of Trust, incorporated by reference to Exhibit 3(d) to
Amendment No. 1 to the Trust's Registration Statement on Form S-2 filed
on June 7, 1985.
(e) Certificate of Fourth Amendment of Second Amended and Restated
Declaration of Trust, dated October 17, 1986, incorporated by reference
to the Trust's Annual Report on Form 10-K for the year ended November
30, 1986.
(f) Certificate of Fifth Amendment of Second Amended and Restated
Declaration of Trust, dated March 25, 1987, incorporated by reference to
Exhibit 3(f) of the Trust's Annual Report on Form 10-K for the fiscal
year ended November 30, 1987.
(g) Certificate of Sixth Amendment of Second Amended and Restated
Declaration of Trust, dated February 10, 1988, incorporated by reference
to Exhibit 4(g) of the Trust's Registration Statement on Form S-8 filed
on May 3, 1988.
(h) Certificate of Seventh Amendment of Second Amended and Restated
Declaration of Trust, dated June 30, 1988, incorporated by reference to
Exhibit 4.8 of the Trust's Registration Statement on Form S-4 filed on
November 10, 1988 (Reg. No. 33-25495).
(i) Certificate of Eighth Amendment of Second Amended and Restated
Declaration of Trust, dated March 27, 1989, incorporated by reference to
Exhibit 3(i) of the Trust's Annual Report on Form 10-K for the fiscal
year ended November 30, 1989 (the "1989 10-K").
24
<PAGE>
(j) Rights Agreement, dated as of June 21, 1989 between the Trust and The
First National Bank of Boston as Rights Agent, incorporated by
reference to Exhibit 1 to the Trust's Registration Statement on Form
8-A, filed on June 27, 1989.
(k) Certificate of Vote of the Trustees Designating a Series of Preferred
Shares, dated June 21, 1989, incorporated by reference to Exhibit 3(m)
of the 1989 10-K.
(l) Certificate of Eleventh Amendment of Second Amended and Restated
Declaration of Trust which increased the authorized number of Common
Shares from 15,000,000 to 17,500,000, incorporated by reference to
Exhibit B to the Trust's Quarterly Report Form 10-Q for the ended May
31, 1996.
(m) Certificate of Twelfth Amendment of Second Amended and Restated
Declaration of Trust which increased the authorized number of Preferred
Shares from 2,000,000 to 6,000,000 incorporated by reference to Exhibit
B to the Trust's Quarterly Report Form 10-Q for the quarter ended May
31, 1996.
(n) Certificate of Thirteenth Amendment of Second Amended and Restated
Declaration of Trust.*
(o) By-Law, adopted on December 24, 1982 incorporated by reference to the
Trust's Report on Form 8-K, filed on January 12, 1983.
(p) Certificate of Amendment of By-Laws, dated March 21, 1989, incorporated
by reference to the Trust's Report on Form 8-K dated March 21, 1989.
(q) By-Law adopted December 18, 1997, relating to shareholder proposals and
nominations, incorporated by reference to the Trust's Annual Report on
Form 10-K for the year ended November 30, 1997.
10(a) Mortgage Growth Investors Incentive Stock Option Plan for Key
Employees, incorporated by reference to the Trust's Definitive Proxy
Statement dated March 15, 1982
(b) Mortgage Growth Investors Stock 1982 Option Plan for Trustees,
incorporated by reference to the Trust's Definitive Proxy Statement
dated March 15, 1982
(c) MGI Properties 1988 Stock Option and Stock Appreciation Rights Plans
for Key Employees and Trustees, incorporated by reference to the
Trust's Definitive Proxy Statement, dated February 19, 1988.
(d) Amendment to MGI Properties' 1988 Stock Option and Stock Appreciation
Rights Plan for Key Employees, dated as of December 19, 1989,
incorporated by reference to Exhibit 10(f) of the 1989 10-K.
(e) Amendment to MGI Properties' 1988 Stock Option Plan for Trustees, dated
as of December 19, 1989, incorporated by reference to Exhibit 10(g) of
the 1989 10-K.
(f) Amended and Restated Severance Compensation Plan, dated as of December
19, 1989, incorporated by reference to Exhibit 10(i) of the 1989 10-K.
(g) MGI Properties 1994 Stock Option and Stock Appreciation Rights Plan for
Key Employees and Trustees incorporated by reference to the Trust's
Definitive Proxy Statement, dated February 18, 1994.
(h) The Dividend Reinvestment and Share Purchase Plan of MGI Properties
incorporated by reference to the Trust's Report on Form S-3, filed on
July 1, 1994.
(i) MGI Properties 1997 Employee Stock Option, Stock Appreciation Rights
and Restricted Stock Plan, incorporated by reference to the Trust's
Definitive Proxy Statement, dated February 24, 1997
(j) Credit Agreement dated April 2, 1998 among MGI Properties, as Borrower,
the Financial Institutions Party thereto and their Assignees under
Section 13.5(a), as Lenders, Wells Fargo Bank, National Association, as
Documentation Agent, Syndication Agent, and as Arranger and BankBoston,
N.A., as Administrative Agent and as Co-Arranger, incorporated by
reference to Exhibit 10.1 to the Trust's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998.
(k) Form of Indemnity Agreement incorporated by reference to Exhibit 99 to
the Trust's Quarterly Report on Form 10-Q for the quarter ended May 31,
1998.
(l) Form of Severance Agreement for Key Employees, incorporated by
reference to the Trust's Current Report on Form 8-K, dated August 12,
1998.
25
<PAGE>
(m) MGI Properties Long Term Performance Plan, incorporated by reference to
the Trust's Current Report on Form 8-K dated August 15, 1998.
(n) MGI Properties Definitive Proxy Statement dated September 10, 1998 in
respect of the Special Meeting of Shareholders held on October 14,
1998.*
11 Computation of Diluted Earnings per Share, included under Item 14 of
this Report.
24 Auditors' consent.
(B) Reports on Form 8-K:
Current Report on Form 8-K dated August 12, 1998 reporting Item 5, Other Events
filed on October 1, 1998.
Current Report on Form 8-K dated October 14, 1998 reporting Item 5, Other
Events filed on October 15, 1998.
*Filed herewith
MGI Properties (the "Trust") is a Massachusetts business trust and all
persons dealing with the Trust must look solely to the property of the Trust
for the enforcement of any claims against the Trust. Neither the Trustees,
officers, agents nor shareholders of the Trust assume any personal liability in
connection with its business or assume any personal liability for obligations
entered into in its behalf.
26
<PAGE>
POWER OF ATTORNEY
MGI Properties and each of the undersigned do hereby appoint W. Pearce Coues
and Phillip C. Vitali and each of them severally, its or his true and lawful
attorneys to execute on behalf of MGI Properties and the undersigned any and
all amendments to this Report and to file the same with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission. Each of such attorneys shall have the power to act hereunder with
or without the other.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 29, 1999
MGI PROPERTIES
(Registrant)
By: /s/ W. Pearce Coues
--------------------------------
W. Pearce Coues, Chairman of the Board of Trustees
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Pearce Coues Chairman of the Board of Trustees and
- --------------------- Chief Executive Officer January 29, 1999
W. Pearce Coues
/s/ Phillip C. Vitali
- ---------------------
Phillip C. Vitali Principal Financial Officer January 29, 1999
/s/ David P. Morency
- ---------------------
David P. Morency Principal Accounting Officer January 29, 1999
/s/ George S. Bissell
- ---------------------
George S. Bissell Trustee January 29, 1999
/s/ Francis P. Gunning
- ---------------------
Francis P. Gunning Trustee January 29, 1999
/s/ George M. Lovejoy, Jr.
- ---------------------
George M. Lovejoy, Jr. Trustee January 29, 1999
/s/ Robert M. Melzer
- ---------------------
Robert M. Melzer Trustee January 29, 1999
/s/ William F. Murdoch, Jr.
- ---------------------
William F. Murdoch, Jr. Trustee January 29, 1999
/s/ Rodger P. Nordblom
- ---------------------
Rodger P. Nordblom Trustee January 29, 1999
</TABLE>
27
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ITEM 8-CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998
MGI PROPERTIES
<PAGE>
MGI PROPERTIES
Index to Consolidated Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Financial Statements:
Consolidated Balance Sheets, November 30, 1998 and 1997 F-2
Consolidated Statements of Earnings, Years ended November 30,
1998, 1997 and 1996 F-3
Consolidated Statements of Cash Flows, Years ended November
30, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity, Years
ended November 30, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6 - F-13
Schedules and Exhibits
Financial Statement Schedule (as of or for the year ended
November 30, 1998):
Schedule III-Real Estate and Accumulated Depreciation F-14 - F-16
Exhibit XI-Computation of Diluted Earnings per Share F-17
</TABLE>
Other schedules are omitted as they are not required, are not applicable, or
the required information is set forth in the consolidated financial statements
or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
MGI PROPERTIES:
We have audited the consolidated financial statements of MGI Properties and
subsidiaries (the "Trust") as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended November 30, 1998 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
As further described in footnote 1, in 1998 the Trust announced its intention,
and secured shareholder approval, to liquidate its assets, distribute the
proceeds to shareholders and terminate the Trust.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 16, 1998
F-1
<PAGE>
MGI PROPERTIES
Consolidated Balance Sheets
November 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate (notes 2, 3, 4, and 5):
Properties held for sale $365,543,000 $ -
Net investments in real estate - 334,785,000
Cash and cash equivalents 12,265,000 13,964,000
Accounts receivable 5,040,000 3,654,000
Other assets 11,655,000 9,641,000
- ----------------------------------------------------------------------------------
$394,503,000 $362,044,000
==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable (note 5) $130,517,000 $113,171,000
Other liabilities 7,164,000 6,488,000
- ----------------------------------------------------------------------------------
Total liabilities 137,681,000 119,659,000
Shareholders'equity (notes 6, 7 and 8):
Common shares-$1 par value; 17,500,000 shares
authorized; 13,764,221 issued at November 30,
1998 (13,625,489 at November 30, 1997) 13,764,000 13,625,000
Additional paid-in capital 208,278,000 207,031,000
Undistributed net income 34,780,000 21,729,000
- ----------------------------------------------------------------------------------
Total shareholders' equity 256,822,000 242,385,000
- ----------------------------------------------------------------------------------
$394,503,000 $362,044,000
==================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MGI PROPERTIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Year ended November 30,
---------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Rental $70,338,000 $62,567,000 $54,507,000
Interest 651,000 639,000 421,000
- ------------------------------------------------------------------------------------------
Total income 70,989,000 63,206,000 54,928,000
- ------------------------------------------------------------------------------------------
EXPENSES:
Property operating expenses 16,348,000 15,384,000 14,099,000
Real estate taxes 8,134,000 7,443,000 6,490,000
Depreciation and amortization 10,379,000 10,662,000 9,463,000
Interest 10,122,000 9,539,000 9,198,000
General and administrative 3,592,000 3,206,000 2,873,000
Liquidation plan expenses 972,000 - -
- ------------------------------------------------------------------------------------------
Total expenses 49,547,000 46,234,000 42,123,000
- ------------------------------------------------------------------------------------------
Income before net gains 21,442,000 16,972,000 12,805,000
Net gains on sale of real estate assets 8,375,000 3,800,000 11,500,000
- ------------------------------------------------------------------------------------------
Income before extraordinary item 29,817,000 20,772,000 24,305,000
Extraordinary item--prepayment of debt - (306,000) -
- ------------------------------------------------------------------------------------------
Net income $29,817,000 $20,466,000 $24,305,000
==========================================================================================
PER SHARE DATA:
Basic earnings $ 2.17 $ 1.54 $ 2.11
==========================================================================================
Diluted earnings $ 2.12 $ 1.51 $ 2.07
==========================================================================================
Weighted average shares outstanding 13,736,729 13,289,781 11,540,972
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MGI PROPERTIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended November 30,
------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,817,000 $ 20,466,000 $ 24,305,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,379,000 10,662,000 9,463,000
Net gains (8,375,000) (3,800,000) (11,500,000)
Extraordinary item -- 306,000 --
Other (1,030,000) 1,456,000 (1,231,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,791,000 29,090,000 21,037,000
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate (57,140,000) (48,000,000) (38,667,000)
Additions to real estate (3,816,000) (3,114,000) (3,234,000)
Tenant improvements (3,666,000) (2,669,000) (2,702,000)
Deferred tenant charges (2,579,000) (2,085,000) (1,348,000)
Net proceeds from sales of real estate 22,274,000 15,562,000 11,103,000
Other (86,000) (112,000) 35,000
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45,013,000) (40,418,000) (34,813,000)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common shares 1,137,000 41,566,000 678,000
Repayment of loans payable (18,398,000) (43,184,000) (2,242,000)
Additions to loans payable 46,550,000 26,500,000 34,743,000
Mortgage prepayment penalty -- (306,000) --
Cash distributions (16,766,000) (14,424,000) (11,308,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,523,000 10,152,000 21,871,000
- ----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,699,000) (1,176,000) 8,095,000
Cash and cash equivalents:
Beginning of year 13,964,000 15,140,000 7,045,000
- ----------------------------------------------------------------------------------------------------------
End of year $ 12,265,000 $ 13,964,000 $ 15,140,000
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MGI PROPERTIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Additional
Common paid-in Undistributed
shares capital net income
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 30, 1995 $11,502,000 $166,348,000 $ 2,690,000
Net income - - 24,305,000
Dividend reinvestment and
share purchase plan (note 6) 23,000 357,000 -
Distributions (note 8) - - (11,308,000)
Options exercised and other (note 7) 38,000 480,000 -
- -----------------------------------------------------------------------------------------
Balance at November 30, 1996 11,563,000 167,185,000 15,687,000
Net income - - 20,466,000
Dividend reinvestment and
share purchase plan (note 6) 18,000 365,000 -
Distributions (note 8) - - (14,424,000)
Sales of common shares (note 6) 2,000,000 39,075,000 -
Options exercised and other (note 7) 44,000 406,000 -
- -----------------------------------------------------------------------------------------
Balance at November 30, 1997 13,625,000 207,031,000 21,729,000
Net income - - 29,817,000
Dividend reinvestment and
share purchase plan (note 6) 13,000 333,000 -
Distributions (note 8) - - (16,766,000)
Options exercised and other (note 7) 126,000 914,000 -
- -----------------------------------------------------------------------------------------
Balance at November 30, 1998 $13,764,000 $208,278,000 $ 34,780,000
=========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
1-THE TRUST
(A) Organization
MGI Properties (the "Trust" or "MGI") is an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts. MGI commenced
operations in 1971 as a real estate investment trust (a "REIT"). The Trust
qualifies to be treated as a REIT under Sections 856-860 of the Internal
Revenue Code of 1986, as amended (the "Code").
MGI is a self-administered equity REIT that directly and through its
wholly-owned subsidiaries owns and operates a diversified portfolio of real
estate assets. At November 30, 1998, the Trust owned 66 commercial properties,
containing approximately 5.6 million square feet and three multi-family
residential properties aggregating 959 units. As of November 30, 1998,
approximately 4.5 million square feet, representing 66% of the Trust's total
real estate assets, at cost, were located in New England.
(B) Plan of Liquidation
On August 12, 1998, the Board of Trustees unanimously voted to recommend a Plan
of Complete Liquidation and Termination of the Trust (the "Plan") and directed
that the Plan be submitted to the Trust's shareholders for approval. The
shareholders of the Trust approved the Plan at a special meeting held on
October 14, 1998. The Plan calls for the sale of all of the Trust's assets. Net
sales proceeds and available cash will be used to satisfy existing debts and
obligations with remaining funds to be distributed to shareholders (see note
8). It is presently estimated that substantially all of the Trust's assets will
be sold within 12 to 15 months from the adoption of the Plan and that net
proceeds will be distributed on a schedule to be determined by the Board of
Trustees. Although it is expected that the Trust will continue to qualify as a
REIT for the period prior to the distribution of MGI's assets to shareholders,
no assurance can be given that the Trust will not lose or terminate its status
as a REIT as a result of unforeseen circumstances.
In association with the Plan, MGI anticipates incurring a variety of costs
and fees including costs related to sales, fees to advisors and other
professionals, severance compensation, payments to holders of stock options
(see note 7), and other expenses related to liquidation. Among the costs is an
estimated $4.2 million of employee severance compensation, which includes a
base and incentive component. Payment of employee severance compensation is
contingent upon the employee's continuing employment and is being recognized as
an expense over a 15-month period beginning October 14, 1998. The Trust has
entered into agreements with a financial advisor and with an exclusive sales
agent. Each agreement provides for a fee of $1.5 million to be paid in the
event of a complete liquidation or merger, with a minimum of $400,000 to be
paid to each. In addition, the Trust has agreed to reimburse their
out-of-pocket expenses up to $650,000 in the aggregate. The costs and
professional fees associated with the Plan are separately reflected in the
statement of earnings under the caption "Liquidation plan expenses."
