-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PkNqKDNX30luvRmAMZaCjZHUYdKS/VsPaytGgDcEzfpArBFb/S24P/d8IioAfcdZ xV1uEP7BipqqeWls5BStmw== 0000950146-96-000083.txt : 19960205 0000950146-96-000083.hdr.sgml : 19960205 ACCESSION NUMBER: 0000950146-96-000083 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960202 SROS: NONE 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06833 FILM NUMBER: 96510719 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 10-K 1 THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d) OF REGULATION S-T UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended November 30, 1995 Commission File No. 1-6833 MGI PROPERTIES (Exact name of Registrant as specified in its charter) Massachusetts 04-6268740 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 30 Rowes Wharf, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 330-5335 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares New York Stock Exchange (par value $l per share) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of January 30, 1996, the aggregate market value of the voting shares of the Registrant held by non-affiliates of the Registrant was $194,679,087. Common Shares Outstanding as of November 30, 1995: 11,502,271 The information required by Part III of Form 10-K will be incorporated by reference to a definitive proxy statement involving the election of Trustees which is expected to be filed by the Registrant pursuant to Regulation 14A within 120 days after the close of its fiscal year ended November 30, 1995. TABLE OF CONTENTS Page PART I.......................................................................1 Item 1. Business.............................................................1 Item 2. Properties.....................................................6 Item 3. Legal Proceedings..............................................8 Item 4. Submission of Matters to a Vote Security Holders...............8 PART II......................................................................9 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................9 Item 6. Selected Financial Data.......................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................11 Item 8. Financial Statements and Supplementary Data...................16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................16 PART III....................................................................17 PART IV.....................................................................18 Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................18 POWER OF ATTORNEY...........................................................22 SIGNATURES..................................................................22 PART I Item 1. Business General MGI Properties (the "Trust" or "MGI") is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts. MGI commenced operations in 1971 as a real estate investment trust. Since that time, the Trust has elected to be treated as a real estate investment trust (a "REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and expects to continue to operate in a manner which will entitle the Trust to be so treated. For each taxable year in which the Trust qualifies as a REIT under the Internal Revenue Code, taxable income distributed to the holders of its shares will not be taxable to the Trust (other than certain items of tax preference which are subject to minimum tax in the hands of the Trust). See "Investment and Operating Policies" and "Portfolio" below and the description of dividend policy included under Item 5 of this Annual Report on Form 10-K for the year ended November 30, 1995 (the "Report"). References herein to the Trust include its wholly-owned subsidiaries. Narrative Description of Business The Trust, which is a self-administered and self-managed equity REIT, owns and manages a diversified portfolio of income-producing real estate assets. The Trust's portfolio consists of investments in multi-use industrial facilities (such as warehouses and research and development buildings), office buildings, apartment complexes and shopping centers. The primary investment objective of the Trust is to make diversified equity and equity-oriented investments in existing properties believed to be capable of producing stable and rising income streams and having long-term capital appreciation potential. The Trust also believes that its active managing and leasing practices can enhance rental income, funds from operations and long-term capital appreciation. These investments have typically taken the form in recent years of a direct equity ownership interest. The Trust employs thirteen persons. Investment and Operating Policies The investment policy of the Trust in its broadest aspect is to seek income of the types permitted to a REIT under Section 856 of the Internal Revenue Code, consistent with its Declaration of Trust. Under its Declaration of Trust, the Trust is permitted to invest in a broad range of real estate and mortgage investments, including among other things equity interests, full or participating interests in securities, whether or not secured by mortgages, interests in rents and any other interests related to real property. The Trust's policies are subject to ongoing review by the Board of Trustees and may be modified from time to time to take into consideration changes in business or economic conditions or otherwise as circumstances warrant. The Trust's investment focus with respect to type of property has, during the last several years, been directed to equity and equity-oriented investments in existing income-producing properties, principally multi-use industrial facilities, office buildings, apartment complexes and shopping centers. MGI continues to believe it is beneficial to diversify its assets by location and type of real estate, although it periodically changes its emphasis from one sector to another in accordance with its perception of market opportunities. Over the past several years, -1- MGI has increased its emphasis on acquisitions in the northeastern region of the United States, primarily in Massachusetts and particularly industrial and office properties. Although the principal investment emphasis is on the direct ownership of income-producing equity real estate, MGI was historically an equity-oriented or "hybrid" (equity and mortgage) trust. MGI's focus turned from mortgage loans with equity participations toward equity investments in which the Trust becomes the sole owner of the property and realizes all of the property's future benefits and risks. Management believes that this evolution has given the Trust greater control over the direction of its portfolio and the opportunity to increase its capital gains potential. In making new investments, MGI's investment focus has been primarily directed to acquiring quality income-producing properties. Over the last several years, MGI's investment philosophy has been to seek what management believes to be value-creating