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: May 31, 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 (I.R.S. Employer Identification No.)
incorporation or organization)
50 Congress Street, Suite 222, Boston, Massachusetts 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 248-2300
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N/A
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Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Common shares outstanding as of July 14, 2000: 13,774,221
Page 1 of 15 pages
Exhibit Index appears on Page 13
<PAGE>
MGI PROPERTIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
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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
<TABLE>
<CAPTION>
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May 31, 2000 November 30, 1999
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(unaudited)
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<S> <C> <C>
ASSETS
Properties held for sale $ 14,333,000 $ 56,310,000
Cash and cash equivalents 38,894,000 38,232,000
Accounts receivable 111,000 747,000
Other assets 2,092,000 3,222,000
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$ 55,430,000 $ 98,511,000
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loan payable $ 4,506,000 $ 4,585,000
Liquidating liabilities 7,409,000 12,715,000
Other liabilities 1,956,000 2,373,000
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Total liabilities 13,871,000 19,673,000
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Shareholders' equity:
Common shares -- $1 par value; 17,500,000 shares authorized;
13,774,221 issued 13,774,000 13,774,000
Additional paid-in capital 208,363,000 208,363,000
Distributions in excess of net income (180,578,000) (143,299,000)
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Total shareholders' equity 41,559,000 78,838,000
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$ 55,430,000 $ 98,511,000
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended
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May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
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<S> <C> <C> <C> <C>
INCOME
Rental $ 1,578,000 $18,787,000 $ 4,141,000 $ 37,454,000
Interest 689,000 139,000 1,260,000 283,000
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Total income 2,267,000 18,926,000 5,401,000 37,737,000
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EXPENSES
Property operating expenses 353,000 4,080,000 788,000 8,186,000
Real estate taxes 92,000 2,212,000 402,000 4,427,000
Depreciation and amortization 67,000 376,000 147,000 735,000
Provision for loss on properties held for sale 523,000 1,200,000 523,000 1,200,000
Interest 86,000 2,330,000 173,000 4,890,000
General and administrative 692,000 1,026,000 1,279,000 1,853,000
Liquidation plan 309,000 905,000 850,000 1,783,000
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Total expenses 2,122,000 12,129,000 4,162,000 23,074,000
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Income before net gains 145,000 6,797,000 1,239,000 14,663,000
Net gains (loss) on sale of real estate assets 2,721,000 -- 2,804,000 (143,000)
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Income before extraordinary item 2,866,000 6,797,000 4,043,000 14,520,000
Extraordinary item - prepayment of debt -- -- -- (286,000)
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Net income $ 2,866,000 $ 6,797,000 $ 4,043,000 $ 14,234,000
===================================================================================================================================
PER SHARE DATA
Basic earnings $ 0.21 $ 0.49 $ 0.29 $ 1.03
===================================================================================================================================
Diluted earnings $ 0.19 $ 0.48 $ 0.26 $ 1.00
===================================================================================================================================
Weighted average shares outstanding 13,774,221 13,774,221 13,774,221 13,772,628
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MGI PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
May 31, 2000 May 31, 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,043,000 $ 14,234,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 147,000 735,000
Net (gains) loss on sale of real estate assets (2,804,000) 143,000
Provision for loss on properties held for sale 523,000 1,200,000
Extraordinary item - prepayment of debt -- 286,000
Liquidating liabilities (3,959,000) 350,000
Other operating assets and liabilities (1,257,000) 3,406,000
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Net cash provided by (used in) operating activities (3,307,000) 20,354,000
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Cash flows from investing activities:
Acquisitions of real estate -- (339,000)
Additions to real estate (204,000) (912,000)
Tenant improvements (41,000) (1,621,000)
Deferred tenant charges (6,000) (974,000)
Net proceeds from sales of real estate 45,437,000 1,190,000
Other 184,000 (367,000)
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Net cash provided by (used in) investing activities 45,370,000 (3,023,000)
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Cash flows from financing activities:
Cash distributions (41,322,000) (9,091,000)
Additions to loans payable, net -- 1,000,000
Repayment of loans payable (79,000) (13,896,000)
Mortgage prepayment penalty -- (286,000)
Proceeds from issuance of common shares -- 95,000