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Consolidation
The consolidated financial statements of MGI Properties (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 REIT under the Code.
In order to qualify as a REIT 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. (See notes 1
and 8.)
F-6
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
(C) Real Estate
As a result of the Plan, all of the Trust's real estate assets are classified
as held for sale and in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, are reported at carrying value,
which is less than estimated fair market value. The Trust ceased depreciating
real estate assets based upon shareholder approval of the Plan. The Trust
expects to sell the real estate assets over a 12-15 month period and is engaged
in an ongoing marketing program. Prior to the adoption of the Plan, real estate
assets were stated at cost less depreciation. Realestate investments, excluding
land costs, were previously depreciated using the straight-line method over
their estimated useful lives. Tenant improvements were amortized over the
shorter of their estimated useful lives or lease terms. Maintenance and repairs
are charged to expense as incurred; major improvements are capitalized.
(D) Revenues
Rental income from leases with scheduled rent increases is recognized using the
straight-line method over the life of the lease.
(E) Deferred Financing and Leasing Costs
Included in other assets are costs incurred in connection with financing or
leasing which are capitalized and amortized using the straight-line method over
the terms of the related loan or lease. Amortization of deferred financing
costs is included in interest expense in the consolidated statements of
earnings. Unamortized deferred costs are charged to expense upon the early
termination of the lease or upon the early prepayment of the financing.
(F) Statements of Cash Flows
For purposes of the statements of cash flows, short-term investments with a
maturity at date of purchase of three months or less are considered to be cash
equivalents.
During 1998, the Trust sold two apartment complexes for $15.5 million. The
properties secured mortgage loans totaling $10.8 million which were assigned to
the seller at closing. During 1997, the Trust sold seven industrial properties
for $14.9 million in a single transaction. The properties secured an $8.7
million loan payable which was assigned to the purchaser at closing. During
1996, the Trust acquired three properties that were subject to an aggregate of
$21.3 million of existing debt. Only the cash portion of these transactions is
reflected in the accompanying consolidated statements of cash flows.
Cash interest payments of $9.5 million, $8.7 million and $8.6 million were
made for the years ended November 30, 1998, 1997 and 1996, respectively.
(G) Fair Value of Financial Instruments
The Trust estimated the fair values of its financial instruments at November
30, 1998 using discounted cash flow analysis and quoted market prices. Such
financial instruments include short-term investments, U.S. Government
securities, mortgage loans payable and a line of credit. The excess of the
aggregate fair value of the Trust's financial instruments over their aggregate
carrying amounts is not material.
(H) Net Income Per Share
During fiscal 1998, the Trust adopted SFAS No. 128, Earnings Per Share. Basic
earnings per common share is computed based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per common share
is based upon the weighted average number of shares outstanding during the
period and includes the effect of the potential issuance of additional shares
if stock options were exercised or converted into common shares.
(I) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
con-
F-7
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3-REAL ESTATE ASSETS
With shareholder approval of the plan of liquidation on October 14, 1998, the
Trust reclassified its real estate assets to "properties held for sale" and on
that date ceased depreciation of the assets and reclassified accumulated
depreciation and amortization on that date of $50,226,000 to the appropriate
categories. A summary of real estate assets at November 30 follows:
<TABLE>
<CAPTION>
1998
- ----------------------------------------------------------------------------
<S> <C>
Land $ 83,129,000
Buildings and improvements, net 272,115,000
Tenant improvements, net 10,299,000
- ----------------------------------------------------------------------------
Properties held for sale $365,543,000
============================================================================
</TABLE>
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------
<S> <C>
Land $ 82,989,000
Buildings and improvements 288,095,000
Tenant improvements 10,859,000
- ----------------------------------------------------------------------------
Total real estate assets 381,943,000
Accumulated depreciation and amortization (47,158,000)
- ----------------------------------------------------------------------------
Net investments in real estate $ 334,785,000
============================================================================
</TABLE>
Properties held for sale at November 30, 1998 consist of 1,814,000 square
feet of office space, 1,685,000 square feet of industrial space, 1,394,000
square feet of office/research and development space, 755,000 square feet of
retail space, and 959 apartment units.
4-LEASES
All leases relating to real estate investments are operating leases;
accordingly, rental income is reported when earned. Operating leases on
apartments generally have a term of one year or less.
Future minimum lease payments on noncancelable operating leases at
commercial properties at November 30, 1998 are: $52.1 million in 1999, $34.4
million in 2000, $15.4 million in 2001, $9.5 million in 2002, and $12.4 million
thereafter.
The above amounts do not include 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. This rental income was $10.1
million in 1998, $8.1 million in 1997 and $7.4 million in 1996.
One of the Trust's real estate investments, a 107,000 square foot retail
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.
Bradlees has obtained an extension to submit a reorganization plan until
February 1999. Bradlees is current with its rent through November 30, 1998.
F-8
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
5-LOANS PAYABLE
Loans payable at November 30 follow:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans, maturing 2000 through 2014, at effective interest rates ranging
from 7.5% to 8.9% $ 95,517,000 $ 91,921,000
Housing revenue bond at an effective interest rate of 5.9% at November 30,
1997 -- 5,750,000
Amounts outstanding under the line of credit, at an effective interest rate of
6.53% and 7.7% at November 30, 1998 and 1997, respectively 35,000,000 15,500,000
- --------------------------------------------------------------------------------------------------------------------
$130,517,000 $113,171,000
====================================================================================================================
Weighted average interest rate 7.75% 7.89%
====================================================================================================================
</TABLE>
Mortgage Loans
The mortgage loans payable are nonrecourse and are collateralized by certain
real estate investments having a net carrying value of $142.9 million. Loans
require monthly principal amortization and/or a balloon payment at maturity.
Principal payments on mortgage loans payable due in the next five years
and thereafter are as follows: $3.2 million in 1999, $14.9 million in 2000,
$44.5 million in 2001, $2.8 million in 2001, $3.1 million in 2003, and $62.0
million thereafter.
Subsequent to November 30, 1998, the Trust repaid a $12.3 million mortgage
loan maturing in 2000, which had a stated rate of 8.5%. The repayment was
funded from available cash and a $7.5 million advance under the line of credit.
The Trust incurred a prepayment penalty of $286,000 in conjunction with the
transaction.
Line of Credit
During fiscal 1998, MGI entered into a $75 million unsecured syndicated credit
facility (the "Agreement") which replaced two secured lines of credit that
totaled $45 million. The line, which matures in March of 2001, bears interest
at either LIBOR plus 1.25% or prime. A fee, which does not exceed .25% per
annum, is charged on the unused amounts. The Agreement contains customary
representations, covenants and events of default including covenants that,
among other things, requires the Trust to maintain certain financial ratios and
restricts the incurrence of certain indebtedness, the making of certain
investments, and distributions. The Agreement contains exceptions to these
limitations to allow the Trust to make distributions necessary to maintain its
status as a REIT. It is not anticipated that this covenant will adversely
affect MGI's ability to make distributions or to declare dividends, including
the execution of the plan of liquidation.
6-SHAREHOLDERS' EQUITY
(A) Shelf Registration
In October 1996, the Trust filed a shelf registration with the Securities and
Exchange Commission to register $100 million of common shares, preferred
shares, debt securities, warrants, rights or units that the Trust may issue
through underwriters or in privately negotiated transactions from time to time.
In January 1997, the Trust completed a public offering of 2,000,000 common
shares at a price of $22 per share.
(B) 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.
F-9
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
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, 1998, 1997 and 1996, the Trust issued 13,456,
18,217, and 22,808, respectively, common shares through its Dividend
Reinvestment and Share Purchase Plan.
(C) Preferred Shares
At November 30, 1998 and 1997, the Trust had six million preferred shares, $1
par value authorized, of which none were issued.
(D) 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 is 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.
7. STOCK OPTION PLANS
Under the Trust's 1997 and 1994 stock option plans for key employees and
Trustees (the "Option Plans"), incentive stock options or nonqualified options
and related stock appreciation rights and restricted stock awards may be
granted to employees, and nonqualified options may be granted to Trustees.
Under the Option 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.
Following shareholder approval of the Plan on October 14, 1998, option
holders, in accordance with their option agreements, have elected, as an
alternative to exercising their options, to receive in cash the difference
between the per share option exercise price and the aggregate per share net
liquidation proceeds to be distributed to shareholders. The estimated expense
associated with these elections, which is the difference between the per share
option exercise price and the aggregate per share net liquidation proceeds
expected to be distributed to shareholders, will be recognized upon declaration
of the related liquidating dividends. Holders of approximately 1.5 million
options with an aggregate average exercise price of approximately $19.84 have
made this election.
F-10
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
Changes in options outstanding during the years ended November 30 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 997,619 $15.59 810,411 $13.68 669,411 $13.02
Granted 680,000 $24.38 240,000 $21.42 161,500 $16.24
Exercised (169,394) $12.99 (51,792) $12.31 (14,500) $11.86
Expired or forfeited (750) $24.19 (1,000) $21.00 (6,000) $12.63
- ----------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 1,507,475 $19.84 997,619 $15.59 810,411 $13.68
======================================================================================================================
Options exercisable, end of year 1,397,350 $19.49 893,619 $14.91 739,661 $13.42
======================================================================================================================
Weighted average fair value of options granted
during the year $ 2.95 $ 3.44 $ 2.28
======================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding
at November 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7.375 to $11.125 47,500 2.8 years $10.10 47,500 $10.10
$12.625 to $16.75 547,225 4.5 years $14.37 547,225 $14.37
$21.00 to $26.50 912,750 9.1 years $23.62 802,625 $23.52
- --------------------------------------------------------------------------------------------------------
$7.375 to $26.50 1,507,475 7.3 years $19.84 1,397,350 $19.49
========================================================================================================
</TABLE>
As provided for in the Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, the Trust applies
APB Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the plans been determined based on the fair value at the grant dates for
awards under the plans consistent with the method prescribed by SFAS No. 123,
the Trust's net income and net income per share would have been reduced to the
pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
Year ended November 30: 1998 1997 1996
----------------------------------------------
Net income:
<S> <C> <C> <C>
As reported $29,817,000 $20,466,000 $24,305,000
Pro forma $27,825,000 $19,842,000 $23,969,000
Net income per share:
Basic earnings per share $ 2.17 $ 1.54 $ 2.11
Pro forma $ 2.03 $ 1.49 $ 2.08
</TABLE>
F-11
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
For purposes of this pro forma disclosure, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants: dividend
yield of 5.7% for 1998, 6.2% for 1997, and 6.9% for 1996; expected volatility
of 19.1% for 1998, 24.8% for 1997, and 26.1% for 1996; expected lives of seven
years for all three years; and risk-free interest rates of 5.57% for 1998,
6.38% for 1997, and 6.78% for 1996.
8-CASH DISTRIBUTIONS
The Trust made cash distributions of $16.8 million in 1998, $14.4 million in
1997 and $11.3 million in 1996, which is allocated between taxable ordinary
income and taxable capital gain, on a per share basis, as follows:
<TABLE>
<CAPTION>
Ordinary Capital Taxable
Year ended November 30: Income Gain Income
--------------------------------
<S> <C> <C> <C>
1998 $1.08 $0.14 $1.22
1997 $1.06 $0.04 $1.10
1996 $0.56 $0.42 $0.98
</TABLE>
On December 17, 1998, the Trust declared a dividend of $.33 per share
payable on January 19, 1999 to shareholders of record on January 8, 1999. Under
the provisions of the Code, distributions made within 24 months of the adoption
of the Plan are considered liquidating distributions and will not be dividend
income when received by shareholders. Distributions in liquidation should first
be used to reduce a shareholder's basis in his or her shares of MGI with any
excess constituting a capital gain if the shares were held as a capital asset.
If the sum of all liquidating distributions is less than a shareholder's basis,
the difference will constitute a capital loss.
9-QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for the years ended November 30, 1998 and 1997
follow:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
1998 February 28 May 31 August 31 November 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total income $16,488,000 $17,584,000 $18,277,000 $18,640,000
Total expenses 11,735,000 12,459,000 13,387,000 11,968,000
- -------------------------------------------------------------------------------------------
Income before net gains 4,735,000 5,125,000 4,890,000 6,672,000
Net gains 6,075,000 1,950,000 350,000 --
- -------------------------------------------------------------------------------------------
Net income $10,828,000 $ 7,075,000 $ 5,240,000 $ 6,672,000
===========================================================================================
Per Share Data
Basic earnings $ .79 $ .51 $ .38 $ .48
===========================================================================================
Diluted earnings $ .78 $ .50 $ .37 $ .47
===========================================================================================
</TABLE>
F-12
<PAGE>
MGI PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1998
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
1997 February 28 May 31 August 31 November 30
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total income $15,088,000 $15,574,000 $16,145,000 $16,399,000
Total expenses 11,433,000 11,310,000 11,601,000 11,890,000
- ------------------------------------------------------------------------------------------------------------------
Income before net gains and extraordinary item 3,655,000 4,264,000 4,544,000 4,509,000
Net gains and extra-ordinary item 294,000 -- -- 3,200,000
- ------------------------------------------------------------------------------------------------------------------
Net income $ 3,949,000 $ 4,264,000 $ 4,544,000 $ 7,709,000
==================================================================================================================
Per Share Data
Basic earnings $ .32 $ .31 $ .33 $ .57
==================================================================================================================
Diluted earnings $ .31 $ .31 $ .33 $ .55
==================================================================================================================
</TABLE>
F-13
<PAGE>
MGI PROPERTIES
Schedule III
Real Estate and Accumulated Depreciation
November 30, 1998
<TABLE>
<CAPTION>
Gross amounts at which
Initial Cost carried at close of period*
---------------------------- Costs -----------------------------------------------
Building capitalized Building
and subsequent to and Date
Description Encumbrances Land Improvements acquisition Land Improvements Total acquired
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office:
Greenville, SC $ - $ 246,000 $ 2,490,000 $ 523,000 $ 246,000 $ 1,593,000 $ 1,839,000 11/86
Greenville, SC - 213,000 1,647,000 717,000 253,000 1,040,000 1,293,000 11/86
Ann Arbor, MI - 686,000 5,618,000 1,751,000 686,000 5,319,000 6,005,000 12/88
Tampa, FL - 2,667,000 8,980,000 750,000 2,667,000 5,950,000 8,617,000 12/88
Somerset, NJ - 3,264,000 13,379,000 1,019,000 3,264,000 10,627,000 13,891,000 12/88
Boston, MA - 1,730,000 6,925,000 2,769,000 1,730,000 8,415,000 10,145,000 6/93
Framingham, MA - 2,105,000 5,109,000 993,000 2,020,000 5,124,000 7,144,000 9/93
Andover, MA 4,817,000 1,263,000 6,417,000 471,000 1,263,000 6,292,000 7,555,000 10/95
Boston, MA - 861,000 507,000 363,000 861,000 734,000 1,595,000 11/95
Portland, ME 8,893,000 996,000 11,182,000 237,000 996,000 10,742,000 11,738,000 7/96
Portland, ME 8,225,000 1,577,000 15,369,000 118,000 1,577,000 14,579,000 16,156,000 7/96
Glastonbury, CT - 649,000 3,011,000 64,000 651,000 2,956,000 3,607,000 4/97
Glastonbury, CT - 616,000 3,257,000 17,000 618,000 3,153,000 3,771,000 4/97
Nashua, NH - 1,106,000 3,504,000 16,000 1,106,000 3,426,000 4,532,000 9/97
Nashua, NH - 452,000 1,110,000 41,000 452,000 1,121,000 1,573,000 9/97
Nashua, NH - 499,000 1,768,000 189,000 499,000 1,905,000 2,404,000 9/97
Farmington, CT - 766,000 4,831,000 12,000 766,000 4,737,000 5,503,000 11/97
South Portland, ME - 338,000 1,394,000 0 338,000 1,369,000 1,707,000 2/98
South Portland, ME - 938,000 4,209,000 0 938,000 4,134,000 5,072,000 2/98
South Portland, ME - 608,000 2,732,000 0 608,000 2,684,000 3,292,000 2/98
Hopkinton, MA - 126,000 12,501,000 0 126,000 12,332,000 12,458,000 3/98
Raynham, MA - 297,000 2,308,000 0 297,000 2,277,000 2,574,000 3/98
