UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended: February 29, 2000 Commission File Number: 1-6833
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MGI PROPERTIES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-6268740
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
One Winthrop Square, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 422-6000
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N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Common shares outstanding as of April 13, 2000: 13,774,221
<PAGE>
MGI PROPERTIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Market Risk
Quantitative and Qualitative Disclosures about Market Risk 12
PART II: OTHER INFORMATION
Items 1 - 6 13
Signatures 14
Exhibit 11. Computation of Earnings Per Share 15
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<PAGE>
MGI PROPERTIES
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
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February 29, 2000 November 30, 1999
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(unaudited)
ASSETS
Properties held for sale $48,341,000 $56,310,000
Cash and cash equivalents 46,618,000 38,232,000
Accounts receivable 772,000 747,000
Other assets 3,285,000 3,222,000
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$99,016,000 $98,511,000
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loan payable $ 4,546,000 $ 4,585,000
Liquidating liabilities 12,137,000 12,715,000
Other liabilities 2,318,000 2,373,000
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Total liabilities 19,001,000 19,673,000
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Shareholders' equity:
Common shares -- $1 par value;
17,500,000 shares authorized;
13,774,221 issued 13,774,000 13,774,000
Additional paid-in capital 208,363,000 208,363,000
Distributions in excess of net income (142,122,000) (143,299,000)
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Total shareholders' equity 80,015,000 78,838,000
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$ 99,016,000 $98,511,000
================================================================================
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
-------------------------------------
February 29, 2000 February 28, 1999
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Income:
Rental $2,563,000 $18,667,000
Interest 571,000 144,000
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Total income 3,134,000 18,811,000
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Expenses:
Property operating expenses 435,000 4,106,000
Real estate taxes 310,000 2,215,000
Depreciation and amortization 80,000 359,000
Interest 87,000 2,560,000
General and administrative 587,000 727,000
Liquidation plan expenses 541,000 978,000
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Total expenses 2,040,000 10,945,000
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Income before net gains 1,094,000 7,866,000
Net gains (loss) on sale of real estate assets 83,000 (143,000)
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Income before extraordinary item 1,177,000 7,723,000
Extraordinary item - prepayment of debt - (286,000)
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Net income $1,177,000 $ 7,437,000
================================================================================
Per Share Data:
Basic earnings $0.09 $0.54
===== =====
Diluted earnings $0.08 $0.52
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Weighted average shares outstanding 13,774,221 13,770,999
========== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
February 29, 2000 February 28, 1999
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Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 1,177,000 $ 7,437,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 80,000 359,000
Net (gains) loss on sale of real estate assets (83,000) 143,000
Extraordinary item - prepayment of debt - 286,000
Liquidating liabilities (1,119,000) (70,000)
Other 319,000 1,979,000
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Net cash provided by operating activities 374,000 10,134,000
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Cash Flows from Investing Activities:
Acquisitions of real estate - (339,000)
Additions to real estate (81,000) (472,000)
Tenant improvements (41,000) (607,000)
Deferred tenant charges - (364,000)
Net proceeds from sales of real estate 8,134,000 1,190,000
Other 39,000 (58,000)
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Net cash provided by (used in) investing activities 8,051,000 (650,000)
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Cash Flows from Financing Activities:
Additions to loans payable, net - 7,500,000
Repayment of loans payable (39,000) (12,975,000)
Mortgage prepayment penalty - (286,000)
Cash distributions - (4,545,000)
Proceeds from issuance of common shares - 95,000
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Net cash used in financing activities (39,000) (10,211,000)
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Net increase (decrease) in cash and cash equivalents 8,386,000 (727,000)
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Cash and cash equivalents:
Beginning of period 38,232,000 12,265,000
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End of period $46,618,000 $11,538,000
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
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Additional
Common Paid-In Undistributed
Shares Capital Net Income
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<S> <C> <C> <C>
Balance at November 30, 1999 $13,774,000 $208,363,000 ($143,299,000)
Net income -- -- 1,177,000
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Balance at February 29, 2000 $13,774,000 $208,363,000 ($142,122,000)
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: The results of the interim period are not necessarily indicative of
results to be expected for the entire fiscal year. The figures
contained in this interim report are unaudited and may be subject to
adjustments. Certain prior year amounts have been reclassified to
conform with the current year presentation. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations have been included and
such adjustments include only the normal accruals.
