-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, A8CZzN2VhBltLxmGi9tGfcPtvj7qbNZAHX/IP6HnqX7Ny/5lmLK3iLla8JJuIdts JBMVsQOlMV5lj1OkkQwznA== 0000950146-95-000048.txt : 19950518 0000950146-95-000048.hdr.sgml : 19950518 ACCESSION NUMBER: 0000950146-95-000048 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950201 FILED AS OF DATE: 19950217 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MGI PROPERTIES CENTRAL INDEX KEY: 0000068330 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046268740 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06833 FILM NUMBER: 95513677 BUSINESS ADDRESS: STREET 1: 30 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173305335 MAIL ADDRESS: STREET 1: 30 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: MORTGAGE GROWTH INVESTORS DATE OF NAME CHANGE: 19880225 FORMER COMPANY: FORMER CONFORMED NAME: EASTERN SHOPPING CENTERS INC DATE OF NAME CHANGE: 19711121 DEF 14A 1 MGI PROPERTIES FORM DEF 14A SCHEDULE 14A (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 (Amendment No. ) Filed by the registrant [X] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement [X] Definitive proxy statement [X] 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 PHILLIP C. VITALI (Name of Person(s) filing Proxy Statement) Payment of filing fee (check the appropriate box): [ ] $125 per Exchange Act Rule 0-11(c)(1)(ii) or 14a-6(i)(1), 14a-6(j)(2). [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:(1) (4) Proposed maximum aggregate value of transaction: (1) Set forth the amount on which the filing fee is calculated and state how it was determined. [X] 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: 125.00 (2) Form, schedule or registration statement no.: PRE 14A (3) Filing party: MGI Properties (4) Date filed: 1-24-95 MGI PROPERTIES 30 Rowes Wharf Boston, Massachusetts 02110 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS March 22, 1995 To the Shareholders of MGI Properties: Notice is Hereby Given that the Annual Meeting of Shareholders (the "Annual Meeting") of MGI Properties (the "Trust") will be held at the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts, on March 22, 1995 at 10:00 A.M. for the following purposes: 1. To elect three Trustees; 2. To approve an increase in the number of the Trust's authorized Preferred Shares (the "Preferred Shares") from 2,000,000 Preferred Shares to 6,000,000 Preferred Shares; and 3. To consider and act upon such other business as may properly come before the Annual Meeting. Only shareholders of record at the close of business on February 7, 1995 will be entitled to vote at the Annual Meeting. If you do not expect to attend the Annual Meeting, please sign 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 February 17, 1995 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. MGI PROPERTIES 30 Rowes Wharf Boston, Massachusetts 02110 ANNUAL MEETING OF SHAREHOLDERS March 22, 1995 PROXY STATEMENT This Proxy Statement is being mailed to the shareholders of MGI Properties (the "Trust") on or about February 17, 1995, in connection with the solicitation by the Board of Trustees of the Trust (the "Board of Trustees") of proxies for the Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts, on March 22, 1995. The meeting has been called for the following purposes: (1) to elect three Trustees; (2) to approve an increase in the number of the Trust's authorized Preferred Shares (the "Preferred Shares") from 2,000,000 Preferred Shares to 6,000,000 and (3) to consider and act upon such other business as may properly come before the Annual Meeting. PROXIES AND VOTING RIGHTS The voting securities of the Trust outstanding on February 7, 1995 consisted of 11,480,018 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 February 7, 1995 are entitled to notice of and to vote at the Annual Meeting. A majority of the outstanding Common Shares is required to be represented to constitute a quorum for the holding of the Annual Meeting. The affirmative vote of the holders of Common Shares representing not less than 66-2/3% of the total votes authorized to be cast by shares of all classes which are present in person or by proxy and entitled to vote and voting on the election of Trustees (i.e., Proposal No. 1) is required for the election of each of the nominees for Trustees (i.e., 66-2/3% of the votes cast). In the event that no nominee for a particular trusteeship receives the requisite number of votes for election to such trusteeship at the Annual Meeting, the incumbent Trustee shall remain in office until the next annual meeting and until a successor is elected and qualified. At that meeting, such nominee would stand for election for the remainder of such term, together with the nominees for the class whose term then expires. The affirmative vote of the holders of Common Shares representing not less than a majority of the total votes authorized to be cast by shares of all classes which are entitled to vote on the increase in the number of authorized Preferred Shares (i.e., Proposal No. 2) is required for the adoption of such increase. With regard to the election of Trustees, votes may be cast in favor or withheld; votes that are withheld will be excluded entirely from the vote and will have no effect. Abstentions may be specified on all proposals (except on the election of Trustees) and will be counted as present for purposes of the item on which the abstention is noted. Since the increase in the number of Preferred Shares requires the approval of a majority of the outstanding Common Shares entitled to vote, abstentions will have the effect of a negative vote. Under the rules of the New York Stock Exchange, 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 entitled to vote only on Proposal 1 and may not vote on Proposal 2 without specific instructions from such beneficial owners. 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 Annual Meeting. All proxies will be voted in accordance with the instructions specified thereon. 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, telegraph or in person, without additional compensation. Beacon Hill Partners, Inc., a proxy solicitation firm, will assist the Trust in soliciting proxies with respect to Common Shares held of record by brokers or other nominees at a cost of $3,250 plus reasonable out-of-pocket expenses. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF As of February 7, 1995, all of the current Trustees and executive officers as a group owned approximately 5.3% of the outstanding Common Shares (including Common Shares underlying presently exercisable options). See "Election of Trustees" for information on the number of Shares beneficially owned by each of the Trustees of the Trust (including the nominees for election as Trustees) and by such Trustees and executive officers as a group. Based on a Schedule 13G dated January 30, 1995, Welch & Forbes, Inc., a Massachusetts corporation with its principal place of business located at 45 School Street, Boston, Massachusetts 02108 ("Welch & Forbes"), beneficially owned 678,435 of the outstanding Common Shares, representing 5.9% thereof as of such date. Of such Common Shares, Welch & Forbes has (i) sole voting power with respect to 575,507 of such shares, (ii) shared voting power with respect to 102,928 of such shares and (iii) sole dispositive power with respect to all such shares. Except for the foregoing, there was no person who, to the knowledge of the Trust's management, owned beneficially more than five percent of the outstanding Common Shares as of February 7, 1995. PROPOSAL NO. 1 ELECTION OF TRUSTEES The Board of Trustees is divided into three classes. Each class is elected by the shareholders. Unless authority is specifically withheld, proxies will be voted for the election of the nominees named below to serve as Trustees for the term indicated herein and until their successors are elected and qualified. The three nominee-Trustees have consented to serve if elected; however, should any nominee not be a candidate at the time of the Annual Meeting (a situation which is not now anticipated), proxies may be voted in favor of the remaining nominees and may also be voted for a substitute nominee. The following table contains certain information regarding the Trustees, including nominees for election as Trustees:
Name, Age, Principal Occupation Common Shares for the past five years and Beneficially Current Public Directorships Trustee Owned on Percent or Trusteeships Since February 7, 1995 of Class Trustee-Nominees To be elected for a term of three years expiring on the date of the annual meeting in 1998: W. Pearce Coues (54) 1982 258,835 2.2%(1) Chairman of the Board of Trustees and Chief Executive Officer of the Trust 2 Name, Age, Principal Occupation Common Shares for the past five years and Beneficially Current Public Directorships Trustee Owned on Percent or Trusteeships Since February 7, 1995 of Class Herbert D. Conant (70) 1988 20,500 (2)(3) Retired Chairman of the Board and Chief Executive Officer, The Turner Corporation, from 1985 through February 1989. George S. Bissell (65) -- -- -- Chairman of the Board and previously Chief Executive Officer, Keystone Group, Inc. Trustees Continuing in Office To continue in office for a term of two years expiring on the date of the annual meeting in 1997: Rodger P. Nordblom (67) 1984 21,000 (2)(4) Chairman of the Board and previously President, Nordblom Company (a real estate development and management firm) for more than five years. Colin C. Hampton (72) 1984 26,000 (2)(4) Retired Chairman of the Board and Chief Executive Officer, UNUM Corporation. To continue in office for a term of one year expiring on the date of the annual meeting in 1996: Francis P. Gunning (71) 1971 21,000 (2)(4) Retired Executive Vice President and General Counsel, Teachers Insurance And Annuity Association of America and College Retirement Equities Fund (insurance and annuity business). George M. Lovejoy, Jr. (64) 1993 20,300 (2)(4) President, Fifty Associates (a real estate investment trust) and Chairman Emeritus, Meredith & Grew, Inc. (a full service real estate firm); currently Trustee of the following mutual funds: Scudder Cash Investment Trust; Scudder GNMA Fund; Scudder Growth & Income Fund; Scudder Quality Growth Fund; Scudder Income Fund; Scudder Balanced Fund; Scudder Managed Municipal Bonds; Scudder High Yield Tax Free Fund and Scudder Tax Free Money Fund; Director, Latin American Dollar Income Fund. (1) Includes 199,000 presently exercisable options and excludes 25,000 options not presently exercisable to purchase an aggregate of 224,000 Common Shares granted pursuant to the 1988 Employee Plan, the 1982 Incentive Plan, the 1982 Trustees' Plan, the 1988 Trustees' Plan and the 1994 Employee Plan. Also includes 207 Common Shares owned by Mr. Coues' wife, as to which Mr. Coues disclaims beneficial ownership. (2) Less than 1% of the outstanding Common Shares. (3) Includes presently exercisable options to purchase 18,000 Common Shares granted pursuant to the 1982 Trustees' Plan and the 1988 Trustees' Plan. (4) Includes presently exercisable options to purchase 20,000 Common Shares granted pursuant to the 1982 Trustees' Plan and the 1988 Trustees' Plan.
3 All of the current Trustees and executive officers as a group (9 persons) owned, or held presently exercisable options to acquire, an aggregate of 632,475 Common Shares, approximately 5.3% of the outstanding Common Shares (112,543 Common Shares outstanding plus 519,932 Common Shares subject to such options) as of February 7, 1995. Except as specified above, each of the aforementioned Trustees has voting and investment power (directly or indirectly) with respect to the outstanding Common Shares indicated. In addition, such executive officers hold options not presently exercisable to acquire an aggregate of 26,000 Common Shares. The Board of Trustees held four meetings during the year ended November 30, 1994. In addition, there is one Committee of the Board of Trustees, the Administrative-Audit Committee which, in addition to fulfilling the functions of an audit committee, has supervisory responsibility for personnel, Trustee nominations, compensation, including stock options, and Trust administration. The Administrative-Audit Committee, which is comprised of Messrs. Gunning, who acts as Chairman, Conant and Hampton, met 3 times during the year ended November 30, 1994. The Administrative-Audit Committee may also make recommendations to the Board of Trustees and does not have the power to bind the Trust, except that such Committee is empowered to function as the Compensation and Stock Option Committee in administering all of the Trust's stock option plans and in fixing the compensation of executive officers. The Trust's policy effective December 1, 1994, is to pay each Trustee other than Mr. Coues (i) a $12,000 annual fee and (ii) $1,000 per Board of Trustees or committee meeting attended; provided, however, that the Trustees receive $500 for each committee meeting attended on the same day a Board meeting is held. Trustees have been provided with the option to receive their $12,000 annual retainer, or a portion thereof, in advance for the sole purpose of making open market purchases of Common Shares as legally permissible. The following table contains certain information regarding additional executive officers of the Trust:
Executive Officer's Name Age Principal Occupation Robert Ware 56 Executive Vice President since December 1989; Senior Vice President from April 1986 to December 1989 Phillip C. Vitali 44 Executive Vice President since December 1989; Senior Vice President from January 1987 to December 1989; Treasurer and Chief Financial Officer since March 1986. Karl W. Weller 37 Senior Vice President from March 1993 to present: for more than five years prior thereto, Vice President, Aetna Life & Casualty Company and Managing Director, real estate investment group.