Manchester, NH - 1,915,000 9,063,000 82,000 1,915,000 9,015,000 10,930,000 4/98
Peabody, MA - 701,000 3,595,000 0 701,000 3,554,000 4,255,000 4/98
- ---------------------------------------------------------------------------------------------------------------------------------
21,935,000 24,619,000 130,906,000 10,132,000 24,578,000 123,078,000 147,656,000
=================================================================================================================================
Office/Research & Development:
Billerica, MA - 376,000 1,749,000 1,000 376,000 1,520,000 1,896,000 7/93
Bedford, MA - 662,000 1,585,000 77,000 662,000 1,465,000 2,127,000 11/93
Andover, MA 4,108,000 1,441,000 5,799,000 9,000 1,441,000 5,093,000 6,534,000 11/93
Billerica, MA - 752,000 3,611,000 1,051,000 752,000 4,185,000 4,937,000 12/93
Billerica, MA - 420,000 1,652,000 0 420,000 1,451,000 1,871,000 12/93
Andover, MA 3,500,000 1,185,000 5,307,000 0 1,185,000 4,715,000 5,900,000 5/94
Chelmsford, MA - 354,000 1,567,000 193,000 354,000 1,551,000 1,905,000 11/94
Billerica, MA - 681,000 4,111,000 14,000 681,000 3,716,000 4,397,000 11/94
Littleton, MA - 285,000 2,091,000 322,000 285,000 2,247,000 2,532,000 9/95
Chelmsford, MA - 946,000 3,680,000 147,000 946,000 3,539,000 4,485,000 10/95
Tewksbury, MA 4,560,000 1,640,000 7,289,000 22,000 1,648,000 6,823,000 8,471,000 3/96
Andover, MA - 1,171,000 2,818,000 1,000 1,171,000 2,658,000 3,829,000 7/96
Westford, MA - 1,053,000 2,426,000 21,000 1,058,000 2,353,000 3,411,000 4/97
Hudson, NH - 274,000 3,261,000 0 274,000 3,210,000 3,484,000 3/98
Hopkinton, MA - 384,000 2,466,000 0 384,000 2,433,000 2,817,000 3/98
Hopkinton, MA - 53,000 5,273,000 0 53,000 5,202,000 5,255,000 3/98
Raynham, MA - 534,000 2,018,000 0 534,000 1,991,000 2,525,000 3/98
- ---------------------------------------------------------------------------------------------------------------------------------
12,168,000 12,211,000 56,703,000 1,858,000 12,224,000 54,152,000 66,376,000
=================================================================================================================================
</TABLE>
F-14
<PAGE>
MGI PROPERTIES
Schedule III
(continued)
Real Estate and Accumulated Depreciation
November 30, 1998
<TABLE>
<CAPTION>
Gross amounts at which
Initial Cost carried at close of period*
---------------------------- Costs -----------------------------------------------
Building capitalized Building
and subsequent to and Date
Description Encumbrances Land Improvements acquisition Land Improvements Total acquired
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Properties:
Bedford, MA - 512,000 2,062,000 154,000 512,000 1,840,000 2,352,000 10/92
Wilmington, MA 3,930,000 2,390,000 4,638,000 259,000 2,390,000 4,205,000 6,595,000 5/93
Wilmington, MA - 1,394,000 3,208,000 151,000 1,394,000 2,902,000 4,296,000 8/93
Wilmington, MA - 501,000 2,013,000 61,000 501,000 1,854,000 2,355,000 11/94
Tewksbury, MA 8,065,000 1,739,000 8,994,000 723,000 1,739,000 8,634,000 10,373,000 3/95
Marlborough, MA - 1,040,000 1,303,000 238,000 1,040,000 1,428,000 2,468,000 6/95
Marlborough, MA - 579,000 2,244,000 377,000 579,000 2,422,000 3,001,000 12/95
Franklin, MA - 599,000 3,256,000 0 599,000 3,029,000 3,628,000 12/95
Franklin, MA - 706,000 2,523,000 20,000 706,000 2,365,000 3,071,000 12/95
Franklin, MA - 932,000 4,160,000 0 932,000 3,939,000 4,871,000 8/96
Methuen, MA - 540,000 1,220,000 2,000 541,000 1,166,000 1,707,000 12/96
Methuen, MA - 1,334,000 3,518,000 3,000 1,335,000 3,362,000 4,697,000 12/96
Andover, MA - 1,084,000 3,444,000 93,000 1,088,000 3,413,000 4,501,000 5/97
Nashua, NH - 785,000 2,360,000 0 785,000 2,299,000 3,084,000 9/97
Nashua, NH - 1,478,000 3,641,000 4,000 1,478,000 3,550,000 5,028,000 9/97
Hopkinton, MA - 29,000 1,921,000 0 29,000 1,895,000 1,924,000 3/98
- ---------------------------------------------------------------------------------------------------------------------------------
11,995,000 15,642,000 50,505,000 2,085,000 15,648,000 48,303,000 63,951,000
=================================================================================================================================
Retail:
Hagerstown, MD - 364,000 1,459,000 0 364,000 968,000 1,332,000 12/84
Baltimore, MD - 2,000,000 5,710,000 131,000 1,832,000 4,301,000 6,133,000 7/87
Temple Terrace, FL 4,734,000 2,600,000 6,540,000 335,000 2,600,000 4,950,000 7,550,000 12/87
Aurora, IL 12,292,000 12,576,000 15,372,000 3,667,000 12,576,000 14,266,000 26,842,000 5/90
Peabody, MA - 4,705,000 5,623,000 1,000 4,705,000 5,171,000 9,876,000 8/95
- ---------------------------------------------------------------------------------------------------------------------------------
17,026,000 22,245,000 34,704,000 4,134,000 22,077,000 29,656,000 51,733,000
=================================================================================================================================
Apartments:
Harrison Township, MI 11,462,000 700,000 1,948,000 12,453,000 701,000 8,363,000 9,064,000 11/74
Bloomfield Hills, MI 10,171,000 4,325,000 12,126,000 2,236,000 4,325,000 8,876,000 13,201,000 1/89
Laurel, MD 9,066,000 613,000 12,722,000 (71,000) 613,000 9,974,000 10,587,000 9/90
- ---------------------------------------------------------------------------------------------------------------------------------
30,699,000 5,638,000 26,796,000 14,618,000 5,639,000 27,213,000 32,852,000
=================================================================================================================================
Other:
Portland, ME 1,694,000 2,309,000 12,000 - 2,309,000 12,000 2,321,000 7/96
Tampa, FL - 427,000 - - 427,000 - 427,000 12/95
Mount Clemens, MI - 25,000 - - 25,000 - 25,000 7/86
Hopkinton, MA - 202,000 - - 202,000 - 202,000 3/98
- ---------------------------------------------------------------------------------------------------------------------------------
1,694,000 2,963,000 12,000 - 2,963,000 12,000 2,975,000
=================================================================================================================================
$95,517,000 $83,318,000 $299,626,000 $32,827,000 $83,129,000 $282,414,000 $365,543,000
=================================================================================================================================
</TABLE>
*Effective October 14, 1998 with the adoption of the Plan, the Trust
reclassified $50.2 million of accumulated depreciation and amortization against
the original cost of real estate assets, and captioned the resulting total of
$365,543,000 as "Properties held for Sale" in the accompanying balance sheet of
November 30, 1998.
F-15
<PAGE>
MGI PROPERTIES
Schedule III
(continued)
Real Estate and Accumulated Depreciation
November 30, 1998
A summary of real estate investments and accumulated depreciation and
amortization for the three years ended November 30 follows:
<TABLE>
<CAPTION>
November 30,
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Real Estate Investments
Balance at beginning of year $381,943,000 $356,024,000 $293,469,000
Add:
Investments 57,140,000 48,000,000 59,950,000
Building improvements 3,816,000 3,114,000 3,307,000
Tenant improvements 3,666,000 2,669,000 2,702,000
- ---------------------------------------------------------------------------------------------------
446,565,000 409,807,000 359,428,000
Deduct:
Real estate dispositions 30,796,000 24,046,000 3,404,000
Fully amortized assets and other - 3,818,000 -
Reclassification to properties held for sale 50,226,000 - -
- ---------------------------------------------------------------------------------------------------
Balance at end of year $365,543,000 $381,943,000 $356,024,000
===================================================================================================
Accumulated Depreciation and Amortization
Balance at beginning of year $ 47,158,000 $ 44,810,000 $ 36,375,000
Add:
Depreciation and amortization 9,200,000 9,874,000 8,832,000
Deduct:
Real estate dispositions 6,132,000 4,292,000 397,000
Fully amortized and other - 3,234,000 -
Reclassification to properties held for sale 50,226,000 - -
- ---------------------------------------------------------------------------------------------------
Balance at end of year $ - $ 47,158,000 $ 44,810,000
===================================================================================================
</TABLE>
The aggregate cost for Federal income tax purposes of the above investments at
November 30, 1998 was approximately $414 million.
Refer to note 2 regarding the Trust's accounting policies on real estate
investments and depreciation amortization.
F-16
<PAGE>
MGI PROPERTIES
Exhibit XI
Computation of Diluted Earnings per Share
<TABLE>
<CAPTION>
Year ended November 30
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $29,817,000 $20,466,000 $24,305,000 $14,319,000 $14,491,000
==============================================================================================================================
Weighted average number of common shares
outstanding 13,736,729 13,289,781 11,540,972 11,487,677 11,450,451
Additional number of share equivalents
assuming exercise of options 337,400 302,326 180,257 82,408 91,834
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares assuming
full dilution 14,074,129 13,592,107 11,721,229 11,570,085 11,542,285
==============================================================================================================================
Diluted earnings per share $ 2.12 $ 1.51 $ 2.07 $ 1.24 $ 1.26
==============================================================================================================================
</TABLE>
F-17
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES
MGI PROPERTIES:
We consent to incorporation by reference in the registration statements (Nos.
33-21584, 2-97270, 33-65844, 33-53433 and 33-63901) on Form S-8 of MGI
Properties and subsidiaries of our report dated December 16, 1998, relating to
the consolidated balance sheets of MGI Properties and subsidiaries as of
November 30, 1998 and 1997, and the related consolidated statements of earnings
and cash flows for each of the years in the three-year period ended November
30, 1998, and related schedule, which report appears in the November 30, 1998
annual report on Form 10-K of MGI Properties and subsidiaries.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 16, 1998
MGI PROPERTIES
CERTIFICATE OF THIRTEENTH AMENDMENT OF SECOND
AMENDED AND RESTATED DECLARATION OF TRUST
The undersigned, a Trustee of MGI Properties (the "Trust"), hereby
certifies pursuant to Article XIV, Section 14.3 of the Second Amended and
Restated Declaration of Trust (the "Declaration of Trust") that at a special
meeting of the Shareholders of the Trust duly called and held on October 14,
1998, in accordance with the Declaration of Trust, at which a quorum was present
and voting throughout, pursuant to Section 13.1 of the Declaration of Trust, the
holders of Shares of the Trust representing not less than a majority of the
total number of votes authorized to be cast by Shares of all classes then
outstanding and entitled to vote thereon, voted to amend Section 13.1(b) of the
Declaration of Trust to read in its entirety as follows:
" (b) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration of Trust shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its
business, including but not limited to the transfer of Trust Property to a
liquidating trust or similar entity."
IN WITNESS WHEREOF, W. Pearce Coues, as Trustee aforesaid, has signed these
presents this 14th day of October 1998.
/s/ W. Pearce Coues
----------------------------------
W. Pearce Coues
SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12
MGI Properties
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
In accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the aggregate of the cash and value
of securities and other property to be distributed to the
shareholders of MGI Properties.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $454,123,133
(5) Total fee paid: $90,824.63
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
<PAGE>
MGI PROPERTIES
One Winthrop Square
Boston, Massachusetts 02110
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
October 14, 1998
To the Shareholders of
MGI Properties:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of MGI Properties (the "Trust") will be held in the Captain's Room,
33rd Floor, 225 Franklin Street, Boston, Massachusetts, on October 14, 1998 at
10:00 A.M. for the following purposes:
1. To consider and act upon a proposed Plan of Complete Liquidation and
Termination of the Trust which is described in Exhibit A to the
accompanying Proxy Statement;
2. To consider and act upon a proposal to amend the Declaration of Trust's
requirements regarding shareholder approval for the disposition of
properties of the Trust; and
3. To consider and act upon such other business as may properly come before
the Meeting.
Only shareholders of record at the close of business on September 1, 1998
will be entitled to vote at the Meeting.
If you do not expect to attend the Meeting, please sign, date 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
September 10, 1998
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.
This Notice also includes a Notice regarding appraisal rights of
dissenting shareholders.
<PAGE>
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MGI PROPERTIES
One Winthrop Square
Boston, Massachusetts 02110
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SPECIAL MEETING OF SHAREHOLDERS
October 14, 1998
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PROXY STATEMENT
This Proxy Statement is being mailed to the shareholders of MGI Properties
(the "Trust") on or about September 10, 1998, in connection with the
solicitation by the Trust's Board of Trustees (the "Board of Trustees") of
proxies for a Special Meeting of Shareholders (the "Meeting") to be held in the
Captain's Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts, on
October 14, 1998. The Meeting has been called for the following purposes: (1)
to consider and act upon a proposed Plan of Complete Liquidation and
Termination of the Trust (the "Plan"); (2) to consider and act upon a proposal
to amend the Declaration of Trust's requirements regarding shareholder approval
for the disposition of properties of the Trust; and (3) to consider and act
upon such other business as may properly come before the Meeting.
The principal executive office of the Trust is located at One Winthrop
Square, Boston Massachusetts 02110. The Trust's telephone number at such office
is (617) 422-6000.
PROXIES AND VOTING RIGHTS
The voting securities of the Trust outstanding on September 1, 1998
consisted of 13,761,307 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 September 1, 1998 are entitled to notice of
and to vote at the Meeting. A majority of the outstanding Common Shares is
required to be represented to constitute a quorum for the holding of the
Meeting. The affirmative vote of not less than a majority of the outstanding
Common Shares entitled to vote on the Plan (Proposal No. 1) is required for the
approval of the Plan and the affirmative vote of not less than a majority of
the outstanding Common Shares entitled to vote on the amendment to the
Declaration of Trust (Proposal 2) is required for the approval of the
amendment.
Votes may be cast in favor, against or withheld; votes that are withheld
will have the same effect as votes against the Plan. Under the rules of the New
York Stock Exchange (the "NYSE"), 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 not entitled to vote on Proposal 1 (the Plan)
or Proposal 2 (amendment to the Declaration of Trust). Broker non-votes (shares
not voted by brokers due to the absence of instructions from street name
holders) are not considered voted, present or represented and, therefore, will
have the same effect as votes against the Plan and the amendment to the
Declaration of Trust.
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 Meeting. All proxies will be voted in
accordance with the instructions specified thereon.
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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 at a cost of $7,500, plus reasonable out-of-pocket expenses.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Common Shares as of September 1, 1998 by (i) each executive officer of the
Trust, (ii) each Trustee of the Trust, (iii) all executive officers and
Trustees of the Trust as a group, and (iv) each person who, to the knowledge of
management, owned beneficially more than 5% of the Common Shares. Unless
otherwise indicated, the address of each person listed below is One Winthrop
Square, Boston, Massachusetts 02110.
<TABLE>
<CAPTION>
Common Shares
Beneficial Owner(1) Beneficially Owned Percent of Class(2)
- ---------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
George S. Bissell ................................................... 26,000(3) *
W. Pearce Coues ..................................................... 486,600(4) 3.5%
Davenport & Co. of Virginia, Inc.
901 E. Cary Street
Suite 1110
Richmond, Virginia 23219 ........................................... 824,274(5) 6.0%
Francis P. Gunning .................................................. 26,000(6) *
George M. Lovejoy, Jr. .............................................. 25,300(7) *
Robert M. Melzer .................................................... 21,500(8) *
William F. Murdoch, Jr. ............................................. 26,000(3) *
Rodger P. Nordblom .................................................. 26,800(6) *
Phillip C. Vitali ................................................... 299,526(9) 2.1%
David D. Wamester ................................................... 35,347(10) *
Robert Ware. ........................................................ 228,500(11) 1.6%
Karl W. Weller. ..................................................... 217,904(12) 1.6%
All Executive Officers and Trustees as a group (11 persons) ......... 1,419,477(13) 9.5%
</TABLE>
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* Less than 1%.
(1) Except as outlined herein, the persons named in the table, to the Trust's
knowledge, have sole voting and dispositive power with respect to all
shares shown as beneficially owned by them, subject to community property
laws where applicable and the information contained in the footnotes
hereunder.
(2) Calculations assume that all options which are exercisable by such person
within 60 days after September 1, 1998 have been exercised.
(3) Includes presently exercisable options to purchase an aggregate of 25,000
Common Shares granted pursuant to the Trust's 1988 Stock Option Plan for
Trustees (the "1988 Trustees Plan") and the Trust's 1994 Trustees Stock
Option Plan (the "1994 Trustees Plan").
(4) Includes 355,439 presently exercisable options and excludes 20,000 options
not presently exercisable, to purchase an aggregate of 375,439 Common
Shares granted pursuant to the Trust's 1982 Stock Option Plan for Trustees
(the "1982 Trustees Plan"), the 1988 Stock Option and Stock Appreciation
Rights Plan for Key
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Employees (the "1988 Employee Plan"), the 1988 Trustees Plan, the Trust's
1994 Employee Stock Option and Stock Appreciation Rights Plan (the "1994
Employee Plan"), the 1994 Trustees Plan and the Trust's 1997 Employee Stock
Option, Stock Appreciation Rights and Restricted Stock Plan (the "1997
Employee Plan"). Also includes 207 Common Shares owned by Mr. Coues' wife,
as to which Mr. Coues disclaims beneficial ownership.