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Net cash used in financing activities (41,401,000) (22,178,000)
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Net increase (decrease) in cash and cash equivalents 662,000 (4,847,000)
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Cash and cash equivalents:
Beginning of period 38,232,000 12,265,000
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End of period $ 38,894,000 $ 7,418,000
===================================================================================================================================
</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 -- -- 4,043,000
Cash liquidating distributions -- -- ( 41,322,000)
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Balance at May 31, 2000 $13,774,000 $208,363,000 ($180,578,000)
===================================================================================================================================
</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 anticipated that MGI Properties will
transfer its assets and liabilities to a liquidating trust prior to
October 14, 2000, after which the beneficial interests in the
successor entity will be non-transferable. The termination of MGI
Properties will occur at the time all remaining assets are transferred
to a liquidating trust. With the termination of MGI Properties, the
liquidation will be completed for tax purposes, although distribution
of the remaining cash and net proceeds from future asset sales is
expected to occur subsequent to the establishment of a liquidating
trust. Although MGI believes that it has operated in a manner that
permits it to qualify as a REIT, no assurance can be given 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 the remaining assets to a liquidating trust) and 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 two quarters of 2000, the Trust
completed the sale of three retail properties totaling 615,600 square
feet, one office property totaling 81,500 square feet, and a 1.7 acre
parcel of land. The aggregate sales price of these five transactions
totaled $46.9 million before selling expenses.
As of July 14, 2000, MGI owned three properties, and is renegotiating
an agreement to sell one retail property located in Florida. The sale
agreement is subject to the customary terms and conditions for
transactions of this type, including the purchaser's satisfactory
completion of due diligence, which includes engineering and
environmental inspections, and approval of titles and surveys. This
sale is expected to close late in MGI's third fiscal quarter or in
MGI's fourth 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 $0.2
million for the three and six-month periods ended May 31, 2000,
respectively, and $2.3 million and $4.9 million for the three and
six-month periods ended May 31, 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-Ks 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 66 properties totaling 5.4 million square feet and 959 residential
apartment units, for aggregate sales prices, prior to the deduction of $9.6
million of selling expenses and closing adjustments, of $529.2 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 May 31, 2000, MGI owned three properties, which aggregated
223,000 square feet. As of July 14, 2000, MGI is renegotiating an agreement to
sell a retail property located in Florida. The sale agreement is subject to the
customary terms and conditions for transactions of this type, including, among
other things, the respective purchaser's satisfactory completion of due
diligence, which includes engineering and environmental inspections, and
approval of titles and surveys. This sale is expected to close late in MGI's
third fiscal quarter or in MGI"s fourth quarter, although there can be no
assurance that this sale will be successfully completed.
It is presently anticipated that MGI Properties will transfer its
assets and liabilities to a liquidating trust prior to October 14, 2000, after
which the beneficial interests in the successor entity will be non-transferable.
The termination of MGI Properties will occur at the time all remaining assets
are transferred to a liquidating trust. With the termination of MGI Properties,
the liquidation will be completed for tax purposes, although distribution of the
remaining cash and net proceeds from future asset sales is expected to occur
subsequent to the establishment of a liquidating trust. 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 net assets to a liquidating trust), no assurance can be given that
the Trust will not lose or terminate its status as a REIT.
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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 May 31, 2000, the Trust's real estate investments were
diversified by property type as follows:
<TABLE>
<CAPTION>
% of
Portfolio Based
Square Feet of % of on Adjusted 2000
Number of Commercial Portfolio Based Property Operating %
Properties Property on Cost Income(1) Leased
---------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Office 1 122,400 55.6% 48.0% 98.5%
Retail 1 100,500 42.4% 48.6% 94.4%
Other 1 -- 2.0% 3.4% 100.0%
- ------- --- --- -----
Total Portfolio 3 222,900 100.0% 100.0% 96.6%
= ======= ======= ===== =====
</TABLE>
(1) Adjusted property operating income is defined as the 2000 property
operating income from the three properties owned at May 31, 2000. This
amount approximated $0.9 million, or 31.5% of total 2000 property
operating income.