4 EXECUTIVE COMPENSATION The following table provides information regarding compensation (including option/SAR grants) of executive officers of the Trust for the fiscal year ended November 30, 1994. SUMMARY COMPENSATION TABLE(1)
Long-Term Compensation Annual Compensation Awards All Other Name and Principal Position Year Salary Bonus(2) Options(3) Compensation(4) W. Pearce Coues 1994 $261,414 $68,125 35,000 $60,137 Chairman of the Board and Chief 1993 $249,084 $80,250 -- $56,986 Executive Officer 1992 $245,952 $33,375 25,000 $56,986 Phillip C. Vitali 1994 $154,269 $21,800 8,000 $24,872 Executive Vice President; 1993 $145,950 $29,425 -- $21,656 Treasurer and Chief Financial 1992 $144,529 $19,861 12,000 $21,252 Officer Robert Ware 1994 $147,188 $21,800 8,000 $39,994 Executive Vice President 1993 $139,874 $29,425 -- $28,428 1992 $137,695 $25,500 12,000 $27,292 Karl W. Weller(5) 1994 $141,794 $20,438 6,000 $21,300 Senior Vice President 1993 $102,363 $24,075 12,000 $ 8,567 (1) This Table covers all executive officers receiving compensation of at least $100,000. The Table does not include columns for Other Annual Compensation, Restricted Stock Awards and Long Term Incentive Plan Payouts as there was no information to report with respect to these columns. (2) All of these bonuses were paid in the form of Common Shares (except for a portion of Mr. Vitali's 1993 and 1992 bonuses). (3) Options awarded under the Trust's 1988 Stock Option and Stock Appreciation Rights Plan for Key Employees may include a tandem grant of stock appreciation rights ("SARs"). An SAR is exercisable at any time the Option to which it relates can be exercised, but only upon a showing of "hardship" by the optionee and upon consent of the Board's Compensation and Stock Option Committee. In addition, an SAR may be exercised only if prior to the exercise, the Optionee has exercised or exercises an equivalent number of options granted pursuant to the plan. A Hostile Change in Control, as defined, abrogates the hardship requirement and the prior or simultaneous option exercise requirement. SARs terminate when the related option is exercised. Mr. Coues was granted in tandem with stock options, 1,500 SARs in 1994 and 1,826 SARs in 1992. Messrs. Vitali and Ware were each granted in tandem with stock options, 4,000 SARs in 1994 and 2,825 SARs in 1992. Mr. Weller was granted in tandem with stock options, 3,000 SARs in 1994 and 6,000 SARs in 1993. (4) All Other Compensation is comprised of contributions to the respective Simplified Employees Pension Plan (SEPP) of each individual and amounts accrued by or payments made by the Trust to the accounts of participants in the Trust's Supplemental Retirement Plan (SERP). The SEPP contribution for Mr. Coues was $25,137 in 1994 and $30,000 in each of 1993 and 1992. The SERP contribution was $35,000, $26,986 and $26,986 in 1994, 1993 and 1992, respectively. All amounts listed for Mr. Vitali are SEPP contributions. The SEPP contributions for Mr. Ware were $24,994, $21,472 and $20,336 in 1994, 1993 and 1992, respectively. The SERP contribution for Mr. Ware was $15,000 in 1994 and $6,956 in each of 1993 and 1992. All amounts listed for Mr. Weller are SERP contributions. (5) Mr. Weller's employment commenced on March 1, 1993 and he was appointed an executive officer in December 1993.
5 OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants For Option Term(1) % of Total Options/SARs Granted to Exercise Options Employees in Price Expiration Name Granted(2) Fiscal Year Per Share Date 5% 10% W. Pearce Coues 35,000 57.4% $13.50 12/14/03 $297,500 $752,500 Phillip C. Vitali 8,000 13.1% $13.50 12/14/03 $ 68,000 $172,000 Robert Ware 8,000 13.1% $13.50 12/14/03 $ 68,000 $172,000 Karl W. Weller 6,000 10.2% $13.50 12/14/03 $ 51,000 $129,000
(1) Options will have no actual value unless, and then only to the extent that, the stock price of the Common Shares appreciates from the grant date to the exercise date. (2) Options awarded under the Trust's 1994 and 1988 Stock Option and Stock Appreciation Rights Plan for Key Employees may include a tandem grant of SARs. An SAR is exercisable at any time the option to which it relates can be exercised, but only upon a showing of "hardship" by the Optionee and upon consent of the Board's Compensation Committee. In addition, an SAR may be exercised only if prior to the exercise, the Optionee has exercised or exercises an equivalent number of options granted pursuant to such plan. SARs granted in tandem with 1994 stock option awards were 1,500 to Mr. Coues, 4,000 each to Messrs. Vitali and Ware and 3,000 to Mr. Weller (representing 10.3%, 27.6%, 27.6% and 20.7% of the SARs granted in fiscal 1994). AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised Common Shares Unexercised Options/SARs In-the-Money Acquired On At Fiscal Year- Options/SARs At Name Exercise Value Realized($) End(1)(2) Fiscal Year-End(1) W. Pearce Coues -- -- 174,000 $276,057 Phillip C. Vitali -- -- 89,432 $175,611 Robert Ware -- -- 89,500 $165,562 Karl W. Weller -- -- 18,000 $ 3,000
(1) All options are presently exercisable. (2) Outstanding SARs, all of which were granted in tandem with stock options, aggregated at fiscal year-end 39,598 for Mr. Coues, 34,313 for Mr. Vitali, 34,347 for Mr. Ware and 9,000 for Mr. Weller. 6 STOCK PERFORMANCE GRAPH The following graph compares the five-year cumulative total return on the Trust's Common Shares to the total returns in the Standard and Poor's 500 Stock Index and the National Association of Real Estate Investment Trusts ("NAREIT") Total Return Indices for Equity REITS. (Tabular representation of Line Graph) MGI S & P 500 NARIET-EQUITY 1989 1000.0 1000.0 1000.0 1990 628.2 964.7 847.3 1991 947.0 1161.2 1069.8 1992 1151.0 1375.1 1290.3 1993 1443.6 1513.7 1574.4 1994 1557.7 1530.0 1511.3 7 REPORT OF ADMINISTRATIVE-AUDIT COMMITTEE ON EXECUTIVE COMPENSATION The Administrative-Audit Committee (the "Committee"), which serves as the Trust's Compensation and Stock Option Committee, is composed entirely of independent, non-management Trustees. The Committee is responsible for adopting, implementing and administering the policies which govern annual compensation and short-term and long-term incentive programs, including stock option plans. The Committee annually evaluates the Trust's operating performance and financial position, annual salary and incentive compensation and stock option matters and compares the Trust's overall performance within its own industry and with real estate companies in general. The Committee meets without the Chief Executive Officer present for the purpose of evaluating his performance and reports their deliberations and determinations to all of the independent Trustees of the Board. The Committee receives recommendations made by the Chief Executive Officer with respect to the remaining executive officers and the Committee reviews these recommendations in light of the factors set forth below. The Committee's actions (with respect to executive compensation matters) are generally reported to and ratified by the full Board of Trustees (absent the Chief Executive Officer who is the sole non-independent Trustee). In establishing fiscal 1994 compensation levels for executive officers, including the Chief Executive Officer, the Committee considered several factors. These factors involved both internal and external measurements and comparisons bearing upon the overall operating performance and financial position of the Trust and the successful investment of the proceeds of a 1993 equity offering. The performance measures reviewed by the Committee were actual funds from operations as compared to budget, management's leasing success relative to market occupancy levels and market rents and relative to the magnitude of scheduled maturities, and property net operating income versus budget and prior year levels. The Committee also considers the management of the liability side of the Trust's balance sheet, including the flexibility attained with respect to available financial resources and the maintenance of the overall quality levels of tenants and properties. From time to time, the Committee also considers the advice of an outside compensation consultant with respect to comparable REIT and non-REIT organizations and with respect to executive compensation matters generally. In setting fiscal 1994 salaries, the Committee also considered the most recent executive compensation survey by the National Association of Real Estate Investment Trusts. The Trust has not established a policy with regard to Section 162(m) of the Internal Revenue Code of 1986, as amended, since the Trust has not and does not currently anticipate paying compensation in excess of $1 million per annum to any employee. The Committee determined to make annual share bonus awards to the executive officers with respect to fiscal 1994 premised upon performance factors which they believed would serve the short-term and long-term interests of shareholders. Eligible recipients were determined to be the four executive officers of the Trust and two other officers. In December 1993, the Committee voted to continue a discretionary guideline (based in part upon recommendations of an outside compensation consultant) providing criteria for the award of short-term incentive share bonuses to these officers. The Committee set two measurement categories, shareholders' Total Return (i.e., increase in stock price plus dividends) and Funds from Operations, as the determinants for this annual stock bonus, of which up to 30% can be taken in cash by a recipient. Funds from Operations was given 75% weight, and the Total Return element was given 25% weight. "Minimum," "Budget," "Target" and "Stretch" thresholds for each measurement category were established. Based upon the Trust's fiscal 1994 operating results and stock price performance, short-term share bonuses were awarded in December 1994. The 1994 bonuses reflected 1994 results attaining the "stretch" threshold with 8 respect to Funds from Operations and attaining the "Minimum" threshold in respect of Total Return and resulted in stock awards of approximately 22.5% of 1994 salary in the case of the Chief Executive Officer and approximately 15% of salary to the remaining executive officers. See "Summary Compensation Table." In the exercise of its discretion as permitted under the guidelines and taking into consideration the fact that the Chief Executive Officer requested that his base compensation not be increased in fiscal 1995, the 1994 share bonus awarded to the Chief Executive Officer was increased to approximately 26% of his 1994 salary. Stock options were granted by the Committee in December 1994 to all executive officers under the Trust's 1994 Employee Plan in furtherance of the Committee's practice and policy of making stock option awards as a means of reinforcing management's identity of interest with shareholders and creating long-term incentives for growing Trust asset value. The executives referred to in the Summary Compensation Table received such options as follows: W. Pearce Coues, 50,000; Robert Ware, 18,000; Phillip C. Vitali, 18,000 and Karl Weller, 16,000. All of the stock options granted in December 1994 vest as to one-half immediately and the balance upon the first anniversary thereof in December 1995. In December 1993, the Committee also determined, based upon the advice of its actuarial consultant (KPMG Peat Marwick LLP), the amount of its SEPP and SERP contributions with respect to the 1994 plan year. In the case of the SERP, for the plan year 1994, such amounts were fixed at $35,000 for Mr. Coues and $15,000 for Mr. Ware. Mr. Weller was a participant in the SERP in fiscal 1994 and fiscal 1993, and a contribution of 15% of his salary in 1994 and 7.5% of his salary in 1993 was made by the Trust to the SERP for Mr. Weller's benefit. Francis P. Gunning, Chairman Herbert D. Conant Colin C. Hampton Stock Option Plans As of February 7, 1995, executive officers and Trustees as a group (9 persons) held presently exercisable options to purchase a total of 519,932 Common Shares under all of the Trust's stock option plans at exercise prices ranging from $7.375 to $14.25 per Common Share. In addition, the members of such group hold options not presently exercisable to acquire an aggregate of 51,000 Common Shares. Of all outstanding options, 62,416 were granted pursuant to the 1982 Incentive Plan, 228,844 pursuant to the 1988 Employee Plan, 56,672 under the 1994 Employee Plan, 52,284 pursuant to the 1982 Trustees' Plan and 119,716 pursuant to the 1988 Trustees' Plan. Severance Compensation Plan Effective June 11, 1987, and as amended on December 19, 1989, the Board of Trustees adopted a severance compensation