(5) Based on a Schedule 13G dated January 23, 1998, Davenport & Co. of
Virginia, Inc., a Virginia corporation with its principal place of
business located at 901 E. Cary Street, Suite 1100, Richmond, Virginia
23219 ("Davenport"), beneficially owned 824,274 of the then outstanding
Common Shares, representing 6.0% thereof as of such date. Of such Common
Shares, Davenport had (i) sole voting and dispositive power with respect
to 85,613 of such shares and (ii) shared voting and dispositive power with
respect to 738,661 of such shares.
(6) Includes presently exercisable options to purchase an aggregate of 25,000
Common Shares granted pursuant to the 1982 Trustees Plan, the 1988
Trustees Plan and the 1994 Trustees Plan.
(7) Includes presently exercisable options to purchase an aggregate of 24,025
Common Shares granted pursuant to the 1998 Trustees Plan and the 1994
Trustees Plan.
(8) Includes presently exercisable options to purchase an aggregate of 20,000
Common Shares granted pursuant to the 1994 Trustees Plan.
(9) Includes 270,511 presently exercisable options and excludes 17,500 options
not presently exercisable, to purchase an aggregate of 288,011 Common
Shares granted pursuant to the Trust's 1982 Incentive Stock Option Plan
for Key Employees (the "1982 Incentive Plan"), the 1988 Employee Plan, the
1994 Employee Plan and the 1997 Employee Plan.
(10) Includes 35,000 presently exercisable options and excludes 15,000 options
not presently exercisable, to purchase aggregate of 50,000 Common Shares
granted pursuant to the 1997 Employee Plan.
(11) Includes 178,500 presently exercisable options and excludes 17,500 options
not presently exercisable, to purchase an aggregate of 196,000 Common
Shares granted pursuant to the 1982 Incentive Plan, the 1988 Employee
Plan, the 1994 Employee Plan and the 1997 Employee Plan.
(12) Includes 203,943 presently exercisable options and excludes 17,500 options
not presently exercisable, to purchase an aggregate of 221,443 Common
Shares granted pursuant to the 1988 Employee Plan, the 1994 Employee Plan
and the 1997 Employee Plan.
(13) Includes 1,187,418 presently exercisable options and excludes 87,500
options not presently exercisable, to purchase an aggregate of 1,274,918
Common Shares.
PROPOSAL NO. 1
PROPOSED PLAN OF COMPLETE LIQUIDATION AND TERMINATION
On June 18, 1998, the Trust publicly announced that its Board of Trustees
had decided to undertake a review of strategic alternatives available to the
Trust to maximize shareholder value, including a possible liquidation of the
Trust's properties. On August 12, 1998, the Trustees unanimously approved the
Plan and directed that the Plan be submitted to the Trust's shareholders for
approval. At the Meeting, the shareholders of the Trust will be asked to
approve the Plan in the form attached to this Proxy Statement as Exhibit A.
Approval of the Plan will require the affirmative vote of the holders of at
least a majority of the outstanding Common Shares entitled to vote. Trustees
and officers of the Trust who own Common Shares (constituting approximately
1.7% of the outstanding shares) have indicated to the Trust that they intend to
vote all such shares to approve the Plan. The Board of Trustees believes
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that the Plan is in the best interests of the Trust and its shareholders and
recommends that shareholders vote FOR this proposal. The information that is
set forth below is furnished in connection with the proposal.
Reasons for the Liquidation
The Trust is an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts. The Trust commenced operations in 1971 as a
real estate investment trust (a "REIT"). Since that time, the Trust has elected
to be treated as a REIT under Sections 856-860 of the Internal Revenue Code of
1986, as amended (the "Code"). The Trust owns and operates a diversified
portfolio of income producing real estate, which as of July 31, 1998 consisted
of 67 commercial properties and three multi-family residential properties. The
commercial portfolio consists of 5.8 million square feet, 87% of which is
comprised of office, office/research and development and industrial properties.
The multi-family properties consist of three residential communities
aggregating 959 units. At July 31, 1998, the commercial and residential
properties were 98.2% and 94.9% leased, respectively. Since 1992, the Trust has
focused on the commercial segment of the real estate market, specifically
office, office/research and development and industrial properties located in
New England. At July 31, 1998, 66%, based upon cost, of the Trust's real estate
assets were located in New England. During the fiscal year ended November 30,
1997, the Trust began the internalization of the property management function
for its New England properties. As of September 1, 1998, the Trust had 4.0
million square feet of space under management. A list of the properties in
which the Trust has invested and certain information in respect thereof are set
forth on Exhibit B hereto.
In connection with its review of strategic alternatives, the Trust engaged
Ernst & Young LLP ("E&Y") to act as its strategic and financial advisor on July
7, 1998. On June 23, 1998 the Trust retained TC New England Brokerage, doing
business as Fallon Hines & O'Connor, a Trammell Crow Company ("FHO" and
together with E&Y, the "Advisors"), a real estate services company, to assist
in the evaluation of the likely sales prices of the Trust's New England real
estate. On August 12, 1998, the Trust retained FHO to act as the Trust's sole
and exclusive sales agent for all of the Trust's properties in connection with
the Plan. See "Role of Advisors" below. In July 1998, the Trustees, in
conjunction with E&Y, initiated a strategic review of alternatives for
maximizing shareholder values because of (a) the perceived undervaluation of
the Common Shares relative to the value of the Trust's real estate portfolio
and (b) the difficulty the Trust had been experiencing in finding new
investments which continue to meet its investment and income criteria. Although
management has been pleased with the substantial growth the Trust has
accomplished under the current business plan and the quality of the Trust's
portfolio of properties, it is their belief that it was prudent to reevaluate
the Trust's overall business strategy. The Trustees also considered the general
state of the real estate market, which in their view had reduced current
returns to levels which may be low for income-oriented investors.
In connection with the strategic review, the Trustees ultimately
considered four alternatives: (i) maintaining the Trust's existing investment
policy, (ii) modifying the Trust's investment policy, (iii) acquisition of the
Trust by, or merger of the Trust with, other business entities, and (iv)
liquidation. The Trustees, in conjunction with the Advisors, concluded that
liquidation of the Trust's assets and subsequent distribution of the net cash
proceeds to shareholders would likely be the best course to maximize value for
the Trust's shareholders. Although the Trust's business remains sound and could
readily be continued, the Trustees declined the alternative of maintaining the
Trust's existing investment policy due to the difficulty the Trust has been
experiencing in finding new investments which meet its investment and income
criteria. In seeking investments, the Trust is competing with institutional
investors, REITs, foreign investors, private funds and other investors which
have substantial funds available for investment and which often make their
investment evaluations on the basis of criteria different from the Trust's.
Such competition has increased in recent months. Additionally, even if
investment opportunities were to present themselves in the future, the
continuing undervaluation of the Trust's shares in the securities market would
restrict the Trust's ability to raise the additional funds required for such
investments through the issuance of new securities without diluting existing
shareholders. Although the Trust believes it can continue to operate
successfully by pursuing its current investment
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policies, it may be disadvantaged in accessing capital to fund continued growth
at a feasible cost. In addition, the Trust has enjoyed a low dividend payout
ratio which has provided cash for acquisition of properties and capital
improvements due in part to the utilization of loss carryforwards which will be
exhausted during the current fiscal year. Accordingly, the Trust will be
required to pay higher dividends in the future leaving less cash available for
acquisition activities.
In considering a possible modification of its policies, the Trustees also
discussed the feasibility of pursuing an accelerated growth strategy, including
other investment opportunities in the New England region and possibly changing
its investment criteria and/or expanding its operating capabilities. It was
determined that the pursuit of such strategic modifications might also be
adversely affected by difficulty in accessing capital (whether debt or equity)
at satisfactory cost and could be dilutive to shareholders.
In consultation with its strategic and financial advisor, E&Y, the Trust
also determined to forego an acquisition of another REIT or real estate
company, in light of current volatile stock market conditions affecting REITs
and the likely high cost of capital and high risk in effecting such an
acquisition. The Trustees believe that the appropriate course to maximize
shareholder value in the current circumstances is to pursue the sale of its
assets pursuant to the Plan rather than to pursue a merger or acquisition of
the Trust, based on their belief that the interests of the shareholders would
better be served by a sale of the assets and a distribution of the net cash
proceeds of the sale to the shareholders, rather than by offering, in effect, a
new investment alternative (vehicle) that may be likely to experience some of
the same difficulties currently facing the Trust. However, the Trustees reserve
the authority and discretion to consider merger or acquisition proposals, if
any, from qualifying candidates.
Based upon management's estimates, including consultation with the
Advisors, the Trustees expect that sales of the Trust's assets will be made at
prices that will yield aggregate net cash liquidation proceeds of between $30
and $33 per share; however, no assurance can be given that per share net cash
proceeds will be within this range or will equal or exceed this range. See
"Estimated Amounts Available for Distribution." The timing of any distributions
of such net cash proceeds will be affected by, among other things, the timing
of sales of assets, income tax considerations and the establishment of
reserves. See "Description of the Plan"; "Estimated Amounts Available for
Distribution"; "Distributions to Shareholders"; and "Income Tax Consequences of
Liquidation." Accordingly, no assurances can be made as to the timing of such
distributions, which could be made over a substantial period of time; provided,
however, that in accordance with the Plan the final distribution shall be made
no later than the second anniversary of the date of the Meeting.
On June 17, 1998, the business day preceding public announcement of the
Trustees' decision to consider strategic alternatives, the high and low prices
of the Common Shares on the NYSE were $23-1/4 and $23-1/16, respectively. On
June 18, the day of the public announcement, the reported closing price was
$24-3/8. On August 12, 1998, the Trust announced that it would submit a Plan of
Liquidation to its shareholders for approval. On August 11, the reported closing
price was $23-15/16. On August 12, the reported closing price was $24-7/8 prior
to a halt in NYSE trading. The opening price on August 13, 1998, upon the
resumption of trading on the NYSE, was $27-3/4. See "Market Prices and
Dividends."
Description of the Plan
The following is a brief summary of the Plan. It is qualified in its
entirety by reference to the full text of the Plan attached hereto as Exhibit
A, and incorporated herein by reference. You are encouraged to read the Plan in
its entirety.
The Plan provides that upon approval thereof by the holders of at least a
majority of the Common Shares entitled to vote, the Trust will take such
actions as are deemed necessary or appropriate by the Board of Trustees to wind
up all Trust business and affairs and to dispose of, by sale, all assets of the
Trust. The Plan provides that the Trust's
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assets may be converted into cash or other assets which may be conveniently
distributed to the shareholders. No further approvals by the shareholders will
be obtained. It is expected that all of the Trust's assets will be sold for
cash.
To date, no discussions have occurred and no negotiations have been
entered into with any prospective buyers with respect to the terms of any
liquidating sales, although the Trust has received indications of interest. It
is not expected that properties would be sold to any persons deemed to be
affiliates of the Trust, though it is possible that one or more shareholders of
the Trust who could be deemed "affiliates" of the Trust could purchase
properties by virtue of submitting the highest bids in respect of such
properties. Each offer to purchase the Trust's assets must be acted upon by the
Board of Trustees.
As part of the Plan, existing debts and obligations of the Trust will be
satisfied from existing cash balances and the proceeds of the sale of the
Trust's assets. In addition, reserves may be established, as the Board of
Trustees deems necessary, for liabilities or expenses, contingent or otherwise,
that may arise. The remaining proceeds will be distributed on a schedule
established by the Board of Trustees, on a pro rata basis, to the Trust's
shareholders as full payment for the Common Shares held by each shareholder.
See "Distributions to Shareholders."
Upon the complete liquidation of the Trust and distribution of its assets
to or for the benefit of shareholders, the appropriate officers of the Trust,
in accordance with the terms of the Plan, will execute, acknowledge and file an
appropriate document with the Secretary of the Commonwealth of Massachusetts
which will terminate the existence of the Trust. It is difficult to predict the
timing of the sale of the Trust's assets and, consequently, the timing of
liquidating distributions to shareholders since to date no discussions have
occurred and no negotiations have been entered into with prospective buyers of
the Trust's assets. See "Distributions to Shareholders." Although it is
expected that the Trust will continue to qualify as a REIT for the period prior
to the distribution of the Trust's assets to shareholders (including the
transfer of assets of a liquidating trust), no assurance can be given that the
Trust will not lose or terminate its status as a REIT as a result of unforeseen
circumstances. See "Income Tax Consequences of Liquidation -- Consequences to
the Trust."
No federal or state regulatory approvals are required to consummate the
liquidation of the Trust in accordance with the Plan.
Role of Advisors
On June 23, 1998 the Trust retained FHO to assist in the evaluation of the
likely sales prices of the Trust's New England real estate. On July 7, 1998 E&Y
was similarly retained with respect to the Trust's non-New England properties.
In addition, the Trust also retained E&Y to act as strategic and financial
advisor. In August 1998, the Trust retained FHO, a real estate services company
to act as the Trust's sole and exclusive sales agent for all of the Trust's
properties in connection with the Plan. FHO will have primary responsibility
for the marketing and sale of Trust's real properties. It is anticipated that
FHO, as exclusive sales agent to the Trust, will market the properties to
prospective purchasers, solicit and receive offers to purchase the properties
and present such offers to the Board of Trustees for consideration. In deciding
whether to accept one or more offers, the Trustees will consider a variety of
factors, including the offering price and the ability of the prospective
purchaser to finance and close the purchase. The Trust has received an opinion
from FHO as to the likely range of sales prices of the properties. Neither the
Trust, E&Y nor FHO will seek third party appraisals with respect to any of the
Trust's assets.
As strategic advisor, E&Y will also assist the Trustees in the financial
analysis to be considered in pursuing the Plan or other strategic opportunities
which may arise, including valuation of consideration, evaluation of terms and
conditions and transaction structures and consideration of relative values
represented by asset liquidation versus possible entity level transactions. As
financial advisor to the Trust, E&Y will assist FHO in connection with the sale
of the Trust's real estate assets, including the development and implementation
of the marketing plan. It is antici-
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pated that E&Y, as strategic advisor to the Trust, will, among other things (i)
provide financial analysis of the various offers to be considered by the Board
of Trustees, (ii) review and monitor the process by which any asset sale,
entity level transaction or other action on the part of the Board of Trustees
is consummated, (iii) provide merger related services as may be required and
(iv) provide assistance with ancillary relevant analyses (tax consequences,
compensation impact).
FHO, which is a Trammell Crow Company, is a Boston-based commercial real
estate brokerage, consulting and advisory firm having a national presence.
Since its formation in 1988, FHO has provided real estate consulting services
to prominent institutional, corporate and entrepreneurial clients with both a
local and national presence.
E&Y is a nationally-recognized accounting and consulting firm. As part of
its business, E&Y is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, liquidations,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate, and other purposes. The Trustees decided to
retain E&Y based on its expertise and experience in valuing and marketing real
estate portfolios.
For services rendered in connection with its role as financial advisor,
the Trust has agreed to pay E&Y $1.5 million (the "E&Y Fee") in the event of a
liquidation or a possible entity transaction (i.e., a merger), to the extent
provided in the engagement agreement. For services rendered in connection with
its role as strategic advisor, the Trust has agreed to pay E&Y fees based on
time incurred at hourly rates with a $75,000 minimum and a $250,000 maximum. In
addition, the Trust will reimburse E&Y and FHO for their out-of-pocket expenses
not to exceed $650,000 in the aggregate. If at any time during the term of the
agreement with FHO (the "FHO Agreement"), a sale of all of the Trust's
properties, upon terms acceptable to the Trust in its discretion, shall be
consummated by a closing of title to a purchaser to whom the properties were
submitted by FHO, the Trust or any other person, or a transaction occurs as a
result of which the Trust pays E&Y the E&Y Fee, then the Trust shall pay to FHO
a sales commission of $1.5 million (the "FHO Fee"), to the extent provided in
the FHO Agreement. Notwithstanding the foregoing, if a sale involving less than
all of the properties occurs, the E&Y Fee and FHO Fee shall each be prorated
based on the value of the properties sold in proportion to the aggregate value
of all the properties. If the Trust terminates the FHO Agreement or withdraws
the properties from the market prior to FHO receiving sales commissions of at
least $400,000, then the Trust shall pay to FHO the difference between $400,000
and the sales commissions paid to FHO by the Trust under the FHO Agreement
through such date. If the Trust abandons the Plan and does not enter into an
entity transaction, it will pay E&Y $400,000 for its financial advisory
services in addition to the amounts otherwise payable for its strategic
advisory services.