Note 2: The shareholders of the Trust approved a Plan of Complete
Liquidation and Termination of the Trust (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 debts and obligations with remaining funds to be
distributed to shareholders. It is presently estimated that the
liquidation will be substantially completed during the quarter
ending August 31, 2000, although there can be no assurance thereof.
Although it is expected that the Trust will continue to qualify as a
REIT for the period prior to the distribution of MGI's remaining
assets to shareholders (including the transfer of remaining assets
to a liquidating trust), no assurance can be given that the Trust
will not lose or terminate its status as a REIT.
Note 3: On March 16, 2000, the Board of Trustees declared a liquidating
distribution of $3.00 per share, paid on April 13, 2000 to
shareholders of record at the close of business on April 4, 2000.
This distribution aggregated $41.3 million. Since the October 14,
1998 liquidation vote, liquidating distributions total $27.16 per
share. The amount and timing of remaining distributions will be
determined by the Trustees based upon funds available, net proceeds
realized from remaining property sales, the timing of such sales,
the level of reserves deemed necessary or appropriate, and other
considerations. Under the provisions of the Internal Revenue 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 applied to reduce a shareholder's tax basis in his or her
shares of MGI with the excess constituting a capital gain. If the
sum of all liquidating distributions is less than a shareholder's
basis, the difference will constitute a capital loss to the
shareholder.
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<PAGE>
MGI PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
Note 4: Upon shareholder approval of the Plan 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 against the original cost
of real estate assets. During the first quarter of 2000, the Trust
completed the sale of one retail property totaling 106,900 square
feet and a 1.7 acre parcel of land. The aggregate sales price of
these two transactions totaled $8.4 million. Subsequent to February
29, 2000, the Trust completed the sale of two retail centers (one
located in Aurora, Illinois and one located in Baltimore, Maryland),
totaling 508,700 square feet, for an aggregate sales price of $30.8
million.
As of April 13, 2000, MGI owned four properties, and has entered
into one agreement to sell one office building located in Michigan.
The sale agreement is subject to the customary terms and conditions
for transactions of this type, including the purchasers'
satisfactory completion of due diligence, which includes engineering
and environmental inspections, and approval of titles and surveys.
The buyer for the Michigan office building has completed its due
diligence. This sale is expected to close later in MGI's second
quarter, although there can be no assurance that it will be
successfully completed.
Note 5: Cash applied to interest payments amounted to $0.1 million and $2.6
million for the three-month periods ended February 29, 2000 and
February 28, 1999, respectively.
Note 6: MGI believes that it has operated in a manner that permits it to
qualify as a real estate investment trust under the provisions of
the Internal Revenue Code of 1986, as amended. Accordingly, no
provision has been made for Federal income taxes. 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.
-8-
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MGI is a self-administered equity REIT that is operating under 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. The Plan is discussed in the Trust's Form 10-K for the years ended
November 30, 1999 and 1998, and in the definitive proxy statement dated
September 10, 1998. Since approval of the Plan, MGI, to date, has completed the
sale of 65 properties totaling 5.3 million square feet, 959 residential
apartment units, and a 1.7 acre parcel of land, for aggregate sales prices,
prior to the deduction of $9.1 million of selling expenses and closing
adjustments, of $521.6 million, which prices included $48.8 million of mortgage
debt that was repaid at closing and $28.0 million assumed by the buyers. MGI has
made liquidating distributions aggregating $27.16 per share since the October
1998 special shareholders' meeting. Currently, management believes that the
current estimate of pricing with respect to the remaining unsold properties,
when added to funds held by MGI, is estimated to result in additional net
liquidating distributions aggregating approximately $2.50 per share, after
deducting all fees and liquidation costs; however, no assurances can be given
that per share net liquidating distributions will reach this amount.