plan for officers in the event of a "hostile takeover," which includes the following events, if not approved by two-thirds of the members of the Board of Trustees in office immediately prior to the occurrence of any such event: the election as Trustee(s) in any year of one or more persons not nominated by at least two-thirds of the Board of Trustees in office prior to such election; a business combination such as a merger; the acquisition of 15% or more of the voting power of the Trust's securities by any person or entity; or the failure of the Trust to qualify as a "REIT" for tax purposes by reason of more than 50% in value of the Shares outstanding being held by five or fewer individuals. All full time officers who have completed a minimum of thirty-six months of continuous employment with the Trust are eligible under the plan. An eligible officer is entitled to severance benefits if (i) such individual terminates his or her employment within two years after a hostile takeover for reasons such as a reduction in compensation, discontinuance of employee benefit plans, change in duties or status and certain changes in job location or (ii) if the individual is terminated for reasons other than "just cause" as defined in the plan. The severance payment is equal to three months compensation for each twelve months of employment based on the highest total annual 9 compensation rate earned prior to the Hostile Change in Control (up to a maximum of 24 months of compensation payable at such rate, but 36 months in the case of Messrs. Coues, Ware and Vitali). Fringe benefits are also continued for the number of months for which compensation is paid. PROPOSAL NO. 2 INCREASE IN AUTHORIZED PREFERRED STOCK The Board of Trustees has declared advisable and directed that there by submitted to the shareholders of the Trust at the Annual Meeting a proposed amendment to Article VI, Section 6.1 of the Trust's Declaration of Trust (the "Declaration of Trust") which would effect an increase in the number of authorized Preferred Shares from 2,000,000 shares to 6,000,000. As of the close of business on February 7, 1995, there were no Preferred Shares issued or outstanding, albeit 150,000 Series A Participating Preferred Shares were reserved for issuance under the Trust's Shareholder Rights Plan. If approved, the increased number of authorized Preferred Shares will be available for issuance from time to time for such purposes and consideration as the Board of Trustees may approve and no further vote of shareholders of the Trust will be required, except as provided under Massachusetts law or the rules of any national securities exchange on which Common Shares are at the time listed. The availability of additional Preferred Shares for issuance, without the delay and expense of obtaining the approval of shareholders at a special meeting, will afford the Trust greater financial flexibility than it currently has. The additional Preferred Shares for which authorization is sought would be of the same class of Preferred Shares currently authorized, and would be undesignated as to series. Under the Declaration of Trust, the Board of Trustees is authorized to designate the terms of any new series of Preferred Shares, including dividend rates, voting rights, redemption prices and conversions or other special rights, if any, without further action by shareholders of the Trust. The creation of additional Preferred Shares will increase the Trust's financial flexibility. The Board of Trustees believes that the complexity of modern business financing and acquisition transactions requires greater flexibility in the Trust's capital structure than now exists. Additional Preferred Shares will be available for issuance from time to time as determined by the Board of Trustees for any proper corporate purpose. Such purposes could include, without limitation, issuance in public or private sales for cash as a means of obtaining capital for use in the Trust's business and operations, issuance as part or all of the consideration required to be paid by the Trust for acquisitions of other businesses or properties, and issuance under employee benefit plans. The Trust does not presently have any plans, agreements, understandings or arrangements that will or could result in the issuance of any Preferred Shares. It is not possible to state the actual effect of the authorization of additional Preferred Shares upon the rights of holders of Common Shares until the Board of Trustees determines the respective rights of the holders of one or more series of Preferred Shares. The effects of such issuance could include, however: (i) reduction of the amount otherwise available for payments of dividends on Common Shares if dividends are payable on the Preferred Shares, (ii) restrictions on dividends on Common Shares if dividends on the Preferred Shares are in arrears, (iii) dilution of the voting power of Common Shares if the Preferred Shares have voting rights and (iv) restrictions on the rights of holders of Common Shares to share in the Trust's assets upon liquidation until satisfaction of any liquidation preference granted to the holders of Preferred Shares. The creation of additional Preferred Shares could further discourage an attempt by a person to acquire control of the Trust by a tender offer or other means. It could therefore deprive shareholders of benefits that could result 10 from such an attempt, such as the realization of a premium over the market price of their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of voting Preferred Shares to persons friendly to the Board of Trustees could make it more difficult to remove incumbent management and Trustees from office even if such change would be favorable to shareholders generally. Pursuant to Article 13.1 of the Declaration of Trust, the affirmative vote of the holders of a majority of the outstanding Common Shares entitled to vote at the Annual Meeting is required to authorize the proposed increase in the authorized number of Preferred Shares. If the amendment is authorized, the text of Article VI, Section 6.1 of the Declaration of Trust (which will remain unchanged other than changing from 2,000,000 to 6,000,000 the number of Preferred Shares which the Trust shall have authority to issue) will be as follows: "Section 6.1. Description of Shares. The interest of the Shareholders hereunder shall be divided into shares of beneficial interest which shall be known collectively as "Shares," all of which shall be fully paid and no assessment shall ever be made upon Shareholders. There shall be two classes of Shares; one such class shall be known as "Common Shares," $1 par value, and the other shall be known as "Preferred Shares," $1 par value. The number of Common Shares which the Trust shall have authority to issue is 17,500,000, and the number of Preferred Shares which the Trust shall have authority to issue is 6,000,000." The Board of Trustees recommends that shareholders vote FOR the proposed increase in authorized Preferred Shares. INDEPENDENT AUDITORS It is expected that the accounting firm of KPMG Peat Marwick LLP will again be selected as the independent auditors for the Trust for the current fiscal year ending November 30, 1995. A representative of that firm, which served as the Trust's independent auditors for the fiscal year ended November 30, 1994, is expected to be present at the Annual 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. SHAREHOLDER PROPOSALS To the extent required by law, for a shareholder proposal to be included in the proxy statement for next year's annual shareholders' meeting, it must be received at the Trust's principal executive offices prior to October 23, 1995. 11 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 Annual Meeting, but it is intended that the proxies will be voted upon any other matters and proposals that may legally come before the Annual Meeting or any adjournment thereof, in accordance with the discretion of the persons named therein. The Annual Report for the fiscal year ended November 30, 1994 is being mailed herewith. If, for any reason, you did not receive your copy of the report, please advise the Trust and another will be sent to you. By Order of the Trustees, W. Pearce Coues Chairman of the Board Dated: Boston, Massachusetts February 17, 1995 The Trust will furnish, without charge, a copy of its Annual Report on Form 10-K for the fiscal year ended November 30, 1994 (as filed with the Securities and Exchange Commission) to shareholders as of February 7, 1995 who make written request therefor to Ms. Jean M. Harrington, Vice President, MGI Properties, 30 Rowes Wharf, Boston, Massachusetts 02110. 12 MGI PROPERTIES Proxy solicited on behalf of the Board of Trustees for Annual Meeting on March 22, 1995 The undersigned hereby appoints W. PEARCE COUES and PHILLIP C. VITALI, and each of them with power in each to vote in the absence of the other, as the Proxy Agents of the undersigned, with full power of substitution and with all the powers the undersigned would possess if personally present to vote all the Common Shares of the undersigned in MGI PROPERTIES at the Annual Meeting of the Shareholders scheduled to be held on March 22, 1995 and at all adjournments thereof. CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE [X] Please mark votes as in this example 1. Election of three Trustees as recommended in Management's Proxy Statement: Nominees: W. Pearce Coues, Herbert D. Conant and George S. Bissell FOR [ ] WITHHELD [ ] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ] TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), PRINT NAME(S) ABOVE 2. Approval of a proposed amendment to Article VI, Section 6.1 of the Trust's Declaration of Trust as recommended in Management's Proxy Statement. FOR [ ] AGAINST [ ] ABSTAIN [ ] 3. In their discretion, upon such other business as may properly come before the meeting. Proxies will be voted for the election of Trustees and the approval of the proposed amendment to the Trust's Declaration of Trust as recommended in the Proxy Statement unless contrary instructions are hereinabove indicated. Discretionary authority is granted the Proxy Agents as to other matters that may come before the meeting. Management knows of no such other matters. Receipt of the MGI PROPERTIES Proxy Statement is hereby acknowledged. All proxies heretofore signed by the undersigned are hereby revoked. Please insert date and sign exactly as name(s) appear herein. When signing as attorney, custodian, administrator, executor or guardian, please give full title as such. Corporations are requested to sign their names by their Position or other authorized officer. All joint owners should sign. Signature: Date Signature: Date EX-13 2 MGI PROPERTIES 1994 ANNUAL REPORT (Cover) MGI Properties 1994 Annual Report (Photo of building at dusk) (Inside Front Cover)
FINANCIAL HIGHLIGHTS Year Ended November 30, 1994 1993 1992 Total income $ 43,880,000 $ 36,898,000* $ 30,589,000 Net gains $ 4,480,000 - $ 1,644,000 Net income $ 14,491,000 $ 7,957,000* $ 7,248,000 Net income per share $ 1.26 $ .75* $ .77 Book value per share $15.36 $14.96 $15.48 Real estate investments, at cost $267,530,000 $258,663,000 $209,905,000 Cash and investment securities $ 13,521,000 $ 12,653,000 $ 17,748,000 Total assets $256,035,000 $246,700,000 $214,161,000 Mortgage and other loans payable $ 70,954,000 $ 66,949,000 $ 60,571,000 Shareholders' equity $176,095,000 $171,039,000 $145,748,000 Shares outstanding 11,465,842 11,433,721 9,414,992 * Includes a $1.0 million, or $.10 per share, fee received in connection with a lease assignment and amendment.
FUNDS FROM OPERATIONS 1994 1993 1992 Net income $14,491,000 $ 7,957,000* $ 7,248,000 Less net gains 4,480,000 -- 1,644,000 Plus depreciation and amortization 7,654,000 6,987,000 5,996,000 Plus equity method partnership loss -- 45,000 90,000 $17,665,000 $14,989,000 $11,690,000 Per share $ 1.54 $ 1.42* $ 1.24 * Includes a $1.0 million, or $.10 per share, fee received in connection with a lease assignment and amendment.
1994 LEASING 1994 Vacancy at 1995 Expirations Total Beginning 1994 Potential November 30, 1994 Total 1996 Sq. Ft. Vacancy*Expirations* Vacancy Leased Sq. Ft. Percent Scheduled Preleased Remaining Expirations Industrial 2,411,100 63,900 213,600 277,500 196,700 80,800 3.4% 411,000 91,800 319,200 369,000 Retail 700,200 21,000 51,400 72,400 58,100 14,300 2.0% 39,000 - 39,000 69,800 Office 767,300 57,000 139,800 196,800 113,300 83,500 10.9% 144,800 69,900 74,900 84,400 3,878,600 141,900 404,800 546,700 368,100 178,600 4.6% 594,800 161,700 433,100 523,200 * Beginning vacancy and expirations adjusted to reflect vacancies of properties acquired and sold during 1994.