Assets Subject to Liquidation
The Trust has made long-term equity investments in major, completed,
income-producing properties such as office buildings, office/research and
development buildings, industrial properties, retail centers and apartment
complexes. See "Trust Business and Properties." As of July 31, 1998, the
Trust's assets consisted primarily of its real estate portfolio of 70
properties. See "Trust Business and Properties -- Trust Investments." The
Trust's other assets consist of cash and short-term investments, interest and
rents receivable and other assets (principally deferred financing costs and
capitalized expenses related to investments). See "Financial Statements"
included in the Trust's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997 (the "1997 Form 10-K"), the Trust's Quarterly Report on Form
10-Q for the three months ended February 28, 1998 and the Trust's Quarterly
Report on Form 10-Q for the three months ended May 31, 1998, copies of which
are incorporated herein by reference. See "Trust Business and Properties --
Incorporation of Certain Documents by Reference." The Plan gives the Trust's
Board of Trustees the power to sell any and all of the assets of the Trust
without further approval by the shareholders. The Trustees intend to conduct
the sale of the Trust's assets in an orderly manner, and will seek offers for
specific pools of assets, although individual sales of assets may be effected
and offers for the entire portfolio of investments may be sought. The Advisors
will assist in the sale of the assets, as described above.
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In the course of the implementation of the Plan, the Trust reserves the
right to make a distribution to its shareholders on a pro-rata basis of one or
more of its existing subsidiary corporations (a "Spinoff"). The Spinoff could
consist, for example, of the Trust's property management subsidiary and one or
more qualified REIT subsidiary corporations which hold certain properties.
Estimated Amounts Available for Distribution
It is impossible to determine at this time with any precision the
aggregate net proceeds that may ultimately be available for distribution to the
Trust's shareholders upon liquidation. That amount will depend upon a variety
of factors, including the timing of and the net proceeds realized from the sale
of the Trust's assets, as well as the ultimate amounts of liquidation-related
expenses and other obligations and liabilities that must be satisfied out of
the Trust's assets.
The prices at which the Trust will seek to sell the Trust's real estate
portfolio will be determined by the Trustees with the assistance of the
Advisors. To date, no sales prices have been agreed upon with respect to
specific portfolio properties, although likely sales prices have been estimated
by the Advisors. The assets could be sold to one or more purchasers, in one or
more transactions over a period of time, in which case the Trust would continue
to operate until all investments are sold or transferred to a liquidating
trust. It is the objective of the Trustees to sell the Trust's assets at
aggregate sales prices that will yield net cash proceeds of between $30 and $33
per share, however, no assurance can be given that this will be the case.
Moreover, in view of the fact that assets may be sold in multiple transactions,
the possibility exists that there could be unforeseen events that adversely
impact the price of the remaining (unsold) assets, and no assurance can be
given that the net proceeds per share will therefore equal such amount.
As of August 31, 1998, the Trust had outstanding $35.0 million under a
$75.0 million unsecured credit facility. If the Plan is approved by the
shareholders, it is anticipated that the Trust would repay the debt outstanding
under the credit facility.
The Trust, with the advice of its Advisors, has established "Target" sales
prices for specific pools of its portfolio properties. There can be no
assurance that any or all of the assets will be sold at the Target sales prices
which total approximately $628,000,000 (prior to costs associated with such
sales and expenses relating to liquidation) or will be sold at all. The Target
sales value was based primarily on an analysis of the portfolio utilizing
discounted cash flow, comparable sales, capitalization rate and replacement
cost analysis. Additionally, factors such as type of building, location, lease
structure, lease turnover risk, in-place rent relative to market and operating
and market economics were considered.
The amount of proceeds received from the disposition of individual assets
is dependent on a number of conditions, many of which are beyond the power of
the Trust to control, including the condition of the real estate and financial
markets. Accordingly, properties may be sold at prices which may be less than
their Target values.
It is currently estimated that the net proceeds from the sale of the
Trust's properties and other assets would permit the Trust to make estimated
net cash distributions to shareholders aggregating between $30 to $33 per share
after allowing for the satisfaction of its known or contingent liabilities and
obligations and payment of its liquidation expenses. There can be no assurance
as to the amount or nature of the Trust's contingent liabilities, if any.
At the Target pricing levels the Trust has estimated the aggregate gross
cash proceeds from the disposition of all of its real estate investments and
other assets at $628,000,000 and has deducted from such estimate the estimated
cost of sales (estimated at $7 million), fees to the Advisors and other
professionals (estimated at $5.0 million), general and administrative expenses,
including compensation and other ongoing operating expenses, as well as all
other expenses related to the liquidation, including severance compensation
(estimated at $4.2 million), anticipated stock option costs and a reserve of
$3.5 million for additional expenses. These costs, together with the repayment
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of all liabilities, (including bank borrowings existing and estimated unfunded
commitments) would result in net cash proceeds of approximately $455,000,000,
assuming the properties are sold at the Target price levels.
Based upon the 13,761,307 shares outstanding as of August 31, 1998, the
net liquidation value per share, would be approximately $33 per share if the
properties are sold at the Target price levels which have been set by the
Trust. For purposes of the shareholder vote on this Proposal, management
estimates that sales of the Trust's assets pursuant to the Plan will be made at
prices that will yield net cash distributions of between $30 and $33 per share,
although there can be no assurance that per share net cash distributions will
fall within or reach such range.
The Plan contemplates disposition of all of the assets of the Trust and
distribution of the net proceeds to shareholders, but since the terms of such
dispositions have not been determined, the Trust has concluded that pro forma
financial information concerning the Plan would not be meaningful or
appropriate. The financial statements furnished in the 1997 Form 10-K and the
Quarterly Report on Form 10-Q for the period ended May 31, 1998 are
incorporated herein by reference. See "Trust Business and Properties --
Incorporation of Certain Documents by Reference."
The estimates contained in this section are forward-looking statements,
and actual results could be affected by many factors, including the market for
properties held by the Trust and the estimate of liquidation expenses. The
estimates contained in this section also assume the continuation of reasonably
stable market conditions during the liquidation period. See "Certain Other
Considerations."
Distributions to Shareholders
Following the sale of the Trust's assets and satisfaction by the Trust,
through payment or establishment of reserves, for all of its liabilities and
obligations, including the expenses of liquidation, the Trust will distribute
to its shareholders on a pro-rata basis the balance of available liquidation
proceeds. It is difficult to predict the timing of the sale of the Trust's
assets, however it is estimated at the present time that substantially all of
the properties will be sold within 12 to 15 months of the adoption of the Plan
by shareholders. No assurances can be made as to the actual timing of such
sales and subsequent distributions which could be made over a substantial
period of time. To date no discussions have occurred and no negotiations have
been entered into with any prospective buyers with respect to the terms of any
liquidating sales, although the Trust has received indications of interest. See
"Trust Business and Properties -- Trust Investments." Accordingly, such
distributions could be made over a substantial period of time.
Distributions to shareholders will be made at such times and upon such
terms as determined by the Board of Trustees. The Trustees may from time to
time fix a date in respect of any distribution for the determination of the
persons to be treated as shareholders of record entitled to receive such
distributions. Shareholders will be advised at the time of any such
distribution as to the details of the mechanics of distribution and the means
by which shares will be cancelled. In the event that assets of the Trust are
transferred to a liquidating trust as discussed below, certificates for Common
Shares will be deemed to represent a shareholder's interests in the liquidating
trust. In the event of multiple sales of assets, certificates for Common Shares
as interests in any liquidating trust would not be cancelled until after
completion of the final sale.
Before the final distribution of the Trust's remaining assets to the
shareholders, the Common Shares will continue to be transferable and the
Trust's shareholders will continue to have such rights as applicable law
confers upon shareholders. It is the intention of the Trustees to maintain the
listing of the Common Shares on the NYSE until such time as the NYSE causes the
Common Shares to be delisted. It is anticipated that the current officers and
Trustees will continue to serve in their current capacities until the Trustees
deem that their services are no longer necessary. The Trust has entered into
severance agreements with several key executives in order to maintain their
continued service.
The Trustees will have the authority to transfer the assets of the Trust
to a liquidating trust designated by the Trustees. In the event that the Trust
is unable to dispose of all of its assets within 24 months after adoption of
the
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Plan or if it is otherwise advantageous or appropriate to do so, the Trustees
may establish a liquidating trust to which the Trust could distribute in kind
its unsold assets. The liquidating trust would be established pursuant to a
Liquidating Trust Agreement in such form as the Trustees shall approve.
Adoption of the Plan will constitute the approval by the shareholders of the
liquidating trust agreement and the appointment of trustees thereunder. The
Trustees would not expect to transfer assets to a liquidating trust except (i)
when such a transfer is required to avoid the imposition of federal income
taxes on the Trust or (ii) to establish reserves for liabilities and
obligations of the Trust (contingent or otherwise) out of amounts which would
otherwise be distributed to shareholders. As to the federal income tax
consequences to shareholders of the establishment of a liquidating trust, see
"Liquidating Trust."
Authority of Trustees and Officers
The Trustees and officers of the Trust will be given broad powers to take
whatever action is necessary or desirable in order to carry out the provisions
of the Plan and to effect the complete liquidation and termination of the
Trust.
Certain Other Considerations
No Assurances of Distributions. There can be no assurances that the Trust
will be successful in disposing of properties for values equaling or exceeding
those currently estimated by the Trust or that such dispositions will occur as
early as intended by the Trustees. If values of the Trust's assets decline or
the costs and expenses related to such sales and to the liquidation process
exceed those which are currently estimated by the Trust, the liquidation may
not yield distributions as great as or greater than the recent market prices of
the Common Shares. No assurances can be made as to the actual amount and timing
of distributions which could be made over a substantial period of time.
Possible Decreasing Liquidity. As assets of the Trust are sold and
proceeds are distributed, the market capitalization and "float" will diminish
further and market interest in the Common Shares by the investment community
may diminish, thereby reducing or effectively eliminating the market demand and
liquidity for the Common Shares, which would adversely affect the market price
for the Common Shares. See also "Abandonment or Nonapproval of the Plan."
Sales of Assets Not Subject to Further Shareholder Approval. If the
shareholders approve the Plan (Proposal 1) and Proposal 2, the Trustees will
have the authority to sell any and all of the Trust's assets on such terms as
the Board of Trustees determines appropriate. Notably, the shareholders will
have no subsequent opportunity to vote on such matters and will, therefore,
have no right to approve or disapprove the terms of such sales.
Qualification as a REIT. The calculation of the liquidation price per
share set forth above under "Estimated Amounts Available for Distribution"
assumes that the Trust will continue to qualify as a REIT under the Code
during the entire liquidation process and, therefore, no provision has been
made for federal income taxes. Although the Trust expects to maintain such
REIT qualification, there can be no assurance thereof.
Forward-Looking Statements. This Proxy Statement contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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 or Shareholders (and the
actual results thereof) with respect to the Plan (including the possibility of
litigation pertaining thereto); the net realizable value of the properties in
the event of the liquidation thereof; risks which may arise if the Plan is
abandoned; the current market conditions remaining the same or improving;
maintaining the current occupancy and rent levels at the Trust's properties; as
well as those risk factors set forth under "Forward-Looking Statements" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 1997 Form 10-K and in its most recent report on Form
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10-Q. The Trust undertakes no obligation to update these forward-looking
statements to reflect future events or circumstances.
Income Tax Consequences of Liquidation
Consequences to the Trust
Since its inception, the Trust has qualified as a REIT under Sections
856-860 (the "REIT Provisions") of the Code. Under the REIT Provisions, a real
estate investment trust that meets certain requirements is generally not
subject to Federal income tax with respect to income it distributes to its
shareholders. If the Plan is adopted by the shareholders, it is presently
contemplated that the liquidation will be carried out in a manner that will
allow the Trust to continue to meet the requirements of the REIT Provisions
until the distribution of all its assets to the shareholders (including the
transfer of assets to a liquidating trust), although the Plan gives the
Trustees the authority to cause the Trust to discontinue its status as a REIT
at any time if they find it in the best interests of the Trust's shareholders
to do so.
In order to maintain its status as a REIT, the Trust must, among other
things, continue to derive its income from qualified sources, principally rents
from real property, interest from mortgages on real property and gains from the
sale or exchange of real estate assets. In addition, its principal investments
must continue to be in real estate assets.
So long as the Trust continues to qualify as a REIT, any net gain from
"prohibited transactions" (i.e., sales of property held primarily for sale to
customers in the ordinary course of a trade or business) will be subject to a
100% tax. Whether a real estate asset is property held primarily for sale to
customers in the ordinary course of a trade or business, the sale of which
would be a prohibited transaction for a REIT, is a highly factual
determination. Section 857(b)(6)(C) of the Code provides a safe harbor,
pursuant to which sales of real estate assets by a REIT will not be treated as
prohibited transactions. Such a sale meets the safe harbor requirements if: (i)
the REIT held the property for not less than four years; (ii) aggregate
expenditures made by the REIT in the four years before the sale of the property
which are includible in the basis of the property do not exceed 30% of the net
selling price of the property; (iii) (I) during the taxable year, the REIT does
not make more than seven sales of such properties (other than property
designated as "foreclosure property" under the REIT Provisions and
involuntarily converted property); or (II) the aggregate bases of property sold
during the taxable year does not exceed 10% of the aggregate bases of all of
the assets of the REIT at the beginning of the taxable year; (iv) in the case
of land or buildings (other than property acquired through foreclosure or lease
termination), the REIT has held such property for not less than four years for
the production of rental income; and (v) if the REIT makes more than seven
sales of property during the taxable year, then substantially all of the
marketing and development expenditures with respect to such property were made
through an independent contractor from whom the REIT does not derive or receive
income. For purposes of applying these rules, the sale of more than one
property to one buyer as part of a single transaction constitutes one sale.
As noted above, the determination as to whether property is held primarily
for sale to customers in the ordinary course of a trade or business is highly
factual. However, the Trust does not believe that any of its property should be
so characterized but rather that all its properties are all held for investment
and the production of rental income. Nevertheless, the Trust and its advisers
will attempt to structure the dispositions of the Trust's assets in a manner
that will prevent such dispositions from being treated as prohibited
transactions.
Distributions pursuant to the Plan made within 24 months after adoption of
the Plan will, to the extent of earnings and profits of the Trust for the
taxable year, be treated as dividends paid for purposes of meeting the REIT
income distribution requirements. As a result, and provided the Trust continues
to meet Internal Revenue Code qualifications for REITs, the Trust will not be
subject to Federal income tax on gain recognized in connection with liq-
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uidating sales of the Trust's assets, nor will it be subject to Federal income
tax on gain realized upon a liquidating distribution of any appreciated assets
of the Trust.
While it is expected that the Trust will continue to qualify under the
REIT Provisions for the period prior to the distribution of all its assets to
the shareholders (including the transfer of assets to a liquidating trust), no
assurance can be given that the Trust will not lose or terminate its status
under the REIT Provisions as a result of unforeseen circumstances. Should the
Trust lose its status as a REIT, either inadvertently or because the Trustees
deem such loss to be in the best interests of the Trust's shareholders, it
would be taxable as a corporation for Federal income tax purposes and would be
liable for Federal income taxes at the corporate rate with respect to the
Trust's entire income from operations and from liquidating sales and
distribution of the Trust's assets for the taxable year in which its
qualification under the REIT Provisions is terminated and in any subsequent
years.
Consequences to the Shareholders
Although distributions by the Trust made within 24 months of adoption of
the Plan will be eligible for the dividends paid deduction, as described above,
such distributions in liquidation will not be dividend income when received by
shareholders. Distributions in liquidation (including an amount equal to a
shareholder's pro rata share of the fair market value of the assets transferred
to a liquidating trust) should first be used to reduce the basis in his shares
in the Trust, with any excess constituting a capital gain if the shares were
held as a capital asset. If the sum of all liquidating distributions is less
than a shareholder's basis in his shares, the difference will constitute a
capital loss. Such capital gain or loss will be long or short term, depending
on whether such shares have been held for more than one year.
Liquidating Trust
In the event that the Trust is unable to dispose of all of its assets
within 24 months after adoption of the Plan or if it is otherwise advantageous
or appropriate to do so, the Trustees may establish a liquidating trust to
which the Trust could distribute in kind its unsold assets. In any event, even
if all of the Trust's assets were disposed of within such period, the Trustees
believe that it may be necessary to establish a liquidating trust to retain
cash reserves beyond such 24-month period to meet contingent liabilities of the
Trust. Under the Code, a trust will be treated as a liquidating trust if it is
organized for the primary purpose of liquidating and distributing the assets
transferred to it, and if its activities are all reasonably necessary to and
consistent with the accomplishment of that purpose. However, if the liquidation
is prolonged or if the liquidation purpose becomes so obscured by business
activities that the declared purpose of the liquidation can be said to be lost
or abandoned, it will no longer be considered a liquidating trust. Although
neither the Code nor the Regulations thereunder provide any specific guidance
as the length of time a liquidating trust may last, the Internal Revenue
Service's guidelines for issuing rulings with respect to liquidating trust
status call for a term not to exceed three years, which period may be extended
to cover the collection of installment obligations.