RESULTS OF OPERATIONS
The sale of five properties in the first six months 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 May 31, 2000 was $2.9 million, or $0.21 per share (basic), as
compared to $6.8 million, or $0.49 per share (basic), in the second quarter of
1999. Included in 2000 second quarter net income were net gains of $2.7 million
from the sale of two properties. No gains were recorded in the second 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 six months of 2000 or 1999.
Net income for the six months ended May 31, 2000 was $4.0 million,
or $0.29 per share (basic) as compared to $14.2 million, or $1.03 per share
(basic), a year ago. Income before net gain and extraordinary item was $1.2
million and $14.7 million for the six months ended May 31, 2000 and May 31,
1999, respectively. Included in the 2000 year-to-date net income were $2.8
million of net gains from the sale of five properties, liquidation-related
expenses of $0.8 million and a $0.5 million provision for loss on properties
held for sale. Included in 1999 year-to-date net income was a $0.1 million net
loss from the sale of one property, a $0.3 million loan prepayment fee,
liquidation-related expenses of $1.8 million and a $1.2 million provision for
loss on properties held for sale.
-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 $1.2 million in
2000 as compared to $14.7 million in the comparable six months of 1999. In
comparing the first six months of 2000 and 1999, the $13.4 million decrease in
income before net gains and extraordinary item is primarily attributable to the
disposition of 66 properties pursuant to the Plan. This change primarily
resulted from the $21.9 million decrease in property operating income, which is
defined as rental income less property operating expense and real estate taxes
($2.9 million in 2000 versus $24.8 million in 1999). Property operating income
totaled $2.9 million in the first six months of 2000, of which approximately
31.5%, or $0.9 million, related to the three properties owned at May 31, 2000.
The change in property operating income for these three comparable or "same
store" properties (i.e., owned for both fiscal years), was a decrease of 7.7%,
or $78,000, when 2000 is compared to 1999. This decrease is primarily
attributable to expenses associated with sales that did not close. The decrease
in income before net gains was partially due to a $4.7 million reduction in
interest expense, a $0.6 million decrease in depreciation and amortization, and
a $1.0 million increase in interest income, all of which also results from the
sale of 66 properties. Additional factors were a $0.6 million decrease in
general and administrative expense, a $0.9 million decrease in liquidation plan
expenses, and a $0.7 million decrease in provision for loss on properties held
for sale.
LIQUIDITY
Shareholders' equity at May 31, 2000 was $41.6 million, compared to
$78.8 million at November 30, 1999. The decrease primarily reflects the amount
of cash distribution offset by net income earned in the first six months of
2000. At May 31, 2000, financial liquidity was provided by $38.9 million in cash
and cash equivalents.
Cash requirements in 2000 (exclusive of liquidating distributions to
shareholders) will include 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 May 31, 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 property and other resources are sufficient to meet its liquidity
requirements while implementing the Plan.
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<PAGE>
MGI PROPERTIES
PART I, ITEM 3 -- MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
MGI is presently exposed to interest rate changes primarily as a
result of long term debt and the rate of return earned on its cash and cash
equivalent investments. MGI's only obligation for borrowed money at May 31, 2000
totaled $4.5 million, representing 8.1% 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 issues and 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 remaining 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 March 6, 2000, filed on March 17, 2000
Dated April 10, 2000, filed on April 24, 2000
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<PAGE>
- 15 -
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: July 14, 2000 /s/ Phillip C. Vitali
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Phillip C. Vitali
Executive Vice President and Treasurer
(Principal Financial and Accounting Officer)
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