MGI Properties Annual Report (Photo with caption: W. Pearce Coues, Chairman of the Board of Trustees) Letter To Shareholders We completed 1994 and entered 1995 with exceptionally strong fundamentals. Our portfolio produced a solid 10.9% yield in fiscal 1994 and equity values have been materially strengthened by the twenty-three property investments made over the past two and one-half years at a total cost of $81,429,000. Most of these properties were acquired in Massachusetts at or near the depth of the region's real estate market decline. They were purchased from institutional sellers at major discounts of up to 50% from prices prevailing approximately five years ago. They are 98% occupied and generating an average yield of 12.7%. We believe these assets provide significant upside potential based on their low acquisition prices and current rents. MGI is poised to capitalize on additional investment opportunities in the market through our understanding of how to create value and our experience and judgment in making investments that meet our criteria for strong earnings and growth. Over the past four years, MGI has recorded a total return for shareholders of 134%. In calendar 1994, the Trust's total return was 9.1%, well below what we consider acceptable, but is significantly better than the 3.2% for other equity real estate investment trusts (REITs) or the 1.3% of Standard and Poor's 500 index. Total return measures dividends paid and stock price appreciation. It is a generally accepted method for measuring rewards and benefits as shareholders, although stock prices may often lag performance. During 1994, stock market valuations for real estate trusts became particularly stringent. As a result, MGI's significant earnings growth and value creation appear to have been overshadowed by the broadly based discounted stock market valuations. The stock prices of most seasoned REITs were driven to material discounts in 1994 by a flood of newly formed REITs. These declines were further exacerbated by rapidly rising interest rates. As a consequence, MGI closed the year at $14.00 per share, well below our $15.36 historic book basis, which we believe understates the inherent value of our portfolio. MGI has ample capital available to make selective investments in 1995. The Trust also effectively demonstrated its ability to sell property into the strength of a recovering market. This strategy generates not only gains but also reinvestable funds which further enhance the value-creation process. Our 1995 objective is to continue our long-range business plan to build earnings and grow the dividend as earnings accelerate. In this way, we expect to continue building an increasingly impressive real estate portfolio. Although there is pressure among publicly-traded REITs to focus near-term and to pay out nearly 100% of cash flow as dividends, many trusts that have embarked on this focus are showing signs of weakness. Like a long-distance runner, the trophies will belong MGI Properties 1 Annual Report Letter To Shareholders (charts) Rental Income by Property Segment Apartment ---------------------------------------------- 31% Industrial ------------------------------------------- 29% Office --------------------------------------- 26% Retail ----------------------- 14% Portfolio Distribution by Property Type Apartment --------------------------------------------- 27% Industrial --------------------------------------------- 27% Office ----------------------------------------- 24% Retail -------------------------------------- 22% to those that take the long-term perspective, balancing income and dividend growth with capital appreciation, which underlies ultimate value. Earnings Funds from operations in 1994 showed a continued positive upward momentum, rising to $17,665,000 from $14,989,000 in 1993 and $11,690,000 in 1992. On a per-share basis, funds from operations were $1.54 in 1994 versus $1.42 in 1993 (including a non-recurring lease cancellation fee of $.10 per share) and $1.24 per share in 1992. This momentum in funds from operations should be viewed within the context of an evolving improvement in the quality and growth potential of the portfolio. Gain recognition added an additional $4,480,000 to net income in 1994, equal to $.39 per share, reflecting the sale of seven industrial buildings in Minneapolis, Minnesota, an industrial building in St. Louis, Missouri and an apartment complex in Memphis, Tennessee. We sold these non-core properties at what we perceived to be full prices and on yields to the purchasers that averaged just over 9%. The sale proceeds have been primarily reinvested in Massachusetts properties through tax-deferred exchanges. In the aggregate, the new assets are producing higher yields to the Trust and are expected to provide an even greater potential for growth in value. MGI has periodically sold mature properties for gain and the success of this strategy should provide shareholders with additional insight and confidence as to the appreciation process underway within the portfolio. Net income in 1994, after depreciation charges and inclusive of gains, was $14,491,000, or $1.26 per share, compared to $7,957,000, or $.75 per share in 1993. Net income in 1994 included the previously discussed gains of $4,480,000, or $.39 per share. The 1994 gains do not reflect an additional gain of approximately $1,400,000, which will be recognized in the first quarter of 1995 from the sale of an industrial building in Nashville, Tennessee. This purchase and sale is indicative of the opportunities within our business. We acquired the Nashville property two and one-half years ago from the mortgagee for $3,431,000, which we perceived as an advantageous price. Most investors at the time were aggressively pursuing residential properties. Given the aggressive residential pricing, MGI believed that then out-of-favor industrial investments would provide higher yields and an improved likelihood of capital appreciation. Our $1,400,000 gain, which computes to a 40% profit, plus the 12% annual cash flow yield on this investment, equaled a 28% average annual return during our holding period. Our overall return suggests that prudent diversification is not a liability but an asset. Acquisitions During 1994, we acquired $31,786,000 worth of real estate and sold properties for an aggregate price of $25,200,000. Our investment of $31,786,000 covers eight different properties, each representing a strategic opportunity to add income and value to the Trust. Entrance yields on the $31,786,000 are anticipated to average 11.5% by mid-1995, more than 200-basis points higher than the yield at which the properties were sold. Of the $31,786,000 in acquisitions, $27,643,000 are properties located in Massachusetts; the remaining $4,143,000 was invested in St. Louis, Missouri, where we have six other properties. These acquisitions and the underlying strategy are discussed more fully beginning on page 5 of this Report. Aside from the improved 11.5% yield, these new assets are expected to provide significantly greater opportunity for value growth than the assets that were sold for $25,200,000. MGI Properties 2 Annual Report Letter To Shareholders (charts) Portfolio Distribution by Location Northeast -------------------------------- 33% Mid-West -------------------------------- 33% Southeast --------------------------- 25% Mid-Atlantic ------- 9% Capital Expenditures 1994 -------- $1,051,000 ---------------- $2,157,000 1993 ------- $984,000 ------------ $1,688,000 1992 ------ $934,000 ------------ $1,528,000 -- Tenant Improvements -- Capital Improvements Acquisitions have been concentrated in the price range of $2,000,000 to $10,000,000 per property. This sector of the market provides an all-cash buyer, such as MGI, with what we perceive to be a competitive advantage. Larger investors, such as pension funds, tend to focus on properties over $10,000,000, while investors below $10,000,000 traditionally require cumbersome mortgage debt, which restricts their ability to move as quickly as MGI. Our range of $2,000,000 to $10,000,000 also broadens our holdings, allowing us to spread risk and opportunity. This size also enables us to more readily liquify certain assets for cash when we perceive that an asset is approaching a pricing ceiling. Recent investments have provided longer-term leases, with durations running from three to twenty years, thus adding significant stability to our income stream. In several cases, we have taken partially occupied buildings and signed tenants prior to closing, with immediate improvement in yields and value. Typically, leases either have built-in escalations or are at levels that should afford improvement on renewal or releasing. Portfolio/Leasing During 1994, we leased or renewed approximately 529,800 square feet of non-residential space, including 161,700 square feet of space maturing in 1995. The effect of this leasing is that MGI entered 1995 with the portfolio approximately 96% leased, the same impressive level as a year ago. The 96% was comprised of 95.4% for non-residential property and 96.7% for residential space. Scheduled lease maturities in 1995 consist of approximately 433,000 square feet and represent a manageable 11% of the portfolio, roughly equal to lease expirations of 1994. Leases signed for non-residential space in 1994 on balance reflect modestly increased rents over those rent levels previously charged, which is indicative of the emerging recovery taking place in our markets. To achieve this leasing, the Trust expended $1,051,000 on tenant improvements to accommodate incoming or renewing tenants. The comparable amount in 1993 was $984,000. General capital expenditures in 1994 for non-residential properties involved an additional expenditure of $724,000, versus $1,157,000 in 1993. At our residential properties, capital expenditures were $1,433,000 in 1994 compared to $531,000 in 1993, with the majority of the increase due to significant improvement projects at two of our apartment complexes. These combined expenditures are funded out of cash flows and are essential to maintaining the opportunity for continued income growth. During 1995, budgeted expenditures for capital and tenant improvements are expected to exceed those of 1994, reflecting a larger portfolio and several major office leases. As noted, the Trust's portfolio produced a 10.9% yield in 1994, exclusive of gains and depreciation expense. This amount is an 8% increase over the 10.1% earned in 1993. Analyzing the 10.9% by component, industrial properties produced a strong 14.1%, office buildings earned 10.0%, retail was 8.5%, with residential earning 11.3%. All yields are calculated on a depreciated cost basis. Dividends and Dividend Reinvestment and Share Purchase Plan MGI has one of the strongest dividend coverages in the industry, distributing in 1994 56% of its $1.54 funds from operations. The dividend has been increased twice since August 1993; now, at $.88 per year, it is 10% higher than eighteen months ago. As the REIT industry grows, there will continue to be an on-going dialogue concerning proper dividend pay-out levels. For each company, the appropriate level will vary by property type within its portfolio and according to its investment horizons. REITs seeking little long-term capital appreciation will tend to pay out aggressive dividends, while growth-oriented entities will MGI Properties 3 Annual Report Letter To Shareholders seek to balance dividend growth with the longer-term objective of building quality asset value and maximizing shareholder value. MGI's shareholders should anticipate future dividend growth, as earnings and values build. During 1994, out of funds from operations, the Trust was able to self-fund $.19 of capital improvements and $.09 of tenant improvements. An additional $.13 was directed to recurring amortization of debt and $.19 was reinvested in new acquisitions. These expenditures are preserving and enhancing property values and shareholders' equity. Trusts paying out maximum dividend levels are often forced to buy seemingly higher-yielding property, which often appreciates at a much lower rate than well-maintained, quality real estate. In the fourth quarter of 1994, MGI instituted a Dividend Reinvestment and Share Purchase Plan, whereby shareholders can reinvest their dividends in MGI shares, while also strengthening shareholders' equity. We have been encouraged by the initial participation levels of those shareholders who are using the Plan as an additional means of participating in MGI's growth. For shareholders who wish to join the Plan at this time, we have enclosed a participation form for completion and mailing to our Dividend Reinvestment Agent, the Bank of Boston. Outlook MGI has been operating as a REIT since 1971. We are one of only approximately twenty publicly-traded REITs that has operated through the major cycles of the last twenty-three years. Having taken the long-term perspective, MGI has emerged from each cycle stronger, with ever-increasing potential. The REIT industry has grown dramatically over the past several years, with fifty percent of the industry now less than two years old. Such rapid change breeds confusion and inefficiency, as the securities market seeks to digest a new landscape. This environment results in a period of unusual challenge for interim investors and opportunity for long-term shareholders, as recognition of value can lag actual progress and achievement. In its November 21, 1994 edition, Forbes magazine noted MGI's role in Boston's dramatic real estate recovery. The article noted that Boston office vacancies declined from 19.2% in 1991 to 12.1% in 1994 and that MGI, as a leading investor in the recovery, "_ stepped into the Boston market after the late-1980s crash, attracted by semivacant and foreclosed properties unloaded by humbled developers, banks and insurers." MGI laid the foundation for this strategic move in the early- to mid-1980s by electing not to leverage the portfolio and to diversify its assets out of the then overheating New England real estate market. The wisdom of that strategy is represented graphically by recent gains on the sales of buildings acquired at that time as a sensible alternative to the New England market. Taking a longer-term perspective, what is the outlook for MGI shareholders? Quietly and consistently, we are assembling an enviable portfolio that features favorable costs, above-average quality and capital gains potential. Investments in the $2,000,000 to $10,000,000 range, while not flamboyant, represent a lucrative segment of the marketplace; big is not always best. One by one, brick by brick, these buildings combine to form a cohesive and increasingly valuable and diversified portfolio in markets where MGI has a depth of knowledge and experience. Although real estate is often perceived as a high-risk business, our history and strategy provide a reasonable level of stability in this challenging industry. Diversification, low leverage, well-covered dividends and the ability and willingness to shun investments that fail to meet our standards, suggest that the foundation on which we build is solid. Efficiently managing the existing portfolio, complementing this with insightful and timely new acquisitions and periodic sales, our objective is to have a real estate portfolio value of not less than $24 per share, net of debt by the year 2000. At this juncture in 1995, the Trust appears to be on target. /s/ W. Pearce Coues W. Pearce Coues Chairman of the Board of Trustees January 27, 1995 MGI Properties 4 Annual Report Property Acquisitions The following pages review eight property investments initiated during 1994 and a ninth property acquired early in fiscal 1995. The 1994 investments total $31,786,000; acquisitions over a two and one-half year period total $81,429,000. Of these acquisitions $72,681,000 were in Massachusetts, a real estate market that has provided what we believe to have been unusually attractive buying opportunities. The floor of the market, evidenced by low prices and rents, appears to have been from 1992 to mid-1993. Since this time, a noticeable increase in rents and values has governed the market. Although prices have clearly been rising, MGI's 1994 acquisitions were made with great selectivity as to price and yields and, in our opinion, afford similar potential as acquisitions made over the previous two years.
Percentage Leased at Investments Original Cost Cost/Sq.Ft. Property Type Sq.Ft. 11/30/94 1995 33 Broad Street, Boston, MA $ 1,835,000 $48.29 Office 38,000 100% 1994 Two Federal Street, Billerica, MA 4,363,000 43.63 Industrial/R&D 100,000 100% Five Federal Street, Billerica, MA 2,072,000 36.80 Industrial/R&D 56,300 100% Four Andover Tech Center, Andover, MA 6,492,000 50.56 Industrial/R&D 128,400 100% 321 Billerica Road, Chelmsford, MA 1,921,000 26.98 Industrial/R&D 71,200 90% 234 Ballardvale Street, Wilmington, MA 2,514,000 25.09 Industrial/R&D 100,200 52% 805 Middlesex Turnpike, Billerica, MA 4,811,000 39.34 Industrial/R&D 122,300 100% 4142 Rider Trail, St. Louis, MO 4,143,000 20.65 Distribution 200,600 100% 26,316,000 33.78 779,000 93% Construction in Progress, Peabody, MA 5,470,000 - Retail - - 31,786,000 1993 and 1992 Massachusetts Investments 326 Ballardvale Street, Wilmington, MA 7,028,000 23.90 Distribution 294,000 100% 400 Research Drive, Wilmington, MA 4,602,000 42.07 Industrial/R&D 109,400 100% Point West Place, Framingham, MA 7,214,000 66.18 Office 109,000 100% One Winthrop Square, Boston, MA 8,655,000 81.65 Office 106,000 97% Two Andover Tech Center, Andover, MA 7,240,000 68.63 Industrial/R&D 105,500 100% 55 Middlesex Turnpike, Bedford, MA 2,577,000 27.80 Industrial/R&D 92,700 100% 47 Harvard Street, Westwood, MA 1,515,000 19.57 Distribution 77,400 100% 15 Crosby Drive, Bedford, MA 2,247,000 31.83 Industrial/R&D 70,600 100% One Federal Street, Billerica, MA 2,125,000 35.42 Industrial/R&D 60,000 100% 43,203,000 42.17 1,024,600 100% Total $76,824,000 $38.75* 1,841,600 98% *Excludes construction in progress.