An entity classified as a liquidating trust may receive assets, including
cash, from the liquidating entity without incurring any tax. It will be treated
as a grantor trust, and accordingly will also not be subject to tax on any
income or gain recognized by it. Instead, each shareholder will be treated as
the owner of his pro rata portion of each asset, including cash, received by
and held by the liquidating trust. Accordingly, each shareholder will be
treated as having received a liquidating distribution equal to his share of the
amount of cash and the fair market value of any asset distributed to the
liquidating trust and recognize gain to the extent such value is greater than
his basis in his stock, notwithstanding that he may not currently receive a
distribution of cash or any other assets with which to satisfy the resulting
tax liability. In addition, each shareholder will be required to take into
account in computing his own taxable income his pro rata share of each item of
income, gain and loss of the liquidating trust.
An individual shareholder who itemizes deductions may deduct his pro rata
share of fees and expenses of the liquidating trust only to the extent that
such amount, together with the shareholder's other miscellaneous deductions,
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exceeds 2% of his adjusted gross income. A shareholder will also recognize
taxable gain or loss when all or part of his pro rata portion of an asset is
disposed of for an amount greater or less than his pro rata portion of the fair
market value of such asset at the time it was transferred to the liquidating
trust. Any such gain or loss will be capital gain or loss so long as the
shareholder holds his interest in the assets as a capital asset.
If the liquidating trust fails to qualify as such, its treatment will
depend, among other things, upon the reasons for its failure to so qualify. In
such case, the liquidating trust would most likely be taxable as a corporation.
In such case the liquidating trust itself would be subject to tax, and
shareholders could also be subject to tax upon the receipt of certain
distributions from the liquidating trust. If the Trustees avail themselves of
the use of a liquidating trust, it is anticipated that every effort will be
made to ensure that it will be classified as such for Federal income tax
purposes.
Taxation of Non-United States Shareholders
Because the liquidating distributions pursuant to the Plan will be treated
as paid in exchange for a shareholder's shares and not as dividends, no
withholding on liquidating distributions will generally be required because of
the Foreign Investment in Real Property Tax Act, commonly known as "FIRPTA,"
unless a shareholder who is not a U.S. citizen or resident owns, or has owned
within the prior five years, 5% or more of the Trust's outstanding Common
Shares.
State and Local Income Tax
Shareholders may also be subject to state or local taxes with respect to
distributions received by them pursuant to the Plan and should consult their
tax advisors regarding such taxes.
THE ABOVE TAXATION DISCUSSION DOES NOT ATTEMPT TO COMMENT ON ALL TAX
MATTERS WHICH MAY AFFECT THE TRUST OR THE SHAREHOLDERS IN THE COURSE OF THE
LIQUIDATION NOR TO CONSIDER VARIOUS FACTS OR LIMITATIONS APPLICABLE TO ANY
PARTICULAR SHAREHOLDER, INCLUDING, WITHOUT LIMITATION, TAX EXEMPT ENTITIES AND
FOREIGN SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE LIQUIDATION,
PARTICULARLY WITH RESPECT TO THE APPLICATION AND EFFECT OF TAX LAWS OF ANY
STATE OR OTHER JURISDICTION TO WHICH THEY ARE SUBJECT.
Abandonment or Nonapproval of the Plan
If the Trustees determine (whether before or after the shareholder
approval of the Plan but prior to the filing of a certificate of termination
with the Secretary of the Commonwealth of Massachusetts), on the basis of
unforeseen subsequent events (including, without limitation, a determination by
the Trustees that it is unlikely that the Trust will obtain aggregate sales
prices for its assets that would yield between $30 and $33 per share of net
cash proceeds), that liquidation and termination of the Trust is not in the
best interests of the Trust or its shareholders, the Trustees may direct that
the Plan be abandoned. If the Plan is abandoned, the Trustees will determine in
light of the circumstances giving rise to such abandonment whether or not the
Trust will continue to transact business as a REIT. The Trustees, nevertheless,
may cause the performance of any contracts for the sale of assets which they
deem to be in the best interests of the Trust or its shareholders.
The Plan could be abandoned if the Trustees, upon consultation with the
Advisors, determine to accept a merger or acquisition proposal which is deemed
to be in the best interests of the shareholders (when compared to the
implementation of the Plan). The Plan could also be abandoned at any time
during the liquidation process due to the development of unstable or
unfavorable real estate or financial market conditions and at a time when the
Trust is significantly reduced in size thereby increasing certain operating
risks, as well as the risk that the Trust's share price would trade at an even
greater discount to the perceived underlying value of its real estate holdings.
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In the event of the failure of the shareholders to approve the Plan, the
Trust currently intends to continue to transact business as a REIT and to
consider alternative courses of action.
Amendment of the Plan
Notwithstanding approval of the Plan by the shareholders of the Trust at
the Meeting, the Trustees may amend or modify the Plan without the necessity of
further action by the shareholders of the Trust to the extent permitted under
the then current law.
Dissenters' Rights
General. Pursuant to Section 13.3 of the Trust's Declaration of Trust,
shareholders of the Trust are entitled to rights of appraisal to the same
extent, if any, as a shareholder of a Massachusetts business corporation and
the Declaration of Trust states that such rights of appraisal shall be the
exclusive remedy in respect of any such dissenting shareholder. Shareholders of
the Trust may, under certain circumstances described below and in Sections 76
and 86 to 98, inclusive, of Chapter 156B of the Massachusetts General Laws (the
"Massachusetts Business Corporation Law" or "MBCL") copies of which sections
are included with this Proxy Statement as Exhibit C, exercise dissenters'
rights pursuant to the MBCL. In accordance with such sections of the MBCL, the
Trust's shareholders have the right to dissent from the approval of the Plan
and the sale of the Trust's assets and to be paid the "fair value" of their
Common Shares. Where a sale of substantially all the Trust's property and
assets is to be submitted for approval at a meeting of shareholders, pursuant
to the Trust's Declaration of Trust and under Section 87 of the MBCL, the Trust
must notify each of its shareholders of the right to dissent. This Proxy
Statement constitutes such notice to the shareholders of the Trust. The
applicable statutory provisions of the MBCL are attached as Exhibit C.
The following discussion is not a complete statement of the law pertaining
to a dissenting shareholder's rights under the MBCL and is qualified in its
entirety by the full text of Sections 76 and 86 to 98, inclusive, attached
hereto as Exhibit C. Any shareholder who wishes to exercise the right to
dissent and demand the fair value of his or her shares, or who wishes to
preserve the right to do so, should review the following discussion and Exhibit
C carefully because failure to timely and properly comply with the procedures
will result in the loss of a shareholder's right to dissent under the MBCL.
Appraisal Rights of Dissenting Shareholders. If the Plan is approved by
the shareholders at the Meeting and effected by the Trust, any shareholder (i)
who files with the Trust before the taking of the vote on the approval of the
Plan, written objection to the Plan stating that he or she intends to demand
payment for his or her shares if the Plan is effected by the Trust and (ii)
whose shares are not voted in favor of the Plan, has or may have the right to
demand in writing from the Trust, within 20 days after the date of mailing to
him or her of notice in writing that the Plan has been effected by the Trust,
payment for his or her shares and an appraisal of the value thereof. The Trust
and any such shareholder shall in such cases have the rights and duties and
shall follow the procedure set forth in sections 88 to 98, inclusive, of
chapter 156B of the MBCL. The failure of a dissenting shareholder to follow the
appropriate procedures may result in the termination or waiver of the right to
appraisal.
A demand for appraisal must be executed by or for the shareholder of
record, fully and correctly, as such shareholder's name appears on his or her
stock certificate. If the Common Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand must be
executed by the fiduciary. If the Common Shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand must be
executed by all joint owners. An authorized agent, including an agent for two
or more joint owners, may execute the demand for appraisal for a shareholder of
record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, he is acting as agent for the
record owner.
A record owner who holds shares as a nominee for others, such as a broker,
may demand an appraisal of the shares held for all, or fewer than all, of the
beneficial owners of such shares. In such a case, the written demand
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should set forth the number of shares to which it relates. When no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
standing in the name of the record owner. Beneficial owners of Common Shares
who are not record owners and who intend to exercise appraisal rights should
instruct the record owner to comply with the statutory requirements with
respect to the exercise of appraisal rights before the date of the Meeting.
While the dissenting shareholder may perfect his or her appraisal rights
in accordance with the procedures outlined herein, the Massachusetts Supreme
Judicial Court has held that a dissenting shareholder may not obtain payment
for shares until (i) the Trust has approved of the transaction and (ii) the
Trust has in fact consummated a sale of its assets. Appraisal rights in
connection with the Plan will be triggered only upon a sale of "all or
substantially all" of the Trust's assets. Neither Section 76 of the MBCL nor
the Massachusetts courts have provided a bright line quantitative definition of
"substantially all of the assets." Instead, the courts have determined the
issue on a case-by-case basis, looking at the amount of assets sold, how the
sale of assets will affect the company's income and whether the sale will
change the nature of the business.
Subject to the foregoing, Section 76 and Sections 86 through 98,
inclusive, of the MBCL (a copy of which is attached hereto as Exhibit C)
entitle any holder of record of Common Shares who files written objection to
the Plan prior to the taking of the vote on the Plan at the Meeting and who
does not consent to or vote in favor of the Plan, to demand in writing that the
Trust pay to such shareholder in cash the "fair value" (as such term is used in
the MBCL) of such shares determined by appraisal (exclusive of any value
arising from the accomplishment or expectation of the Plan). In the event that
the Trust effects a sale of all or substantially all of its assets, dissenting
shareholders who perfect appraisal rights in accordance with the MBCL will be
entitled to receive the fair value of their shares, as determined in accordance
with the MBCL.
Any shareholder of record contemplating making a demand for appraisal of
his or her shares is urged to review carefully the provisions of Section 76 and
Sections 86 through 98 of the MBCL, particularly the procedural steps required
to perfect dissenters' rights thereunder. Dissenters' rights will be lost if
the procedural requirements of MBCL Section 76 and Sections 86 through 98 are
not fully satisfied. Under the Declaration of Trust and Massachusetts statutory
law, procedures relating to dissenters' rights are stated to be the exclusive
remedy available to a shareholder objecting to the Plan, except upon grounds
that the Plan will be or is illegal or fraudulent as to such shareholder.
Set forth below is a summary of the procedures relating to the exercise of
dissenters' rights. The following summary does not purport to be a complete
statement of the provisions of MBCL Section 76 and Sections 86 through 98 and
is qualified in its entirety by reference to the full text thereof attached
hereto as Exhibit C.
Filing Written Demand. Prior to the taking of the vote at the Meeting, a
shareholder of record who intends to exercise dissenters' rights must deliver
to the Trust a written objection to the Plan stating that such shareholder
intends to demand payment for such shareholder's Common Shares if the Plan is
effected. Such written objection should be sent to the Trust at MGI Properties,
One Winthrop Square, Boston, Massachusetts 02110, Attention:
Phillip C. Vitali, Chief Financial Officer. The written demand for appraisal
should specify the shareholder's name and mailing address, the number of Common
Shares owned, and that the shareholder is thereby demanding appraisal of his or
her shares. The failure to consent to the Plan or the return of a proxy by a
shareholder with instructions to vote the Common Shares covered thereby against
the Plan (or abstaining from voting) is not sufficient to satisfy the
requirement of delivering written objection to the Trust.
No Vote in Favor of Plan. Common Shares for which appraisal is sought must
not be voted in favor of the Plan. The submission of a blank proxy which has
not been properly revoked will serve to waive dissenters' rights, but a failure
to return a proxy or a failure to vote (or abstaining from voting), or a vote
in person or by proxy against the Plan, will not waive such dissenters' rights.
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Notice of Effectuation of Plan. Within 10 days after the Plan becomes
effective, the Trust, as required by Section 88 of the MBCL, will notify each
shareholder who has purported to comply with the provisions of MBCL Section 86,
and whose shares were not voted in favor of the Plan, that the Plan has become
effective. The giving of such notice shall not be deemed to create any rights
in such shareholder receiving such notice to demand payment for such shares.
The notice shall be sent by registered or certified mail, addressed to the
shareholder at such shareholder's last known address as it appears in the
records of the Trust. (Note: For the purposes of notice, the Plan will become
effective upon a sale, exchange or transfer of all or substantially all of the
Trust's assets and not necessarily upon the shareholders' approval of the
Plan.)
Written Demand. Within 20 days after the mailing of notice by the Trust,
any dissenting shareholder must demand in writing from the Trust payment of the
fair value of such shareholder's Common Shares. If the Trust and such
shareholder shall have agreed as to the fair value of such shares, the Trust
shall pay to such shareholder the fair value of such shares within 30 days
after the expiration of the 20-day period during which such demand may be made.
Settlement of Appraisal. Any shareholder shall, with the Trust's consent,
have the right to withdraw a demand for appraisal. Within four months after the
expiration of the 30-day period discussed in the immediately preceding
paragraph, if the Trust and any shareholder seeking appraisal have not agreed
upon the fair value of such shareholder's Common Shares, the Trust or any such
shareholder who has complied with MBCL Section 86 may, by an appropriate filing
with the Superior Court, Suffolk County, Massachusetts (the "Massachusetts
Court"), demand a determination of the fair value of the Common Shares of all
dissenting shareholders with whom agreements as to the value of their shares
have not been reached. If no such filing is made within such four-month period,
such shareholder will forfeit dissenters' rights. Upon such filing, notice of
the time and place fixed by the Massachusetts Court for a hearing will be given
by the Trust by registered or certified mail to all who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached. After the hearing, the Massachusetts Court will determine the
shareholders who have complied with the provisions of MBCL Section 86 and who
have become entitled to dissenters' rights, and the court will appraise the
Common Shares determining the fair value thereof as of the date immediately
preceding the Meeting, exclusive of any element of value arising from the
accomplishment or expectations of the Plan.
Payment and Costs. When the fair value is so determined, the Massachusetts
Court will direct the payment by the Trust of such value, with interest thereon
as the Massachusetts Court determines, to the dissenting shareholders entitled
to receive the same, upon surrender to the Trust by such shareholders of the
certificates representing their Common Shares. Costs of any appraisal
proceeding (other than attorneys' and experts' fees, which are the
responsibility of the party retaining such attorneys or experts) and expenses
of any master appointed by the Massachusetts Court may be taxed upon the
parties thereto by the Massachusetts Court as the Massachusetts Court deems
equitable in the circumstances. All payments to dissenting shareholders and
costs of the notice described above will be borne by the Trust.
The discussion in the preceding paragraphs assumes that the Massachusetts
Court will both (i) accept jurisdiction of the appraisal proceedings in the
case of the Trust, as to which the provisions relative to dissenters' rights
are established by Section 13.3 of the Declaration of Trust (in contrast to
cases involving Massachusetts business corporations that are subject to the
mandate of the MBCL) and (ii) apply the same procedures in the case of the
Trust as are provided for in the MBCL in the case of dissenters' rights
proceedings involving Massachusetts business corporations.
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PROPOSAL NO. 2
AMENDMENT TO DECLARATION OF TRUST CONCERNING LIQUIDATION
The Board of Trustees has determined to submit for approval of the
shareholders an amendment to the Declaration of Trust that, in the Board's
view, will facilitate implementation of the Plan. The amendment is set forth on
Exhibit D to this Proxy Statement.
Under Section 13.1(b) of the Declaration of Trust as currently in effect,
upon a termination of the Trust, the Trustees may dispose of all or
substantially all of the assets only if the principal terms of the transaction
and the nature and amount of consideration are approved by the affirmative vote
of holders of not less than a majority of Common Shares entitled to vote. The
Trustees believe that this standard is unclear in its application to a plan of
liquidation. Accordingly, they recommend the adoption of an amendment to the
Declaration of Trust to permit all sales of assets in liquidation without
further shareholder approval even if the assets disposed of might be considered
substantially all of the assets of the Trust.
Under the Plan, the Trustees expect to dispose of the Trust's real estate
assets in pools or on a property-by-property basis, although offers for the
entire portfolio of investments may be sought. Section 13.1(b) of the
Declaration of Trust as currently in effect would require the Trustees to seek
the approval of the holders of a majority of the outstanding Common Shares
prior to the sale of assets of the Trust that constitute "all or substantially
all" of the Trust's assets. Application of this requirement to the Plan is
difficult because the Plan contemplates not necessarily a bulk sale of all or
substantially all of the Trust's assets, but rather a series of sales of
specific pools of properties although properties could be sold on an individual
basis. As pools of properties or individual properties are sold and the real
estate assets held by the Trust decrease, the effect of the provision may be to
require the Trustees to obtain shareholder approval of sales of the last
property or properties held by the Trust. It is likely that such a requirement
would materially hinder the Trustees' ability to dispose of such property or
properties on economic terms favorable to the Trust. In acknowledgment of the
foregoing it is proposed that Section 13.1(b) of the Declaration of Trust be
amended to eliminate the requirement for shareholder approval of any
disposition in liquidation.