At February 29, 2000, MGI owned six commercial properties, which
aggregated 813,000 square feet. Subsequent to February 29, 2000, MGI sold, for
an aggregate sales price of $30.8 million, a 146,700 square-foot retail property
located in Baltimore, Maryland and a 362,000 square-foot retail center located
in Aurora, Illinois. In addition, MGI has entered into an agreement to sell an
office building located in Michigan. The sale agreement is subject to the
customary terms and conditions for transactions of this type, including, among
other things, the respective purchasers' satisfactory completion of due
diligence, which includes engineering and environmental inspections, and
approval of titles and surveys. The buyer of MGI's Michigan office building has
completed its due diligence. This sale is expected to close in MGI's second
fiscal quarter, although there can be no assurance that this sale will be
successfully completed. It is currently estimated by management that the
liquidation will be substantially completed during MGI's third quarter ending
August 31, 2000, although there can be no assurance thereof. Additionally,
management presently anticipates that MGI will convert to a liquidating trust no
later than October 14, 2000 but in no event prior to June 30, 2000, after which
the successor entity's beneficial interests will be non-transferable.
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<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
As of February 29, 2000, the Trust's real estate investments were
diversified by property type as follows:
<TABLE>
<CAPTION>
% of
Portfolio Based
% of on Adjusted
Square Feet of Portfolio 2000 Property
Number of Commercial Based Operating %
Properties Property on Cost Income(1) Leased
---------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Office 2 203,900 29.3% 30.0% 99.1%
Retail 3 609,200 70.1% 69.0% 96.7%
Other 1 -- .6% 1.0% 100.0%
- ------- ------ ------ -------
Total Portfolio 6 813,100 100.0% 100.0% 97.3%
= ======= ====== ====== =====
</TABLE>
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(1) Adjusted property operating income is defined as the 2000 property
operating income from the six properties owned at February 29, 2000. This
amount approximated $1.6 million, or 88.4% of total 2000 property
operating income.
Results of Operations
The sale of two properties in the first quarter of 2000 and 61
properties during 1999, pursuant to the Plan created a fundamental
transformation in MGI and is the primary factor in explaining the changes in
operating results when 2000 is compared to prior years. Net income for the
quarter ended February 29, 2000 was $1.2 million, or $.09 per share (basic), as
compared to $7.4 million, or $.54 per share (basic), in the first quarter of
1999. Included in 2000 first quarter net income were net gains of $83,000 from
the sale of two properties, as compared to a $143,000 loss from the sale of one
property and a $286,000 loan prepayment fee recorded in the first quarter of
1999. Pursuant to the required accounting for properties held for sale, there
was no depreciation or amortization of real estate assets recognized in either
the first quarter of 2000 or 1999.
-10-
<PAGE>
MGI PROPERTIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Income before net gains and extraordinary item was $1.1 million in
the first quarter of 2000 as compared to $7.9 million in the comparable quarter
of 1999. In comparing the first quarters of 2000 and 1999, the $6.8 million
decrease in income before net gain and extraordinary item is primarily
attributable to the disposition of 63 properties pursuant to the Plan. This
change primarily resulted from the $10.5 million decrease ($1.8 million in 2000
versus $12.3 million in 1999) in property operating income (which is defined as
rental income less property operating expense and real estate taxes). Property
operating income totaled $1.8 million in the first quarter of 2000, of which
approximately 88.4%, or $1.6 million, related to the six properties owned at
February 29, 2000. The change in property operating income for these six
comparable or "same store" properties (i.e., owned for both fiscal years), was
an increase of 2.3%, or $35,000, when 2000 is compared to 1999, and resulted
primarily from increased revenues from MGI's office portfolio. The decrease in
property operating income was partially offset by a $2.5 million reduction in
interest expense, a $0.3 million decrease in depreciation and amortization, and
a $0.4 million increase in interest income; all of which also results from the
sale of 63 properties. Additional factors were a $0.1 million decrease in
general and administrative expense and a $0.4 million decrease in Liquidation
Plan expenses.