MGI Properties 5 Annual Report (Photo: Two & Five Federal Street, Billerica, Massachusetts) Located in a 426,000 square-foot park, two separate research and development buildings were acquired as a package from a major life insurance company. The buildings contain a combined total of 156,300 square feet and were acquired for $6,435,000, equal to $41 per square foot. Both buildings are leased in their entirety to Wellfleet Communications, now Bay Networks, Inc. following a recent merger. Bay Networks is in the computer inter-networking business and is traded on the NASDAQ Stock Exchange with a market capitalization of $3.2 billion. Two Federal Street, which consists of 100,000 square feet, is leased through June 1998 at a current net rent of $4.50 per square foot that escalates $.50 per year. Bay Networks has one five-year option to renew at market. Five Federal Street, which consists of 56,300 square feet, is leased through December 1999 at a current net rent of $3.50 per square foot which escalates annually by $.25 per square foot. Bay Networks has one five-year option to renew at market. The combined average rent from both buildings should provide the Trust with a yield just over 11% on rents that we perceive to be below market. Following this acquisition MGI owns three buildings in the Park which is 100% occupied. MGI Properties 6 Annual Report (Photo: Four Andover Tech Center, Andover, Massachusetts) This 128,400 square-foot research and development property was developed by a major insurance company in 1984. It is part of an impressive 462,000 square-foot park consisting of four buildings, two of which are now owned by MGI. The Park enjoys a particularly strong location northwest of Boston in Andover, Massachusetts providing excellent access to all areas within Metropolitan Boston via Route 93, Route 495 and Route 128. MGI acquired the property for $6,492,000, a price of approximately $50 per square foot. We believe the reproduction cost of this property to be significantly over our acquisition price. The building is leased in its entirety to Hewlett Packard under a five-year net lease that now equals $5 per square foot. In addition to the $5 per square foot rent, Hewlett Packard invested significant funds for their own improvements. We believe the $5 per square foot net rent is modestly below prevailing market rents. Since our purchase, we have noted a significant firming of occupancy levels. Neighbors in the Park include NYNEX, Siemens, Ford Motor Credit and ISI. MGI Properties 7 Annual Report (Photo: 321 Billerica Road, Chelmsford, Massachusetts) In November 1994, MGI acquired this 71,200 square-foot research and development building for $1,921,000, or $27 per square foot. MGI purchased the building from an insurance company whose loan had been $5,400,000, or $76 per square foot. The building is leased to six separate tenants and was 80% occupied when we initiated purchase discussions. Occupancy had risen to 90% when we closed the investment in November 1994 and is now 98%. Recent leases have ranged between $4.50 and $4.75 per square foot net, with lease terms running through 1997 to 2000. MGI's yield on the current occupancy is expected to exceed 13%. As this sector of the market, northwest of Boston near the intersection of Route 3 and Route 495, is showing consistent increases in occupancy, we believe the direction of rents will be upward from $4.50 per square foot net. MGI Properties 8 Annual Report (Photo: 234 Ballardvale Street, Wilmington, Massachusetts) A one-story industrial building, 234 Ballardvale Street contains 100,200 square feet. The facility, situated on 14.3 acres of land, is strategically located off Route 93 several miles north of Route 128. This type of building, referred to as a flex building, has truck docks for distribution purposes in the rear of the building, with office space that can be expanded or contracted in the front. MGI acquired the property in November 1994 for $2,514,000, equal to $25 per square foot, from a small pension fund in a liquidation mode. Shortly after acquisition, occupancy increased from 52% to 100%, as MGI leased the remaining vacant space to a new tenant, Progress Software Corporation. Progress Software Corporation is a NASDAQ listed company, which supplies application development technology and support services to business and government worldwide, with a market capitalization of approximately $310,000,000. Progress Software's five-year lease is for 48,575 square feet of space at a net rental rate of $3.75 per square foot. The tenant provided an extensive build-out at its own expense and has an option to renew for five years at market. MGI Properties 9 Annual Report (Photo: 805 Middlesex Turnpike, Billerica, Massachusetts) This 122,300 square-foot research and development building was acquired for $4,811,000, equal to $39 per square foot from a major life insurance company. During the latter part of the 1980s, buildings such as 805 Middlesex Turnpike were trading at prices of $85 to $90 per square foot. 805 Middlesex Turnpike is leased in its entirety to PRI, Automation under a seven-year net lease currently at $3.75 net per square foot escalating to $4.50, $5.00 and $5.50 per square foot. PRI, Automation is a leading manufacturer of factory automation systems and is publicly traded on the NASDAQ Stock Exchange with a current stock market capitalization of approximately $90,000,000. Occupancy levels in this sector of the market are showing a strong trend, which indicates that rents should be escalating. The Trust's yield under the net lease in place is expected to average 11.7% MGI Properties 10 Annual Report (Photo: 4142 Rider Trail Drive, St. Louis, Missouri) The seven industrial buildings MGI owns in the St. Louis market have enjoyed a particularly strong occupancy level. 4142 Rider Trail is a 200,600 square-foot modern distribution building that MGI acquired in October 1994 for $4,143,000, equal to $20.65 per square foot. The seller was a large national pension fund that was forced to sell certain properties due to redemptions. The sale price was well below their cost of over $30 per square foot. The building has a tax assessment of $33 per square foot, which we intend to appeal based on our lower acquisition price. The building is well suited for distribution, with excellent access in a major industrial park, twenty-five modern truck doors and a desirable 24-foot clear ceiling height. The Park was developed by Ford Motor Credit; other buildings in the Park are owned by Equitable, Prudential, Trammel Crow and CIGNA. Major tenants in the Park include Whirlpool, Trane, J.C. Penny, Purina Mills and United Parcel Service. Our property is 100% occupied by two tenants, each occupying 100,000 square feet. Their leases go to August 1996 and 2002 at net rents of $2.75 and $3.00 per square foot, which we perceive to be below market with occupancies running over 95%. MGI Properties 11 Annual Report (Photo: Bradlees, Peabody, Massachusetts) This investment features a superior location and a high yield provided by a long-term escalating net rent. The building is leased to Bradlees, a New York Stock Exchange listed company. This retail store, which we anticipate owning in the summer of 1995, will provide a yield of 13% over a twenty-year lease reflecting built-in rent escalations every five years. The building is currently under construction with completion expected to be mid-1995. MGI is financing the construction and will acquire ownership upon completion and Bradlees' occupancy. Although we have been focusing largely on existing buildings, the real estate debacle of the late 1980s resulted in a capital void for new development. Given the approximately $114,000,000 market capitalization of Bradlees' stock, superior location and Bradlees' in-place lease, MGI's $11,100,000 investment provides similar growth and gain potential as afforded by the other investments made in 1994. MGI Properties 12 Annual Report (Photo: 33 Broad Street, Boston, Massachusetts) In December 1994, MGI acquired this 38,000 square-foot office property at a cost of $1,835,000, equal to $48.29 per square foot. The sale was orchestrated by a group of participating lenders whose debt was significantly higher than our purchase price. 33 Broad Street was developed by Harvard College in 1904. It is strategically located in Boston's Financial District effectively at the corner of State Street and Broad Street. The cover picture on our Annual Report this year is of the Custom House at the foot of State Street approaching Boston Harbor, and was taken from the roof of our 33 Broad Street building. 33 Broad Street is fully occupied at rents averaging $12.50 per square foot for the office space, with lease terms running approximately three to five years. With the dramatic recovery of the Boston office market and given this property's superior location and ability to serve full-floor tenants with excellent window lines, we believe the rental market value today for new leases is $2 higher than the leases in place. Our entrance yield, even with the below market rents in place, is expected to be over 10%. We plan a phased improvement program for the building which we believe will further enhance rent levels as leases mature. MGI Properties 13 Annual Report
SUMMARY OF PROPERTIES OWNED NOVEMBER 30, 1994 Net Carrying Value Percentage Apartment Units Dollars Per Unit Leased Metairie, LA 516 $10,746,000 $20,826 97% Harrison Township, MI 376 7,290,000 19,388 98% Bloomfield, MI 346 14,810,000 42,803 98% Tampa, FL 264 7,866,000 29,795 93% Laurel, MD 237 11,692,000 49,333 95% Tampa, FL 112 4,948,000 44,179 94% Total 1,851 $57,352,000 $30,984 97% Net Percentage Partnership Units Carrying Value Leased Washington, DC (4% ) 778 $ 16,000 92% San Bruno, CA (2% ) 430 225,000 94% Total 1,208 $241,000
Per- Scheduled Lease Number Net Carrying Value centage Expirations of Lease Industrial Sq.Ft. Dollars Sq.Ft. Leased 1995 1996 Tenants Principal Tenant Expiration Research and Development Andover, MA 128,400 $ 6,415,000 $49.96 100% - - 1 Hewlett Packard 7/31/99 Billerica, MA 122,300 4,802,000 39.26 100% - - 1 Precision Robotics 7/31/02 Wilmington, MA 109,400 4,497,000 41.11 100% - - 3 United Shoe Machinery 12/31/01 Andover, MA 105,500 7,094,000 67.24 100% - - 1 ISI Systems, Inc. 4/30/99 Wilmington, MA 100,200 2,510,000 25.05 52% - - 1 Datawatch 4/30/99 Billerica, MA 100,000 4,273,000 42.73 100% - - 1 Bay Network, Inc. 6/30/98 Bedford, MA 92,700 2,483,000 26.79 100% - 81% 3 Imaging Technology 7/25/96 Chelmsford, MA 71,200 1,918,000 26.94 90% - - 6 W.J. Schaffer Assoc. 7/31/98 Bedford, MA 70,600 2,204,000 31.22 100% - - 1 Atex Publishing 7/31/98 Billerica, MA 60,000 2,112,000 35.20 100% - - 2 Bay Networks, Inc. 3/30/99 Billerica, MA 56,300 2,031,000 36.11 100% - - 1 Bay Networks, Inc. 12/31/99 St. Louis, MO 40,900 1,351,000 33.03 100% 22% 5% 8 IBF Business Forms 6/30/98 St. Louis, MO 35,600 1,926,000 54.10 100% 57% - 3 Interlock 3/31/95 Distribution and Manufacturing Wilmington, MA 294,000 6,905,000 23.49 100% - - 4 Avon Dispatch 5/31/00 Nashville, TN 203,000 3,315,000 16.33 88% - - 5 Burnham Industries 5/31/97 St. Louis, MO 200,600 4,135,000 20.61 100% - 50% 2 Everest & Jennings 7/7/02 North Charleston, SC 191,900 2,382,000 12.41 100% - 100% 2 Mill Transportation 12/31/95 St. Louis, MO 95,600 2,185,000 22.86 100% 100% - 2 S.P. Richards 8/31/95 Westwood, MA 77,400 1,495,000 19.32 100% - - 1 PB Diagnostics Systems 5/31/97 St. Louis, MO 61,400 1,458,000 23.75 100% 100% - 2 American Greetings 4/14/95 St. Louis, MO 61,200 1,549,000 25.31 100% - - 1 Tyler Mountain Water 12/31/97 Blue Ash, OH 53,200 616,000 11.58 100% 100% - 1 Aero Mailing 8/31/95 St. Louis, MO 41,000 1,169,000 28.51 100% 100% - 2 Nat'l Service Industries 3/31/95 Blue Ash, OH 38,700 496,000 12.82 100% 100% - 1 Ethicon 1/31/95 Total 2,411,100 $69,321,000 $28.75 97% 13% 15% 55 Office Franklin Township, NJ 178,600 $14,891,000 $83.38 82% - 11% 11 Merrill Lynch 6/30/97 Tampa, FL 122,400 9,627,000 78.65 93% 8% 4% 16 Bally 6/30/00 Framingham, MA 109,000 7,103,000 65.17 99% 18% 12% 29 National Dentex 1/31/98 Boston, MA 106,000 8,436,000 79.58 97% 10% 4% 11 Cambridge Associates 4/26/99 Ann Arbor, MI 76,600 5,744,000 74.99 93% 7% 13% 7 Comshare 2/28/05 Naperville, IL 63,800 4,657,000 72.99 87% 10% 3% 12 Eby Brown 6/30/04 Greenville, SC 48,600 2,221,000 45.70 70% 21% 28% 21 S.C. Tax Commission 6/30/96 Greenville, SC 46,000 1,766,000 38.39 96% 46% 22% 7 S.C. Voc. Rehab. Dept. 10/31/95 Charlotte, NC 16,300 887,000 54.42 47% - 47% 1 Comprehensive Medical 9/21/96 Total 767,300 $55,332,000 $72.11 89% 10% 11% 115 Retail Aurora, IL 313,000 $27,341,000 $87.35 97% 7% 15% 27 Builders Square 8/31/06 Baltimore, MD 135,000 6,712,000 49.72 100% 5% 2% 14 K mart Corp. 1/30/05 Nashville, TN 111,400 3,910,000 35.10 99% 4% 7% 9 Burlington Coat Factory 1/31/10 Tampa, FL 100,600 8,337,000 82.87 97% 5% 12% 19 Publix Supermarket 11/30/06 Hagerstown, MD 40,200 1,460,000 36.32 100% - - 1 Giant Food Stores, Inc. 12/31/04 Total 700,200 $47,760,000 $68.21 98% 6% 10% 70