Section 13.1(b) of the Declaration of Trust, as proposed to be amended,
would allow the Trustees to sell, exchange, transfer or otherwise dispose of
any or all assets of the Trust in one or more transactions, which may or may
not be related, without approval of the Trust's shareholders. Disposition of
assets will be approved by the Trustees applying their business judgment to
determine whether the sale is in the best interest of the Trust and the
shareholders. The Trustees have not established guidelines or criteria to make
such determination.
Pursuant to Section 13.1 of the Declaration of Trust, approval of the
amendment to the Declaration of Trust set forth on Exhibit D to this Proxy
Statement requires the affirmative vote of holders of not less than a majority
of the Common Shares then outstanding. Trustees and officers of the Trust who
own Common Shares (constituting approximately 1.7% of the outstanding shares)
have indicated to the Trust that they intend to vote all such shares to approve
the amendment to the Declaration of Trust. The Board of Trustees believes that
the amendment to the Declaration of Trust is in the best interests of the Trust
and its shareholders and recommends that shareholders vote FOR this proposal.
TRUST BUSINESS AND PROPERTIES
General
The Trust is an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts. The Trust commenced operations in 1971 as a
REIT. Since that time, the Trust has elected to be treated as a REIT under
Sections 856-860 of the Code. The Trust owns and operates a diversified
portfolio of income producing real
17
<PAGE>
estate, which as of July 31, 1998 consisted of 67 commercial properties and
three multi-family residential properties. The commercial portfolio consists of
5.8 million square feet, 87% of which is comprised of office, office/research
and development and industrial properties. The multi-family properties consist
of three residential communities aggregating 959 units. At July 31, 1998, the
commercial and residential properties were 98.2% and 94.9% leased,
respectively. Since 1992, the Trust has focused on the commercial segment of
the real estate market, specifically office, office/research and development
and industrial properties located in New England. At July 31, 1998, 66%, based
upon cost, of MGI's real estate assets were located in New England. During the
fiscal year ended November 30, 1997, the Trust began the internalization of the
property management function for its New England properties. As of September 1,
1998, the Trust had 4.0 million square feet of space under management.
Trust Investments
A list of the properties in which the Trust has invested and certain
information in respect thereof are set forth on Exhibit B hereto.
Incorporation of Certain Documents by Reference
The following documents filed by the Trust with the Securities and
Exchange Commission (the "Commission") are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended November 30, 1997.
2. Quarterly Report on Form 10-Q for the quarterly period ended February
28, 1998.
3. Quarterly Report on Form 10-Q for the quarterly period ended May 31,
1998.
4. Current Report on Form 8-K dated June 18, 1998.
5. Current Report on Form 8-K dated August 5, 1998.
The Trust will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, upon the written or oral request of any such
person, a copy of all documents incorporated herein by reference (other than
the exhibits to such documents which are not specifically incorporated herein
or into such documents by reference). Requests for such copies should be
addressed to: Ms. Jean Harrington, Vice President, MGI Properties, One Winthrop
Square, Boston, Massachusetts 02110.
All documents filed by the Trust with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
hereof and prior to the date of the Meeting or any adjournment or postponement
thereof shall be deemed to be incorporated by reference herein.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall be deemed to
constitute a part hereof except as so modified or superseded.
18
<PAGE>
MARKET PRICES AND DIVIDENDS
The Common Shares are traded and listed on the NYSE under the symbol MGI.
The approximate number of record holders of the Common Shares at September 1,
1998 was 2,152.
The high and low sales prices of the Common Shares on the NYSE for each
quarter of fiscal 1997 and 1996 and for the first, second and third quarters
of fiscal 1998, and dividends declared during such periods, were as follows:
<TABLE>
<CAPTION>
Dividends
High Low Declared
----------- --------- ----------
<S> <C> <C> <C>
Fiscal 1996
- -----------
1st quarter ......... $17-1/4 $15-7/8 $.24
2nd quarter ......... $17-1/2 $16-1/4 $.24
3rd quarter ......... $18-5/8 $16-5/8 $.25
4th quarter ......... $20-3/8 $18-1/8 $.25
Fiscal 1997
- -----------
1st quarter ......... $22-3/4 $20-1/8 $.27
2nd quarter ......... $22-3/8 $20-3/8 $.27
3rd quarter ......... $23-5/8 $20-3/4 $.28
4th quarter ......... $25-3/8 $22-1/8 $.28
Fiscal 1998
- -----------
1st quarter ......... $26 $23-1/4 $.29
2nd quarter ......... $25-15/16 $23-1/2 $.29
3rd quarter ......... $28-1/2 $22-3/4 $.31
</TABLE>
On September 2, 1998, the closing price of the Common Shares as reported
on the NYSE was $27-1/8. The Trust in the past declared and paid, approximately
45 days following the close of each fiscal quarter, cash dividends equal to
approximately 55% of funds from operations. This policy may be varied in the
future by reason of the effect of the proposed Plan, and to avoid payment by
the Trust of Federal excise taxes.
19
<PAGE>
INDEPENDENT AUDITORS
A representative of KPMG Peat Marwick LLP, the Trust's independent
accountants, is expected to be present at the 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.
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 Meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the Meeting or any adjournment thereof, in
accordance with the discretion of the persons named therein.
By Order of the Trustees,
W. Pearce Coues
Chairman of the Board
Dated: Boston, Massachusetts
September 10, 1998
IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY.
20
<PAGE>
EXHIBIT A
MGI PROPERTIES
PLAN OF COMPLETE LIQUIDATION AND TERMINATION
1. This Plan of Complete Liquidation and Termination (the "Plan") of MGI
Properties, a Massachusetts business trust (the "Trust"), has been approved by
the Trust's Board of Trustees as being in the best interests of the Trust and
its shareholders. The Board of Trustees has directed that the Plan be submitted
to the shareholders of the Trust for approval. Upon approval of the Plan by the
holders of at least a majority of the Trust's common shares, $1 par value (the
"Common Shares"), the Plan shall become effective. The date of the shareholder
meeting for the purpose of approving the Plan is hereinafter referred to as the
"Effective Date."
2. On or after the Effective Date, the Trust shall be voluntarily
liquidated and terminated. Pursuant to the Plan, the Board shall cause the
Trust to sell, convey, transfer and deliver or otherwise dispose of any and/or
all of the assets of the Trust in one or more transactions, without further
approval of the shareholders. The Trust shall not engage in any business
activities, except to the extent necessary for preserving the values of the
Trust's assets, winding up its business and affairs, discharging and paying all
Trust liabilities and distributing Trust assets to the shareholders in
accordance with the Plan.
3. The appropriate officers of the Trust shall take such actions as may be
necessary or appropriate to marshal the assets of the Trust and convert the
same, in whole or in parts, into such form as may be conveniently distributed
to the shareholders.
4. After provision for all debts and other reserves as may be deemed
necessary or appropriate by the Board of Trustees, the appropriate officers of
the Trust shall distribute, by means of one or more distributions (which
distribution may be in the form of beneficial interests in a trust holding
Trust assets), all of the assets of the Trust to the shareholders and in
connection therewith such officers shall execute all checks, instruments,
notices and any and all other documents necessary to effectuate such
distribution. The final distribution shall be made no later than the second
anniversary of the Effective Date.
5. Subject to Section 7 below, the distribution contemplated by Section 4
above shall be in complete liquidation of the Trust and in cancellation of all
Common Shares issued and outstanding, and all certificates representing such
issued and outstanding Common Shares shall thereupon be cancelled. The Trustees
shall make such provisions as they deem appropriate regarding the cancellation,
in connection with the making of distributions hereunder, of certificates
representing the Common Shares (or certificates representing interests in the
Liquidating Trust as provided in Section 7 hereof) outstanding.
6. In the course of the liquidation, the Board of Trustees, acting in its
discretion, shall have the authority to terminate the Trust's status as a real
estate investment trust under Section 856-860 of the Internal Revenue Code of
1986, as amended.
7. In the event that it should not be feasible, in the opinion of the
Board of Trustees, for the Trust to pay, or adequately provide for, all debts
and liabilities of the Trust (including costs and expenses incurred and
anticipated to be incurred in connection with the liquidation of the Trust) at
the time the final liquidation distribution is made pursuant to Section 4
hereof, or, if earlier, the latest applicable date to avoid payment by the
Trust of Federal income taxes, or the Board of Trustees shall determine that it
is not advisable to distribute at such time any of the property then held by or
for the account of the Trust because such property is not reasonably
susceptible of distribution to shareholders or otherwise, the Trust shall
transfer and assign, at such time as is determined by the Board of Trustees, to
a liquidating trust as designated by the Board of Trustees (the "Liquidating
Trust") sufficient cash and property
A-1
<PAGE>
to pay, or adequately provide for, all such debts and liabilities and such
other property as it shall have determined is appropriate. Upon such transfer
and assignment, certificates for Common Shares will be deemed to represent
certificates for interests in the Liquidating Trust. The Liquidating Trust
shall be constituted pursuant to a Liquidating Trust Agreement in such form as
the Board of Trustees may approve and its initial trustees shall be appointed
by the Board of Trustees, it being intended that the transfer and assignment to
the Liquidating Trust pursuant hereto and the distribution to the shareholders
of the beneficial interests therein shall constitute a part of the final
liquidating distribution by the Trust to the shareholders of their pro rata
interest in the remaining amount of cash and other property held by or for the
account of the Trust. From and after the date of the Trust's transfer of cash
and property to the Liquidating Trust, the Trust shall have no interest of any
character in and to any such cash and property and all of such cash and
property shall thereafter be held by the Liquidating Trust solely for the
benefit of an ultimate distribution to the shareholders, subject to any
unsatisfied debts, liabilities and expenses. Adoption of the Plan will
constitute the approval by the shareholders of the Liquidating Trust Agreement
and the appointment of trustees.
8. Upon assignment and conveyance of the assets of the Trust to the
shareholders, in complete liquidation of the Trust as contemplated by Sections
4 and 5 above, and the taking of all actions required under the law of the
Commonwealth of Massachusetts in connection with the liquidation and
termination of the Trust, the appropriate officers of the Trust shall execute
and cause to be filed in the Office of the Secretary of State of the
Commonwealth of Massachusetts, and elsewhere as may be required or deemed
appropriate, such documents as may be required to terminate the existence of
the Trust.
9. The Board of Trustees of the Trust, or the trustees of the Liquidating
Trust, and such officers of the Trust as the Board of Trustees may direct, are
hereby authorized to interpret the provisions of this Plan and are hereby
authorized and directed to take such further actions, to execute such
agreements, conveyances, assignments, transfers, certificates and other
documents, as may in their judgment be necessary or desirable in order to wind
up expeditiously the affairs of the Trust and complete the liquidation thereof,
including, without limitation, (i) the execution of any contracts, deeds,
assignments or other instruments necessary or appropriate to sell or otherwise
dispose of, any and all property of the Trust, whether real or personal,
tangible or intangible, (ii) the appointment of other persons to carry out any
aspect of this Plan, (iii) the temporary investment of funds in such medium as
the Board of Trustees may deem appropriate, and (iv) the modification of this
Plan as may be necessary to implement this Plan. The death, resignation or
other disability of any Trustee or officer of the Trust shall not impair the
authority of the surviving or remaining Trustees or officers of the Trust (or
any persons appointed as substitutes therefor) to exercise any of the powers
provided for in this Plan. Upon such death, resignation or other disability,
the surviving or remaining Trustees shall have the authority to fill the
vacancy or vacancies so created, but the failure to fill such vacancy or
vacancies shall not impair the authority of the surviving or remaining Trustees
or officers to exercise any of the powers provided for in this Plan.
10. The Board of Trustees may terminate this Plan for any reason. The
power of termination shall be exercisable both before and after approval of the
Plan by the shareholders of the Trust, but such power shall not continue after
a certificate of termination shall have been filed with the Commonwealth of
Massachusetts as contemplated by Section 8 hereof. Notwithstanding approval of
the Plan by the shareholders of the Trust, the Board of Trustees may modify or
amend the Plan without further action by the shareholders of the Trust to the
extent permitted under then current law.
11. The approval of this Plan of Complete Liquidation and Termination by
the shareholders as provided in Section 1 hereof shall constitute the
authorization and approval contemplated by Sections 13.1 and 13.3 of the
Trust's Declaration of Trust for (i) the termination of the Trust pursuant to
Section 13.1 thereof, (ii) the sale of all or substantially all of the Trust
Property pursuant to Section 13.3 thereof, and (iii) the amendment of the
Declaration of Trust pursuant to Section 13.1 thereof such that the provisions
of this Plan shall supersede and take precedence over any conflicting provision
of the Declaration of Trust.