Liquidity
Shareholders' equity at February 29, 2000 was $80.0 million,
compared to $78.8 million at November 30, 1999. The increase primarily reflects
the amount of net income earned in the first quarter of 2000. At February 29,
2000, financial liquidity was provided by $46.6 million in cash and cash
equivalents.
Cash requirements in 2000 will include liquidating distributions to
shareholders, capital and tenant improvements and leasing expenditures required
to maintain MGI's occupancy levels. Additionally, 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 and incentive
compensation, payments to holders of stock options, and other expenses related
to liquidation. MGI anticipates meeting these obligations through its position
of cash and cash equivalents held at February 29, 2000, the net sale proceeds of
its remaining properties, and property operations. 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.
-11-
<PAGE>
MGI PROPERTIES
PART I, ITEM 3 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Market Risk
MGI is presently exposed to interest rate changes primarily as a
result of long term debt. MGI's only obligation for borrowed money at February
29, 2000 totaled $4.5 million, representing 4.6% of its total assets. This is a
fixed rate mortgage loan with a rate of 7.4%.
Forward Looking Statements
Statements made or incorporated in this Report may contain
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, the timing of
remaining property sales and distributions to shareholders, 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 MGI's Form 10-K for the year ended November 30, 1999,
including those set forth under "Forward-Looking Statements," "Other" and Item 1
- - "Adoption and Implementation of Liquidation Plan." 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.
-12-
<PAGE>
MGI PROPERTIES
PART II - OTHER INFORMATION
Item 1: Legal Proceedings: Not applicable.
Item 2: Changes in Securities and Use of Proceeds: Not applicable.
Item 3: Defaults upon Senior Securities: Not applicable.
Item 4: Submission of matters to a vote of security holders: None.
Item 5: Other Information: Not applicable.
Item 6: Exhibits and Reports on Form 8-K:
a) Exhibits:
Part I - Exhibit 11 - Computation of Earnings per Share
(see page 15)
b) Reports on Form 8-K: Dated December 16, 1999, filed on
December 20, 1999
-13-
<PAGE>
MGI PROPERTIES
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 14, 2000 /s/ Phillip C. Vitali
----------------------------------------
Phillip C. Vitali
Executive Vice President and Treasurer
(Principal Financial and Accounting Officer)
-14-
MGI PROPERTIES
PART I - EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 29, 2000 February 28, 1999
----------------- -----------------
BASIC
<S> <C> <C>
Net income $ 1,177,000 $7,437,000
==============================================================================================================================
Weighted average number of shares outstanding during the period 13,774,221 13,770,999
==============================================================================================================================
Basic earnings per share $0.09 $0.54
==============================================================================================================================
DILUTED EARNINGS PER SHARE
Net income $1,177,000 $7,437,000
==============================================================================================================================
Weighted average number of shares outstanding assuming full dilution 15,258,281 14,210,671
==============================================================================================================================
Diluted earnings per share $0.08 $0.52
==============================================================================================================================
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF FEBRUARY 29, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-END> FEB-29-2000
<CASH> 46,618
<SECURITIES> 000
<RECEIVABLES> 772
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 3,285
<PP&E> 48,341
<DEPRECIATION> 000
<TOTAL-ASSETS> 99,016
<CURRENT-LIABILITIES> 14,455
<BONDS> 4,546
<COMMON> 13,774
000
000
<OTHER-SE> 66,241
<TOTAL-LIABILITY-AND-EQUITY> 99,016
<SALES> 2,563
<TOTAL-REVENUES> 3,134
<CGS> 000
<TOTAL-COSTS> 1,953
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 1,094
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,094
<DISCONTINUED> 83
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 1,177
<EPS-BASIC> .09
<EPS-DILUTED> .08
</TABLE>