MGI Properties 14 Annual Report NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES BUSINESS REPLY CARD FIRST CLASS MAIL PERMIT NO. 3736 BOSTON, MA POSTAGE WILL BE PAID BY ADDRESSEE BANK OF BOSTON DIVIDEND REINVESTMENT MS: 45-01-20 P.O. BOX 1681 BOSTON, MA 02105-9904 DIVIDEND REINVESTMENT PLAN MGI Properties offers a Dividend Reinvestment Plan which enables its shareholders to automatically invest dividends, as well as make voluntary cash payments towards the purchase of additional shares. Please send me a Prospectus and Enrollment Card for your Dividend Reinvestment Plan. [] I am a registered shareholder with shares held in my name. [] I am a shareholder with my shares held by a nominee such as a broker, bank or other similar organization. Name: _______________________________________________________________________ (Type or print, please) Address: ____________________________________________________________________ City: __________________________________ State: _____________ Zip: __________ Telephone Number: ___________________________________________________________ Note: If your shares are held by a nominee (such as a broker, bank or other similar organization), you also need to contact them for their individual enrollment procedures. You will only receive a Prospectus upon return of this card. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources At November 30, 1994 financial liquidity was provided by $13.5 million in cash and investment securities and by unused lines of credit of $23.0 million. Shareholders' equity of $176.1 million at November 30, 1994, when compared to $171.0 million at November 30, 1993, primarily reflects net income in excess of distributions. Principal sources of funds in fiscal 1994 included property operations, the sale of eight industrial properties and an apartment complex, mortgage loan proceeds, and the sale of a partnership interest. During 1994, these resources were used to pay dividends of $9.8 million, to repay $10.4 million of indebtedness, to fund capital and tenant improvements of $2.1 million and $1.1 million, respectively, and to acquire seven industrial properties -- six industrial buildings totaling 578,400 square feet, located in Massachusetts, for an aggregate price of $22.2 million and one 200,600 square-foot industrial property, located in Missouri, for a price of $4.1 million. Additionally, in October 1994, the Trust signed a commitment to acquire a newly constructed department store of approximately 100,000 square feet located in Peabody, Massachusetts for a price of $11.1 million. The facility, now under construction, is being funded by MGI subject to a construction loan agreement which is reflected as an investment in real estate for financial reporting purposes. The building will be leased in its entirety by Bradlees, which is traded on the New York Stock Exchange, under a twenty-year net lease. The purchase is anticipated to occur in mid-1995 upon the satisfactory completion of construction of the building. As of November 30, 1994, the Trust has advanced $5.5 million of the construction loan. Mortgage and other loans payable totaled $71.0 million at November 30, 1994 (74% fixed rate and 26% floating rate), a net increase of $4.1 million compared to $66.9 million at November 30, 1993. During 1994, the Trust executed mortgages totaling $22.7 million with an average interest rate of 8.1%. In addition, the Trust retired $19.2 million of debt related to maturing notes and properties sold. Scheduled payments of loan principal amortization totaled $1.4 million. In 1994, MGI entered into a $15.0 million, two-year, floating rate, secured line of credit facility, which increased the total lines of credit to $25.0 million. At November 30, 1994, the Trust had $2.0 million outstanding on its lines. Mortgage and other loans payable are collateralized by thirteen of MGI's properties having an aggregate carrying value of $119.6 million, $3.2 million of investment securities and MGI's guarantees of $4.5 million. Scheduled loan principal payments due within twelve months of November 30, 1994 total $1.5 million. MGI believes it will continue to be able to extend or refinance maturing mortgage loans upon satisfactory terms. In December 1994, the Trust acquired a 38,000 square-foot office building located in Boston, Massachusetts for a price of $1.8 million. In January 1995, the Trust agreed to acquire a 190,000 square-foot industrial building located in Tewksbury, Massachusetts for a price of $5.75 million, subject to the satisfactory completion of certain conditions including due diligence and the execution with a publicly-traded company of a fifteen-year lease for the entire building. The lease would commit the Trust to tenant and capital improvements totaling approximately $6.3 million. Other cash requirements in 1995 are distributions to shareholders, capital and tenant improvements and other leasing expenditures required to maintain MGI's occupancy levels and other investment undertakings. During the period 1992 through 1994, annual expenditures for capital and tenant improvements averaged approximately 1.3% of net real estate investments. In 1995, budgeted capital and tenant improvements, which are based on assumed leasing activity, completion of discretionary capital projects and estimated costs, approximates 2.9% of net real estate investments, excluding any commitments associated with the purchase of the 190,000 square-foot industrial building. The budgeted increase in 1995 over the average of previous years is primarily due to proposed capital and tenant improvements in the office segment, which reflects budget leasing assumptions for the year. Included in the 1995 budget is $1.5 million of tenant improvements related to a signed 61,000 square-foot office lease at its Michigan office building. Additionally, the Trust has budgeted $.8 million of interior and exterior improvements for its apartment complexes and $.5 million for paving and roof replacements at certain industrial buildings. Principal sources of funds in the future are expected to be from operations of properties, including those acquired in the future, mortgage or refinancing of existing mortgages on properties and MGI's portfolio of investment securities. Other potential sources of funds include the proceeds of offerings of additional equity or debt securities or the sale of real estate investments. In this regard, the Trust sold an industrial property located in Nashville, Tennessee for $4.8 million and will recognize a gain of approximately $1.4 million in the quarter ending February 28, 1995. The cost of new borrowings or issuances of equity capital will be measured against the anticipated yields of investments to be MGI Properties 15 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations acquired with such funds. The purchase of additional properties in 1995 may require the use of funds from MGI's lines of credit, new borrowings, or the issuance of securities. MGI believes the combination of cash and investment securities, the value of MGI's unencumbered properties and other resources are sufficient to meet its short and long-term liquidity requirements. Results of Operations 1994 Compared to 1993 Net income for 1994 of $14.5 million, or $1.26 per share, exceeded net income of $8.0 million, or $.75 per share, in 1993. Included in net income in 1994 was a net gain of $4.5 million, or $.39 per share, which resulted from the sale of real estate investments for an aggregate sales price of $25.2 million. Income before net gains increased 25% to $10.0 million for 1994, compared to $8.0 million in 1993. The increase in income before net gains when comparing 1994 to 1993 resulted principally from the increase in properties owned. Funds from operations in 1994 totaled $17.7 million, or $1.54 per share, compared to $15.0 million, or $1.42 per share, in 1993. MGI defines funds from operations as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring, sales of property and similar non-cash items, depreciation and amortization charges and equity method partnership losses. MGI believes funds from operations is an appropriate supplemental measure of operating performance. The change in funds from operations is attributable to the same factors that affected income before net gains with the exception of depreciation and amortization expense. A primary component of the change in income before net gains is property operating income which is defined as rental and other income less property operating expenses and real estate taxes. Property operating income increased by $4.2 million (20%) to $25.6 million in 1994 from $21.4 million in 1993. This increase is largely due to the 1993 and 1994 acquisitions which contributed $4.2 million and $1.1 million to the increase, respectively. These properties consist of seventeen industrial and two office buildings totaling over 1.9 million square feet (50% of the total non-residential portfolio) and are 97% leased as of November 30, 1994. Properties sold during 1994 reduced property operating income by less than $0.3 million. Property operating income for the balance of the portfolio, which the Trust owned as of the beginning of fiscal 1993, has increased by $0.2 million to $16.1 million, without consideration of $1.0 million income received during 1993 in connection with the amendment and assignment of a lease at Yorkshire Plaza located in Aurora, Illinois. With respect to this group of properties, which the Trust owned throughout all of 1993 and 1994, apartment property operating income has improved by 6% largely due to increases in rental rates, with average occupancy at 94% for both 1993 and 1994. Industrial property operating income has improved 20% due to an increase in occupancy. Overall, average occupancy for all industrial properties owned has improved by 2% to 98% during 1994. The increases in property operating income from comparable apartment and industrial buildings are offset, however, by a $0.5 million decline from comparable office buildings. Average occupancy in office buildings has declined from 94% in 1993 to 88% in 1994, primarily due to increased average vacancy at the suburban Chicago, Illinois and Somerset, New Jersey buildings during 1994. Retail property operating income is largely unchanged, excluding the $1.0 million lease amendment income received in 1993, and average occupancy has increased modestly from 92% to 93% from 1993 to 1994. The $7.3 million increase in rental and other income in 1994 compared to 1993 was principally the result of $1.5 million from the properties acquired in 1994, $6.8 million due to the partial year ownership of properties acquired in 1993, offset by a decrease of $0.5 million due to the sale of properties in 1994 and a decrease of $0.5 million from the balance of the portfolio. Included in 1993 rental and other income, however, was $1.0 million of income received in connection with the lease amendment, mentioned above. Exclusive of this income, revenue in the group of properties which the Trust owned throughout all of 1993 and 1994 has increased $0.5 million. Rental income from the comparable portfolio of apartments and industrial buildings has increased while revenue in the office segment has declined due to factors similar to those affecting property operating income. The $2.0 million increase in property operating expenses and the $1.2 million increase in real estate taxes in 1994 as compared to 1993, reflect primarily (i) $0.2 million and $0.3 million, respectively, attributable to the properties acquired in 1994, (ii) $1.7 million and $0.9 million, respectively, due to the buildings acquired in 1993 (iii) $0.2 million and $0.1 million, respectively, from the balance of the portfolio, which are offset by the decreases of $0.1 million and $0.1 million, respectively, due to buildings MGI Properties 16 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations sold in 1994. The $0.7 million increase in depreciation and amortization expense for 1994 when compared to 1993 was mostly due to partial year ownership of the properties acquired in 1994 and 1993. Three additional factors also contributed to the change in income before net gains and funds from operations when 1994 is compared to 1993. Interest income in 1994 reflects a decrease in the average outstanding balance of short-term investments. General and administrative expenses increased in 1994 primarily reflecting an increase in personnel and shareholder-related items. Interest expense increased reflecting a higher average level of debt outstanding. At November 30, 1994, scheduled 1995 lease expirations for non-residential space approximates 433,000 square feet, or 11% of the entire commercial portfolio, which is similar to the percentage of scheduled expiration for fiscal 1994. Of these scheduled expirations, 319,000 square feet is industrial space, 75,000 square feet is office and 39,000 square feet is retail. During 1994, the Trust signed leases totaling 530,000 square feet with lease commencement dates in 1994 and 1995. 1993 Compared to 1992 Net income for 1993 of $8.0 million, or $.75 per share on the greater number of shares outstanding, exceeded net income of $7.2 million, or $.77 per share, in 1992. Included in net income in 1992 was a net gain of $1.6 million, or $.17 per share. The increase in income before net gains when comparing 1993 to 1992 resulted principally from the increase in properties owned and the receipt of a non-recurring fee. As a result, rental and other income, property operating expenses, real estate tax expense, depreciation and amortization expense increased and mortgage interest income decreased in 1993. The $8.2 million increase in rental and other income in 1993 compared to 1992 was principally the result of (i) $3.6 million from the properties acquired in 1993, (ii) $2.4 million related to the reclassification of MGI's investment in a Metairie, Louisiana apartment complex to owned real estate from a mortgage receivable, (iii) $1.0 million of non-recurring income received in connection with the assignment and amendment of a lease at Yorkshire Plaza, Aurora, Illinois, (iv) $0.8 million due to the partial year ownership of properties acquired in 1992 and (v) the $0.4 million increase from the balance of the portfolio. The $2.4 million increase in property operating expenses and the $0.9 million increase in real estate taxes in 1993 as compared to 1992, reflect primarily (i) $1.0 million and $0.1 million, respectively, related to the Metairie, Louisiana apartment complex, (ii) $0.8 million and $0.6 million, respectively, from the properties acquired in 1993, (iii) $0.2 million and $0.1 million, respectively, due to the buildings acquired in 1992 and (iv) $0.4 million and $0.1 million, respectively, from the balance of the portfolio. The $1.0 million increase in depreciation and amortization expense for 1993 when compared to 1992 was mostly due to partial year ownership of the properties acquired in 1993 and 1992 ($0.4 million) and the Louisiana apartment complex ($0.5 million). The $1.6 million decrease in mortgage interest income in 1993 is due the reclassification of the Metairie, Louisiana investment to real estate owned and the acquisition by MGI of the four properties that secured a $6.6 million MGI wrap-around mortgage loan. Three additional factors also contributed to the increase in income before net gains and funds from operations when 1993 is compared to 1992. Interest income in 1993 reflects a decrease in the average outstanding balance of short-term investments and lower interest rates. General and administrative expenses increased in 1993 primarily reflecting an increase in personnel. Lower average levels of debt outstanding, combined with lower interest rates on variable rate debt, resulted in deceased interest expense of $0.5 million when 1993 is compared to 1992. 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, 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 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 diversification by region and property type reduces the risks associated with these factors and enhances opportunities for cash flow growth and capital gains potential, although there can be no assurance thereof. During the past three fiscal years, the impact of inflation on MGI's operations and investment activity has not been significant. MGI Properties 17 Annual Report