A-2
<PAGE>
EXHIBIT B
MGI PROPERTIES
REAL ESTATE OWNED
July 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Weighted
Net Carrying Value Percentage Average
INDUSTRIAL Sq Ft Dollars Per Sq Ft Leased Rent
- -------------------------- ------------ -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Flex
Tewksbury, MA ............ 189,200 $10,449,000 $ 55.23 100% $ 9.00
Nashua, NH ............... 150,600 5,043,000 33.49 81% 4.51
Wilmington, MA ........... 109,500 4,339,000 39.63 100% 5.92
Westford, MA ............. 107,600 3,388,000 31.49 100% 3.50
Methuen, MA .............. 106,800 4,716,000 44.16 100% 5.29
Wilmington, MA ........... 100,200 2,367,000 23.62 100% 4.07
Franklin, MA ............. 100,000 4,893,000 48.93 100% 5.94
Nashua, NH ............... 98,100 3,096,000 31.56 94% 4.18
Bedford, MA .............. 93,200 2,370,000 25.43 100% 7.26
Franklin, MA ............. 83,500 3,645,000 43.65 100% 5.64
Andover, MA .............. 82,500 4,442,000 53.84 100% 5.86
Marlborough, MA .......... 75,000 3,006,000 40.08 100% 6.46
Marlborough, MA .......... 59,400 2,250,000 37.88 100% 6.25
Hopkinton, MA ............ 39,000 1,934,000 49.59 100% 6.50
Methuen, MA .............. 38,700 1,714,000 44.29 100% 5.66
Distribution and Manufacturing
Wilmington, MA ........... 294,000 6,621,000 22.52 100% 3.91
Franklin, MA ............. 65,300 3,085,000 47.24 100% 6.00
- ------------------------------------------------------------------------------------------
Total .................... 1,792,600 $67,358,000 $ 37.58 98% $ 5.51
- ------------------------------------------------------------------------------------------
OFFICE/RESEARCH & DEVELOPMENT
- ------------------------------------------------------------------------------------------
Tewksbury, MA ............ 140,000 $ 8,509,000 $ 60.78 100% $ 9.30
Andover, MA .............. 128,400 5,928,000 46.17 100% 5.00
Billerica, MA ............ 122,300 4,419,000 36.13 100% 4.52
Chelmsford, MA ........... 110,100 4,433,000 40.26 100% 6.92
Andover, MA .............. 105,500 6,564,000 62.22 100% 11.60
Billerica, MA ............ 100,000 4,977,000 49.77 100% 12.00
Hudson, NH ............... 76,800 3,501,000 45.59 100% 5.61
Hopkinton, MA ............ 76,100 5,282,000 69.41 100% 10.09
Chelmsford, MA ........... 70,900 1,882,000 26.54 100% 8.09
Bedford, MA .............. 70,600 2,068,000 29.29 100% 3.50
Littleton, MA ............ 66,800 2,301,000 34.45 100% 8.29
Andover, MA .............. 60,600 3,843,000 63.42 100% 7.01
Billerica, MA ............ 60,000 1,906,000 31.77 100% 4.75
Westford, MA ............. 59,700 3,418,000 57.25 100% 5.22
Billerica, MA ............ 56,300 1,879,000 33.37 100% 3.85
Raynham, MA .............. 49,200 2,535,000 51.52 100% 7.17
Hopkinton, MA ............ 40,800 2,829,000 69.34 100% 10.08
- ------------------------------------------------------------------------------------------
Total .................... 1,394,100 $66,274,000 $ 47.54 100% $ 7.38
- ------------------------------------------------------------------------------------------
Net Carrying Value Percentage
MULTI-FAMILY Units Dollars Per Unit Leased
- ------------------------------------------------------------------------------------------
Harrison Township, MI..... 376 $ 8,938,000 $ 23,771 96%
Bloomfield Hills, MI...... 346 13,183,000 38,101 93%
Laurel, MD ............... 237 10,651,000 44,941 92%
- ------------------------------------------------------------------------------------------
Total .................... 959 $32,772,000 $ 34,173 94%
- ------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Scheduled Lease Number
Expirations of
INDUSTRIAL 1999 2000 Tenants Principal Tenant Expiration
- -------------------------- -------- -------- --------- -------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Flex
Tewksbury, MA ............ -- -- 1 Avid Technology, Inc. 06/30/10
Nashua, NH ............... 32% 10% 7 Logicraft, Inc. 01/31/01
Wilmington, MA ........... -- -- 3 United Shoe Machinery Corp. 12/31/01
Westford, MA ............. 100% -- 1 Mack Technologies 11/30/98
Methuen, MA .............. -- -- 2 Microtouch Systems, Inc. 04/30/03
Wilmington, MA ........... 52% 48% 2 Progress Software Corp. 04/30/99
Franklin, MA ............. -- -- 1 Thermo Instruments Systems 01/31/06
Nashua, NH ............... 44% 40% 10 Pure Distributors, Inc. 06/30/99
Bedford, MA .............. -- 51% 3 Imaging Technology, Inc. 07/31/01
Franklin, MA ............. -- -- 2 Chromatic Technologies, Inc. 06/30/02
Andover, MA .............. 24% -- 4 Bay Networks, Inc. 04/30/01
Marlborough, MA .......... -- -- 4 The Concorde Group 09/30/02
Marlborough, MA .......... -- -- 4 Diebold Incorporated 01/31/03
Hopkinton, MA ............ -- -- 1 SCP Pool Corp. 12/31/05
Methuen, MA .............. -- -- 2 Larson Juhl, Inc. 12/31/01
Distribution and Manufacturing
Wilmington, MA ........... 14% 36% 3 MVP Sports 02/05/03
Franklin, MA ............. -- -- 1 Massachusetts Electric Company 12/31/02
- ---------------------------------------------------------------------------------------------------
Total .................... 11% 14% 51
- ---------------------------------------------------------------------------------------------------
OFFICE/RESEARCH & DEVELOPMENT
- ---------------------------------------------------------------------------------------------------
Tewksbury, MA ............ -- -- 1 Avid Technology, Inc. 06/30/10
Andover, MA .............. -- 100% 1 Hewlett-Packard Company 07/31/00
Billerica, MA ............ -- -- 1 PRI Automation, Inc. 07/31/01
Chelmsford, MA ........... -- 75% 3 Sun Microsystems 12/31/99
Andover, MA .............. 100% -- 1 ISI Systems, Inc. 04/30/99
Billerica, MA ............ -- -- 1 Peritus Software Services 02/28/06
Hudson, NH ............... -- -- 1 Atrium Medical Corp. 06/30/04
Hopkinton, MA ............ -- -- 1 Zymark Corporation 12/31/05
Chelmsford, MA ........... -- -- 5 Biscom, Inc. 02/28/03
Bedford, MA .............. -- 100% 1 Atex Media Solutions, Inc. 07/31/98
Littleton, MA ............ -- -- 4 Inforonics. 05/31/03
Andover, MA .............. -- -- 1 Cabletron Systems, Inc. 05/31/01
Billerica, MA ............ -- 100% 1 Bay Networks, Inc. 03/30/00
Westford, MA ............. -- -- 1 Hewlett-Packard Company 11/30/98
Billerica, MA ............ -- 100% 1 Bay Networks, Inc. 12/31/99
Raynham, MA .............. -- -- 4 Johnson & Johnson, Inc. 07/31/99
Hopkinton, MA ............ -- -- 1 Zymark Corporation 12/31/05
- ---------------------------------------------------------------------------------------------------
Total .................... 8% 29% 29
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
MGI PROPERTIES
REAL ESTATE OWNED
July 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Weighted
Net Carrying Value Percentage Average
OFFICE Sq Ft Dollars Per Sq Ft Leased Rent
- ---------------------- ------------ --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Somerset, NJ ......... 178,600 $ 13,992,000 $ 78.34 100% $ 16.63
Hopkinton, MA ........ 159,800 12,523,000 78.37 100% 7.60
Portland, ME ......... 149,500 16,241,000 108.64 99% 19.32
Manchester, NH ....... 127,900 11,058,000 86.46 100% 15.29
Tampa, FL ............ 122,400 8,665,000 70.79 92% 12.02
Boston, MA ........... 114,300 10,226,000 89.47 91% 23.64
Framingham, MA ....... 111,400 7,156,000 64.24 100% 23.15
Portland, ME ......... 104,600 11,803,000 112.84 100% 19.08
Andover, MA .......... 97,700 7,574,000 77.52 100% 15.70
Ann Arbor, MI ........ 81,500 6,074,000 74.53 100% 12.07
Farmington, CT ....... 68,100 5,522,000 81.09 100% 15.78
Nashua, NH ........... 66,200 4,544,000 68.64 95% 12.67
South Portland, ME ... 58,400 5,094,000 87.23 100% 13.55
Greenville, SC ....... 49,600 1,883,000 37.96 94% 10.24
Greenville, SC ....... 46,300 1,322,000 28.55 89% 9.72
Glastonbury, CT ...... 40,900 3,784,000 92.52 100% 19.56
Glastonbury, CT ...... 39,900 3,619,000 90.70 100% 18.26
Peabody, MA .......... 37,500 4,274,000 113.97 100% 19.55
Nashua, NH ........... 36,700 2,289,000 62.37 100% 14.83
South Portland, ME ... 31,800 3,306,000 103.96 100% 17.08
Raynham, MA .......... 27,300 2,586,000 94.73 81% 16.56
Boston, MA ........... 27,100 1,607,000 59.30 100% 20.11
Nashua, NH ........... 26,100 1,550,000 59.39 84% 15.04
South Portland, ME ... 18,400 1,715,000 93.21 100% 12.34
- -----------------------------------------------------------------------------------------
Total ................ 1,822,000 $148,407,000 $ 81.45 98% $ 15.88
- -----------------------------------------------------------------------------------------
RETAIL
- -----------------------------------------------------------------------------------------
Aurora, IL ........... 361,100 $ 26,692,000 $ 73.92 94% $ 8.08
Baltimore, MD ........ 146,700 6,171,000 42.07 100% 6.35
Peabody, MA .......... 106,900 9,905,000 92.66 100% 11.75
Temple Terrace, FL ... 100,500 7,562,000 75.24 95% 10.02
Hagerstown, MD ....... 40,200 1,332,000 33.13 100% 5.22
- -----------------------------------------------------------------------------------------
Total ................ 755,400 $ 51,662,000 $ 68.39 96% $ 8.39
- -----------------------------------------------------------------------------------------
Net Carrying Value
LAND AND OTHER Dollars
- -----------------------------------------------------------------------------------------
Portland, ME ......... $ 2,320,000
Tampa, FL ............ 427,000
Mount Clemens, MI..... 26,000
Hopkinton, MA ........ 202,000
- -----------------------------------------------------------------------------------------
Total ................ $ 2,975,000
- -----------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
Scheduled
Lease Number
Expirations of
OFFICE 1999 2000 Tenants Principal Tenant Expiration
- ---------------------- ------ ------ --------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
Somerset, NJ ......... 1% 10% 13 Merrill Lynch 06/30/01
Hopkinton, MA ........ -- -- 1 EMC Corporation 04/30/04
Portland, ME ......... 5% -- 13 UNUM Life Insurance Co. 01/31/01
Manchester, NH ....... -- 43% 12 Fleet Bank 04/07/02
Tampa, FL ............ 10% 40% 20 Olsten Kimberly Quality Care 02/28/02
Boston, MA ........... -- 4% 5 Cambridge Associates, Inc. 12/31/02
Framingham, MA ....... 10% 42% 25 Dolphin Interconnect Solutions 11/30/00
Portland, ME ......... 4% 1% 9 People's Heritage Bank 07/31/04
Andover, MA .......... 15% 44% 12 Computer Associates 12/31/02
Ann Arbor, MI ........ 13% -- 2 Comshare, Inc. 02/28/05
Farmington, CT ....... -- 84% 4 McGraw-Hill Companies, Inc. 07/31/00
Nashua, NH ........... 22% 2% 13 Hesser, Inc. 08/31/98
South Portland, ME ... 31% 42% 22 American Express Financial Advisors 04/30/02
Greenville, SC ....... 18% 19% 25 S.C. Tax Commission 06/30/01
Greenville, SC ....... -- 14% 5 S.C. Voc. Rehab. Dept. 11/30/98
Glastonbury, CT ...... 6% -- 4 Hewlett-Packard Company 03/31/03
Glastonbury, CT ...... -- 89% 4 Equator U.S.A., Inc. 12/31/99
Peabody, MA .......... -- -- 1 Oxford & Associates, Inc. 10/31/01
Nashua, NH ........... 23% 18% 11 Puma 12/31/02
South Portland, ME ... 18% 52% 8 S.D. Warren Company 01/31/00
Raynham, MA .......... 6% -- 8 Arbella Mutual Insurance Company 11/30/98
Boston, MA ........... -- 27% 10 N. E. Realty Resources, Inc. 11/03/03
Nashua, NH ........... 8% -- 4 Promis Systems Corp. 05/31/01
South Portland, ME ... 31% 14% 5 Tufts Health Plan 03/31/01
- ------------------------------------------------------------------------------------------------
Total ................ 7% 21% 236
- ------------------------------------------------------------------------------------------------
RETAIL
- ------------------------------------------------------------------------------------------------
Aurora, IL ........... 2% 2% 30 Best Buy 01/31/11
Baltimore, MD ........ 11% 5% 14 Kmart Corp. 11/30/05
Peabody, MA .......... -- -- 1 Bradlees, Inc. 10/31/15
Temple Terrace, FL ... 3% 7% 18 Publix Super Market, Inc. 11/30/06
Hagerstown, MD ....... -- -- 7 Giant Food Stores, Inc. 12/31/04
- ------------------------------------------------------------------------------------------------
Total ................ 4% 3% 70
- ------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
EXHIBIT C
MASSACHUSETTS GENERAL LAWS, CHAPTER 156B
SECTIONS 76 AND 86 TO 98, INCLUSIVE
76. RIGHTS OF MINORITY STOCKHOLDER, ETC. A stockholder in any corporation
which shall have voted to sell, lease or exchange all or substantially all its
property and assets, or which shall have adopted any amendment of its articles
of organization which adversely affects the rights of such stockholder, who
objects to such action, in the manner provided in section eighty-six, shall be
entitled, if such sale, lease or exchange shall have been consummated or such
amendment shall have become effective, as the case may be, to demand payment
for his stock from the corporation and an appraisal thereof in accordance with
the provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the corporation shall have the rights and duties and follow the
procedure set forth in those sections.
* * *
86. RIGHT OF APPRAISAL. If a corporation proposes to take a corporate
action as to which any section of this chapter provides that a stockholder who
objects to such action shall have the right to demand payment for his shares
and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive,
shall apply except as otherwise specifically provided in any section of this
chapter. Except as provided in sections eight-two and eight-three, no
stockholder shall have such right unless (1) he files with the corporation
before the taking of the vote of the shareholders on such corporate action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) his shares are not voted
in favor of the proposed action.
87. NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL
RIGHTS. The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or
surviving corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts.
88. NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME
EFFECTIVE. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stock-
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<PAGE>
holder receiving the same to demand payment for his stock. The notice shall be
sent by registered or certified mail, addressed to the stockholder at his last
known address as it appears in the records of the corporation.
89. DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER. If within twenty days
after the date of mailing of a notice under subsection (e) of section
eighty-two, subsection (f) of section eighty-three, or section eighty-eight any
stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
90. DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT. If during the
period of thirty days provided for in section eighty-nine the corporation upon
which such demand is made and any such objecting stockholder fail to agree as
to the value of such stock, such corporation or any such stockholder may within
four months after the expiration of such thirty-day period demand a
determination of the value of the stock of all such objecting stockholders by a
bill in equity filed in the superior court in the county where the corporation
in which such objecting stockholder held stock had or has its principal office
in the commonwealth.
91. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS
ON FAILURE TO AGREE ON VALUE THEREOF ETC; PARTIES TO BILL ETC; SERVICE OF BILL
ON CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC. If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not reached
agreement as to the value thereof. If the bill is filed by a stockholder, he
shall bring the bill in his own behalf and in behalf of all other stockholders
who have demanded payment for their shares and with whom the corporation has
not reached agreement as to the value thereof, and service of the bill shall be
made upon the corporation by subpoena with a copy of the bill annexed. The
corporation shall file with its answer a duly verified list of all such other
stockholders, and such stockholders shall thereupon be deemed to have been
added as parties to the bill. The corporation shall give notice in such form
and returnable on such date as the court shall order to each stockholder party
to the bill by registered or certified mail, addressed to the last known
address of such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-nine
shall be deemed to have consented to the provisions of this section relating to
notice, and the giving of notice by the corporation to any such stockholder in
compliance with the order of the court shall be a sufficient service of process
on him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.
92. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS
ON FAILURE TO AGREE ON VALUE THEREOF, ETC; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders
who have become entitled to the valuation of and payment for their shares, and
shall order the corporation to make payment of such value, together with
interest, if any, as hereinafter provided, to the stockholders entitled thereto
upon the transfer by them to the corporation of the certificates representing
such stock if certificated or if uncertificated, upon receipt of an instruction
transferring such stock to the corporation. For this purpose, the value of the
shares shall be determined as of the day preceding the date of the vote
approving the proposed corporate action and shall be exclusive of any element
of value arising from the expectation or accomplishment of the proposed
corporate action.
93. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS
ON FAILURE TO AGREE ON VALUE THEREOF, ETC., COURT MAY REFER BILL, ETC., TO
SPECIAL MAS-
C-2
<PAGE>
TER TO HEAR PARTIES, ETC. The court in its discretion may refer the bill or any
question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.
94. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS
ON FAILURE TO AGREED ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE
REQUIRED TO SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF
BILL, ETC. On motion the court may order stockholder parties to the bill to
submit their certificates of stock to the corporation for notation thereon of
the pendency of the bill, and may order the corporation to note such pendency
in its records with respect to any uncertificated shares held by such
stockholder parties, and may on motion dismiss the bill as to any stockholder
who fails to comply with such order.
95. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS
ON FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST
ON AWARD, ETC. The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
96. STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS. Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends
or other distributions payable to stockholders of record at a date which is
prior to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and
an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY
STOCK, ETC. The shares of the corporation paid for by the corporation pursuant
to the provision of this chapter shall have the status of treasury stock or in
the case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such consolidation
or merger shall have the status of treasury stock or securities.
98. ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES
TO BE EXCLUSIVE REMEDY; EXCEPTION. The enforcement by a stockholder of his
right to receive payment for his shares in the manner provided in this chapter
shall be an exclusive remedy except that this chapter shall not exclude the
right of such stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
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<PAGE>
EXHIBIT D
PROPOSED AMENDMENT TO SECTION 13.1 OF DECLARATION OF TRUST
Section 13.1(b) shall be amended to read in its entirety as follows:
The Trustees shall proceed to wind up the affairs of the Trust and all of
the powers of the Trustees under this Declaration of Trust shall continue until
the affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business, including but not limited to the
transfer of Trust Property to a liquidating trust or similar entity.
D-1
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
MGI PROPERTIES
----------------
PROXY--SPECIAL MEETING OF SHAREHOLDERS
October 14, 1998
----------------
The undersigned, a shareholder of MGI Properties (the "Trust"), does
hereby appoint W. Pearce Coues and Phillip C. Vitali, and each of them, the
true and lawful attorneys and proxies with full power of substitution, for and
in the name, place and stead of the undersigned, to vote all of the common
shares of the Trust which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of the Trust to be
held in the Board Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts,
on October 14, 1998, at 10:00 A.M., Local Time, or at any adjournment or
adjournments thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
acknowledges receipt of a copy of the Notice of Special Meeting and Proxy
Statement, both dated September 10, 1998.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREIN GIVEN.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO APPROVE THE PLAN OF
COMPLETE LIQUIDATION AND TERMINATION OF THE TRUST.
<PAGE>
1. To approve the Plan of Complete Liquidation and Termination of the Trust
described in Exhibit A to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the amendment to the Declaration of Trust described in
Exhibit D to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with
respect to all other matters which may come before the Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed in the United States.
Signature: __________________________ Date ______________
Signature: __________________________ Date ______________
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW: ____________________
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<NAME> MGI PROPERTIES
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-1-1997
<PERIOD-END> NOV-30-1998
<EXCHANGE-RATE> 1
<CASH> 12,265
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<BONDS> 130,517
0
0
<COMMON> 13,764
<OTHER-SE> 243,058
<TOTAL-LIABILITY-AND-EQUITY> 394,503
<SALES> 0
<TOTAL-REVENUES> 70,989
<CGS> 0
<TOTAL-COSTS> 39,425
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<INTEREST-EXPENSE> 10,122
<INCOME-PRETAX> 21,442
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<INCOME-CONTINUING> 21,442
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