Consolidated Balance Sheets November 30, 1994 1993 Assets Real estate, at cost (notes 2, 3 and 4) $267,530,000 $258,663,000 Accumulated depreciation and amortization (32,029,000) (29,992,000) Net investments in real estate 235,501,000 228,671,000 Cash 1,774,000 1,564,000 Short-term investments, at cost, which approximates market value (note 4) 11,118,000 10,252,000 U.S. Government securities, at cost, which approximates market value (note 4) 629,000 837,000 Other assets 7,013,000 5,376,000 $256,035,000 $246,700,000 Liabilities and Shareholders' Equity Liabilities: Mortgage and other loans payable (note 4) $ 70,954,000 $ 66,949,000 Other liabilities 5,286,000 5,012,000 Total liabilities 76,240,000 71,961,000 Deferred gain (note 2) 3,700,000 3,700,000 Commitments (note 2) Shareholders' equity (notes 5 and 6): Preferred shares - $1 par value: 2,000,000 shares authorized; none issued -- -- Common shares - $1 par value: 17,500,000 shares authorized; 11,465,842 issued (11,448,152 at November 30, 1993) 11,466,000 11,448,000 Additional paid-in capital 165,921,000 165,673,000 Distributions in excess of net income (1,292,000) (5,935,000) 176,095,000 171,186,000 At November 30, 1993, 14,431 shares in treasury, at cost -- (147,000) Total shareholders' equity 176,095,000 171,039,000 $256,035,000 $246,700,000
See accompanying notes to consolidated financial statements. MGI Properties 18 Annual Report
Consolidated Statements of Earnings Year Ended November 30, 1994 1993 1992 Income Rental and other income $43,422,000 $36,094,000 $27,928,000 Interest on mortgage loans - 54,000 1,686,000 Interest on investment securities 394,000 659,000 916,000 Other 64,000 91,000 59,000 Total income 43,880,000 36,898,000 30,589,000 Expenses Property operating expenses 12,437,000 10,457,000 8,089,000 Real estate taxes 5,417,000 4,247,000 3,353,000 Depreciation and amortization 7,654,000 6,987,000 5,996,000 Interest 5,781,000 5,059,000 5,511,000 General and administrative 2,580,000 2,191,000 2,036,000 Total expenses 33,869,000 28,941,000 24,985,000 Income before net gains 10,011,000 7,957,000 5,604,000 Net gains (note 2) 4,480,000 - 1,644,000 Net income $14,491,000 $ 7,957,000 $ 7,248,000 Per Share Data Income before net gains $ .87 $.75 $.60 Net gains .39 - .17 Net income $1.26 $.75 $.77 Weighted average shares outstanding 11,450,451 10,574,104 9,402,476
See accompanying notes to consolidated financial statements. MGI Properties 19 Annual Report
Consolidated Statements of Cash Flows Year Ended November 30, 1994 1993 1992 Cash Flows from Operating Activities Net income $ 14,491,000 $ 7,957,000 $ 7,248,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,654,000 6,987,000 5,996,000 Net gains (4,480,000) -- (1,644,000) Equity in losses of partnerships -- 45,000 90,000 Other (959,000) 803,000 903,000 Net cash provided by operating activities 16,706,000 15,792,000 12,593,000 Cash Flows from Investing Activities Acquisitions of real estate (31,786,000) (40,963,000) (6,005,000) Additions to real estate (3,208,000) (2,672,000) (2,471,000) Net proceeds from sales of real estate interests 15,020,000 -- 18,773,000 Cash distributions from real estate partnership 100,000 -- -- Additions and advances on mortgage loans receivable -- (79,000) (235,000) Decrease in U.S. Government securities, net 208,000 780,000 625,000 Other (116,000) (85,000) 154,000 Net cash provided by (used in) investing activities (19,782,000) (43,019,000) 10,841,000 Cash Flows from Financing Activities Proceeds from sale of common shares, net 41,000 25,640,000 -- Repayment of mortgage and other loans payable (10,439,000) (7,688,000) (7,227,000) Additions to mortgage and other loans payable 24,188,000 13,338,000 -- Cash distributions paid (9,828,000) (8,460,000) (7,523,000) Stock option transactions 190,000 82,000 115,000 Net cash provided by (used in) financing activities 4,152,000 22,912,000 (14,635,000) Net increase (decrease) in cash and short-term investments 1,076,000 (4,315,000) 8,799,000 Cash and cash equivalents: Beginning of year 11,816,000 16,131,000 7,332,000 End of year $ 12,892,000 $ 11,816,000 $ 16,131,000
See accompanying notes to consolidated financial statements. MGI Properties 20 Annual Report
Consolidated Statements of Changes in Shareholders' Equity Number Additional Distributions Total of Common Common Paid-in in Excess of Treasury Shareholders' Shares Issued Shares Capital Net Income Shares Equity Balance at November 30, 1991 9,448,152 $ 9,448,000 $142,089,000 $(5,157,000) $(507,000) $145,873,000 Net income - - - 7,248,000 - 7,248,000 Distributions (note 6) - - - (7,523,000) - (7,523,000) Options exercised and other - - (29,000) - 179,000 150,000 Balance at November 30, 1992 9,448,152 9,448,000 142,060,000 (5,432,000) (328,000) 145,748,000 Net income - - - 7,957,000 - 7,957,000 Sale of common shares 2,000,000 2,000,000 23,640,000 - - 25,640,000 Distributions (note 6) - - - (8,460,000) - (8,460,000) Options exercised and other - - (27,000) - 181,000 154,000 Balance at November 30, 1993 11,448,152 11,448,000 165,673,000 (5,935,000) (147,000) 171,039,000 Net income - - - 14,491,000 - 14,491,000 Dividend reinvestment and share purchase plan (note 5) 4,121 4,000 57,000 - - 61,000 Distributions (note 6) - - - (9,848,000) - (9,848,000) Options exercised and other 13,569 14,000 191,000 - 147,000 352,000 Balance at November 30, 1994 11,465,842 $11,466,000 $165,921,000 $(1,292,000) $ - $176,095,000
See accompanying notes to consolidated financial statements. MGI Properties 21 Annual Report Notes to Consolidated Financial Statements 1-Summary of Significant Accounting Policies A. Consolidation The consolidated financial statements of 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 real estate investment trust under Sections 856-860 of the Internal Revenue Code of 1986 and the related regulations. In order to qualify as a real estate investment trust 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. C. Income and Expense Recognition Income and expenses are recorded using the accrual method of accounting for financial reporting and tax purposes. Income or loss from real estate partnerships is accounted for according to generally accepted accounting principles using either the cost method or the equity method. D. Depreciation and Amortization Real estate investments, excluding land costs, are depreciated using the straight-line method over estimated useful lives of 20 to 40 years. Tenant improvements are amortized over the shorter of their estimated useful lives or lease terms ranging from 2 to 10 years. Equipment is depreciated over a range from 5 to 20 years. Maintenance and repairs are charged to expense as incurred; major improvements are capitalized. E. Statements of Cash Flows For purposes of the statements of cash flows, all short-term investments with a maturity, at date of purchase, of three months or less are considered to be cash equivalents. During 1994, the Trust sold seven industrial properties for $14.9 million in a single transaction. The properties were secured by a $10.2 million loan payable which was assigned to the purchaser at closing. Only the cash portion of the sale is reflected in the accompanying consolidated statement of cash flows. Cash interest payments of $5.8 million, $5.3 million and $5.5 million were made for the years ended November 30, 1994, 1993 and 1992, respectively. F. Fair Value of Financial Instruments The Trust estimated the fair values of its financial instruments at November 30, 1994 using discounted cash flow analysis and quoted market prices. Such financial instruments include short-term investments, U.S. Government securities, mortgage and other loans payable and mortgage notes receivable which were received in connection with transactions not qualifying as sales for financial accounting purposes and accordingly not reflected in the Trust's consolidated balance sheet. The excess of the aggregate fair value of the Trust's financial instruments over their aggregate carrying amounts is not material. G. Net Income Per Share Net income per share is computed based on the weighted average number of common shares outstanding. MGI Properties 22 Annual Report Notes to Consolidated Financial Statements 2-Investments A. Real Estate A summary of real estate investments follows:
Accumulated Buildings Depreciation and and Net Carrying Amount Type of Investment Land Improvements Amortization 1994 1993 Industrial $15,583,000 $ 56,805,000 $ 3,067,000 $ 69,321,000 $ 57,304,000 Apartment 10,831,000 60,503,000 13,957,000 57,377,000 64,030,000 Office 12,461,000 52,268,000 9,397,000 55,332,000 56,559,000 Retail 19,110,000 34,258,000 5,608,000 47,760,000 48,635,000 Retail - construction in progress - - - 5,470,000 - Partnership - - - 241,000 2,143,000 $57,985,000 $203,834,000 $32,029,000 $235,501,000 $228,671,000
A discussion of certain real estate investments follows: In October 1994, the Trust signed a commitment to acquire a newly constructed department store of approximately 100,000 square feet located in Peabody, Massachusetts for a price of $11.1 million. The facility, now under construction, is being funded by the Trust subject to a construction loan agreement which requires interest at 9% per annum and is secured by a first mortgage, an assignment of the lease and guarantees of the borrower. Additionally, the tenant has guaranteed the completion of construction and the funding of cost overruns exceeding a specified dollar amount. The building is leased in its entirety to Bradlees, a NYSE company, subject to a twenty-year net lease. The purchase of the building is expected to occur in mid-1995 upon satisfactory completion of construction. The construction loan is reflected as an investment in real estate for financial reporting purposes. In 1982, the Trust sold its investment in a Michigan apartment complex and received a $15.5 million purchase money mortgage in a transaction that did not meet the conditions for a completed sale for financial accounting purposes. The loan, which matures in February 1995, has an interest rate of 7% and provides for the Trust to receive at least 50% but not more than 60% of the shared appreciation value in excess of the outstanding note balance. In addition, the Trust has a 35% ownership interest, direct and indirect, in the partnership owning this complex. The Trust's purchase option expires in February 1995 and allows it to obtain a maximum equity interest of 67.5%. At November 30, 1994, the Trust carried this asset as a real estate investment at a net carrying value of $7.3 million, which excludes the gain from the sale. At November 30, 1992, the Trust began to account for its loan on a Metairie, Louisiana apartment complex as real estate owned. The Trust had been recognizing interest income ($1.1 million in 1992) on the related mortgage loan as received. During 1994 and 1993, the Trust has recognized property income and expenses as if it owned the property. For tax purposes, at November 30, 1994, this investment is reflected as a $14.1 million, 8.5% mortgage loan receivable. With respect to a San Bruno, California partnership investment, the Trust is entitled to receive 50% of property cash flow and residuals through a 2% limited partnership interest (carrying value of $225,000) and has an option to increase its equity interest. In addition, the Trust has a loan receivable from the partnership with a $3.1 million tax basis. Such loan is not recorded in the accompanying financial statements. B. Net Gains In 1994, the Trust sold nine properties and one real estate partnership interest with an aggregate net carrying value of $20.7 million for an aggregate net sales price of $25.2 million resulting in gains totalling $4.5 million. In 1992, the Trust recognized a gain of $3.7 million and deferred an additional gain of $3.7 million, which was effectuated by the December 1991 repayment of approximately $18.8 million of financing it had provided to the partnership owning the San Bruno, California apartment complex. Prior to the completion of the December 1991 transaction, a 1976 sale had not met the conditions for a completed sale and the Trust carried this property as a real estate investment for financial accounting purposes. In addition, in 1992, the Trust recognized a $2.1 million write-down of the Metairie, Louisiana investment discussed above. MGI Properties 23 Annual Report Notes to Consolidated Financial Statements 3-Leases All leases relating to real estate investments are operating leases; accordingly, rental income is reported when earned. Future minimum lease payments on noncancelable operating leases at commercial properties at November 30, 1994 are: $23.7 million in 1995, $21.4 million in 1996, $17.7 million in 1997, $13.5 million in 1998, $10.0 million in 1999, and $30.5 million thereafter. The above amounts do not include contingent 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. Contingent rental income was $5.4 million in 1994, $3.4 million in 1993 and $2.6 million in 1992. Operating leases on apartments generally have a term of one year or less. 4-Mortgage and Other Loans Payable Mortgage and other loans payable at November 30 follow:
1994 1993 Mortgage loans, maturing 1996 through 2014, at effective interest rates ranging from 7.58% to 9.5%, net of unamortized discount of $31,000 in 1993 $52,224,000 $49,918,000 Mortgage loan, maturing in September 1999 at an effective variable interest rate, 7.81% and 5.25% at November 30, 1994 and 1993, respectively 10,884,000 11,185,000 Housing revenue bond, maturing 2007, at 5.40% and 4.28% at November 30, 1994 and 1993, respectively 5,750,000 5,750,000 Amount outstanding under line of credit, maturing in June 1996, at a variable interest rate, 8.5%, at November 30, 1994 2,000,000 -- Other, maturing 1995, at 7.50% 96,000 96,000 $70,954,000 $66,949,000 Weighted average interest rate 8.48% 8.52%
These loans payable are nonrecourse and are collateralized by certain real estate investments having a net carrying value of $119.6 million and the Trust's guarantee of $4.5 million. Loans require monthly principal amortization and/or a balloon payment at maturity. The Trust has lines of credit of $10.0 million and $15.0 million maturing September 1996 and June 1996, respectively. Both credit agreements contain restrictive covenants which, among other things, require the Trust to maintain certain financial ratios and restrict the incurrence of certain indebtedness and the making of certain investments. Borrowings under the lines are secured by mortgage and security interests in real estate and are subject to a variable interest rate. A fee in the amount of .25% per annum is charged on the unused amounts. The housing revenue bond is tax exempt and is secured by real estate having a net carrying value of $4.9 million. The bond is also secured by a letter of credit which is collateralized by $3.2 million of short-term investments and U.S. Government securities. The Trust has also guaranteed $3.0 million of the debt. The base interest rate floats weekly and was 3.5% at November 30, 1994 (an effective interest rate of 5.4% due to the payment of fees). Principal payments on mortgage and other loans payable due in the next five years and thereafter are as follows: $1.5 million in 1995, $13.5 million in 1996, $17.3 million in 1997, $1.4 million in 1998, $10.5 million in 1999, and $26.8 million thereafter. MGI Properties 24 Annual Report Notes to Consolidated Financial Statements 5-Shareholders' Equity A. Stock Option Plans At the 1994 annual meeting, shareholders ratified the 1994 Employee Stock Option and Stock Appreciation Rights Plan and the 1994 Trustees' Stock Option Plan. Under the Trust's 1988 and 1994 stock option plans for key employees and Trustees (the "Plans"), incentive stock options with or without stock appreciation rights or nonqualified options and related stock appreciation rights may be granted to employees, and nonqualified options may be granted to Trustees. Under the 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. Changes in options outstanding during the years ended November 30 were as follows: 1994 1993 1992 Balance at beginning of year 464,532 467,000 433,000 Granted 101,000 24,000 49,000 Exercised (15,900) (14,468) (15,000) Expired - (12,000) - Balance at end of year 549,632 464,532 467,000 Shares available for granting future options 590,325 121,325 140,000 The weighted average exercise price per option at November 30, 1994, 1993 and 1992 was $12.62, $12.16 and $11.88, respectively. The shares reserved expire by April 2004 and all outstanding options expire by April 2004. Subsequent to November 30, 1994, 112,000 options were granted, of which half are currently exercisable and half are exercisable in December 1995. All other options outstanding are currently exercisable. b. 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 will be 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. c. Dividend Reinvestment and Share Purchase Plan Effective August 1994, a Dividend Reinvestment and Share Purchase Plan was implemented. Under this plan, shareholders of record who own 100 shares or more will 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 will be 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 will be 100% of the average purchase price paid. Participants in the plan may make additional cash purchases of shares at the same price as shares purchased through the reinvestment of dividends. d. Common Stock Offering In May 1993 the Trust sold 2,000,000 shares of common stock in a public offering for a price of $13.785 per share. The Trust received net proceeds of $25.6 million after the underwriting discount and offering costs. 6-Cash Distributions and Federal Income Taxes The difference between taxable income and net income reported in the consolidated financial statements is due principally to reporting certain gains for tax purposes under the installment method, use of net operating loss carryforwards available and differences in depreciation and in the basis of real estate sold as reported for tax and financial statement purposes. The Trust made cash distributions of ordinary income and capital gains of $.86 per share ($9.8 million) in 1994, and cash distributions of ordinary income of $.81 per share ($8.5 million) in 1993 and $.80 per share ($7.5 million) in 1992. On December 15, 1994, the Trust declared a dividend of $.22 per share payable on January 11, 1995 to shareholders of record on January 3, 1995. MGI Properties 25 Annual Report Notes to Consolidated Financial Statements 7-Subsequent Events In December 1994, the Trust sold an industrial property located in Nashville, Tennessee for $4.8 million and will recognize a gain of approximately $1.4 million in the first quarter ending February 28, 1995. In December 1994, the Trust acquired a 38,000 square foot office building located in Boston, Massachusetts for a price of $1.8 million. The building is 100% occupied. 8-Quarterly Financial Information (Unaudited) Quarterly results of operations for the years ended November 30, 1994 and 1993 follow:
1994 Quarter Ended February 28 May 31 August 31 November 30 Total income $10,816,000 $10,953,000 $11,117,000 $10,994,000 Total expenses $ 8,369,000 $ 8,573,000 $ 8,530,000 $ 8,397,000 Income before net gains $ 2,447,000 $ 2,380,000 $ 2,587,000 $ 2,597,000 Net gains $ 450,000 $ - $ 2,700,000 $ 1,330,000 Net income $ 2,897,000 $ 2,380,000 $ 5,287,000 $ 3,927,000 Net income per share $.25 $.21 $.46 $.34
1993 Quarter Ended February 28(a) May 31 August 31 November 30 Total income(a) $ 9,093,000 $8,285,000 $9,339,000 $10,181,000 Total expenses $ 6,710,000 $7,041,000 $7,413,000 $ 7,777,000 Net income $ 2,383,000 $1,244,000 $1,926,000 $ 2,404,000 Net income per share $.25 $.12 $.17 $.21 (a)Results for the quarter ended February 28, 1993 include a $1.0 million fee ($.10 per share) for the assignment and amendment of a lease.
Independent Auditors' Report To the Board of Trustees and Shareholders of MGI Properties: We have audited the accompanying consolidated balance sheets of MGI Properties and subsidiaries as of November 30, 1994 and 1993, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1994. These consolidated financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1994 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Boston, Massachusetts December 30, 1994 MGI Properties 26 Annual Report Selected Financial Data*
Five Years Ended November 30, 1994 1993 1992 1991 1990 Summary of Operations Rental and other income $ 43,422,000 $ 36,094,000 $ 27,928,000 $ 30,662,000 $ 29,036,000 Property operating expenses and real estate taxes 17,854,000 14,704,000 11,442,000 12,442,000 11,334,000 25,568,000 21,390,000 16,486,000 18,220,000 17,702,000 Interest and other income 458,000 804,000 2,661,000 2,469,000 2,525,000 Less expenses: Depreciation and amortization 7,654,000 6,987,000 5,996,000 5,974,000 5,552,000 Interest expense 5,781,000 5,059,000 5,511,000 6,429,000 5,925,000 General and administrative 2,580,000 2,191,000 2,036,000 2,108,000 2,208,000 Income before net gains (loss) 10,011,000 7,957,000 5,604,000 6,178,000 6,542,000 Net gains (loss) 4,480,000 - 1,644,000 - (360,000) Net income $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000 $ 6,182,000 Summary of Financial Position Investments in real estate, at cost $267,530,000 $258,663,000 $209,905,000 $208,011,000 $205,993,000 Cash and investment securities $ 13,521,000 $ 12,653,000 $ 17,748,000 $ 9,574,000 $ 11,585,000 Total assets $256,035,000 $246,700,000 $214,161,000 $217,428,000 $222,434,000 Mortgage and other loans payable $ 70,954,000 $ 66,949,000 $ 60,571,000 $ 67,852,000 $ 71,304,000 Total shareholders' equity $176,095,000 $171,039,000 $145,748,000 $145,873,000 $147,213,000 Weighted average shares outstanding 11,450,451 10,574,104 9,402,476 9,396,992 9,400,559 Per Share Data Income before net gains and losses $ .87 $ .75 $ .60 $ .66 $ .70 Net gains (loss) .39 - .17 - (.04) Net income $1.26 $ .75 $ .77 $ .66 $ .66 Funds from operations $1.54 $1.42 $1.24 $1.30 $1.29 Dividend $ .86 $ .81 $ .80 $ .80 $1.04 * The Selected Financial Data should be read in conjunction with the consolidated financial statements and the related notes appearing therein.
MGI Properties 27 Annual Report Officers and Trustees Officers W. Pearce Coues Chairman of the Board of Trustees and Chief Executive Officer Robert Ware Executive Vice President Phillip C. Vitali Executive Vice President and Treasurer Karl W. Weller Senior Vice President James P. O'Malley Senior Vice President Jean M. Harrington Vice President and Secretary David P. Morency Controller Trustees W. Pearce Coues Chairman of the Board of Trustees and Chief Executive Officer Former President of National Association of Real Estate Investment Trusts, Inc. Herbert D. Conant Member of the Administrative-Audit Committee Former Chairman and Chief Executive Officer, The Turner Corporation Francis P. Gunning, Esq. Chairman of the Administrative-Audit Committee Former Executive Vice President and General Counsel, Teachers Insurance and Annuity Association of America and College Retirement Equities Fund Colin C. Hampton Member of the Administrative-Audit Committee Former Chairman and Chief Executive Officer, UNUM Corporation George M. Lovejoy, Jr. President and Director, Fifty Associates; Chairman Emeritus, Meredith & Grew, Inc.; Director, Latin America Dollar Income Fund; Director, Scudder World Income Opportunities Fund; Trustee or Director of Various Scudder Mutual Funds; Former President, Greater Boston Real Estate Board Rodger P. Nordblom Chairman and Director, Nordblom Company; Former President, Society of Industrial and Office Realtors MGI Properties 28 Annual Report (Inside Back Cover) Shareholder Information Annual Meeting The Annual Meeting of the Shareholders will be held on March 22, 1995 at 10:00 A.M. in the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts. Stock Listing New York Stock Exchange - Symbol MGI Member National Association of Real Estate Investment Trusts, Inc. General Counsel Olshan Grundman Frome & Rosenzweig Auditors KPMG Peat Marwick LLP "MGI Properties",(R) "MGI"(R) and "Mortgage Growth Investors"(R) are registered trademarks of MGI Properties. Form 10-K Shareholders of MGI Properties may, without charge, request a copy of the Annual Report on Form 10-K as reported to the Securities and Exchange Commission. Written requests should be sent to: Jean M. Harrington Vice President and Secretary MGI Properties 30 Rowes Wharf Boston, Massachusetts 02110-3337 Transfer Agent and Registrar Bank of Boston Transfer Processing Mail Stop 45-01-05 P.O. Box 644 Boston, Massachusetts 02102-0644 617-575-3120 or 800-730-6001 Bank of Boston maintains shareholder records and can answer questions regarding shareholders' accounts. Shareholders wishing to transfer shares or to change the name on a certificate should contact Bank of Boston for instructions. Share certificates are valuable and should be safeguarded, since replacement takes time and requires payment by the shareholder of a surety bond premium. If a certificate is lost, stolen, or destroyed, Bank of Boston should be notified. Registered mail should be used whenever a certificate is mailed. Dividend Reinvestment Plan MGI Properties offers a Dividend Reinvestment and Share Purchase Plan which allows its shareholders to automatically invest dividends, as well as make voluntary cash payments for the purchase of additional shares. To receive more information, contact Bank of Boston: 617-575-3120 or 800-730-6001. Shareholder Income Tax Information The 1994 quarterly allocation of dividends paid per share for individual shareholders' income tax purposes was as follows: Long-Term Date Paid Ordinary Capital Total in 1994 Income Gain Dividend January 11 $.053 $.157 $.21 April 8 .195 .015 .21 July 14 .093 .127 .22 October 12 .220 - .22 $.561 $.299 $.86 Shareholders should consult their individual tax advisors regarding the appropriate reporting of these dividend payments. MGI Properties (Recycled Paper Logo) Annual Report (Back Cover) Corporate Office 30 Rowes Wharf Boston, Massachusetts 02110-3337 617-330-5335 Regional Office Harrison Township, Michigan 810-468-2690 -----END PRIVACY-ENHANCED MESSAGE-----