opportunities by acquiring quality properties that have not met their full potential at a cost believed to be below or near replacement value. Management believes that its investments can be managed to create a total return which includes current income and appreciation. The Trust seeks to implement its investment objectives through selective acquisitions of quality properties, leasing and property management in accordance with its defined long term goals, investment in property improvements and periodic sales of selected properties. The Trust has recently operated with an individual investment parameter of below $20,000,000, but has exceeded and may occasionally exceed this parameter. The decision to sell specific properties or investments involves a number of factors, including the economic climate (giving effect also to the impact of tax laws and other regulatory factors), future potential and reinvestment alternatives. As indicated above, the investment focus may change, based upon the ongoing review of the Trust's policies by the Board of Trustees. As is common with any real estate owner or lender investing in equity real estate, partnerships, mortgage loans and other investments, the Trust from time to time may restructure its financial arrangements with partners, tenants or borrowers who encounter financial or other difficulties. Accordingly, the Trust, as circumstances warrant, has modified and will modify a lease, partnership, loan or other agreement if, after investigation, it is established that such modification would be economically feasible and in the best interests of the Trust. Protection of the Trust's investments may require foreclosure or other action leading to acquisition of title to properties underlying its mortgage loans or investments. The Trust's business is limited to investments in real estate, direct or indirect, including investments in and possible future acquisitions of real estate companies. To the extent that the Trust has assets not otherwise invested in real estate, the Trust may invest such assets in other securities, including United States government obligations and commercial paper, so long as, in the opinion of the Trustees, such securities may be held without jeopardizing the Trust's qualification as a REIT under the Internal Revenue Code. Funds necessary to conduct operations are provided from rental and interest income, mortgaging of equity investments, lines of credit, corporate borrowings, sale of marketable securities and loan repayments and amortization. Such operations include the Trust's continuous incurrence of costs, reimbursed and unreimbursed, for improvements and renovations of its existing properties in order to maintain and enhance their value. From time to time, as conditions warrant, the Trust may operate on a leveraged basis by incurring indebtedness in order to increase its capital available for investment when, in the Trustees' judgment, the Trust will benefit thereby. There is no assurance at any given time that borrowed funds will be available or that the terms and conditions of such borrowings will be acceptable. The Trust may employ short-term or long-term borrowings to fund some of its investments. Reference is made to Note 4 of the Notes to Consolidated Financial Statements included in Item 14 below. -2- Portfolio The Trust's real estate portfolio as of November 30, 1995 consisted of interests in fifty-four properties, fifty-one of which are wholly-owned, two are owned by partnerships in which the Trust has an equity interest, one is a property sold by the Trust in a prior year transaction which did not meet the conditions for a completed sale and is still carried as a real estate investment for financial accounting purposes. For tax purposes, the property sold is treated as a mortgage loan receivable. The Trust's real estate investments can be classified by type of property and market region. As of November 30, 1995, the Trust's real estate investments were diversified by type of property as follows: Number of Percent of Type of Property Properties Cost Total - ---------------- ---------- ---- ----- Industrial 28 $ 91,571,000 31% Office 12 78,382,000 27 Retail 6 64,048,000 22 Apartment 8 59,468,000 20 -- ------------ --- Total 54 $293,469,000 100% == ============ === As of November 30, 1995, the Trust's real estate investments were diversified by geographic region as follows: Number of Percent of Region Properties Cost Total - ------ ---------- ---- ----- Northeast 25 $128,450,000 44% Midwest 15 90,766,000 31 Southeast 9 51,493,000 17 Mid-Atlantic 4 22,535,000 8 Other 1 225,000 * -- ------------ --- Total 54 $293,469,000 100% == ============ === - -------------- * Less than 1% -3- Terms under leases to tenants at the Trust's properties range from tenancies-at-will up to twenty years. The Trust leases commercial space to approximately 287 commercial tenants, including 153 office tenants, 71 retail tenants and 63 industrial tenants. Additional information concerning the Trust's mortgage and real estate investments is set forth under Item 2 and in Notes 1, 2, 3, 4 and 7 in the Notes to Consolidated Financial Statements and Schedules III and IV of the Financial Statement Schedules included in Item 14 below. Environmental Matters Under various Federal, state and local laws, ordinances and regulations, an owner of real estate or lender may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property. The costs of such removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Other Federal and state laws require the removal or encapsulation of asbestos containing material in the event of remodeling or renovation. MGI is not aware of any material violation of applicable environmental requirements with respect to any of its real estate investments and MGI is not aware of any environmental liabilities (including asbestos related liabilities) that management believes would have a material adverse effect on MGI's business, assets or results of operations. Competition, Regulation and Other Factors The success of the Trust depends, among other factors, upon general economic conditions and trends, including interest rates, availability of credit, real estate trends, construction costs, income tax laws, governmental regulations and legislation, increases or decreases in operating expenses, zoning laws, population trends and the ability of the Trust to attract tenants and keep its properties leased at profitable levels. The Trust does not consider its real estate business to be seasonal in nature. In the areas of investment permitted to the Trust, there may be a wide variety of competing investors and lenders. The Trust competes with life insurance companies, real estate investment trusts, pension funds, other financial institutions, partnerships, corporations, individuals and other business entities, both domestic and foreign. An increase in the number of competing investors and lenders and the availability of investment funds can have the effect of increasing competition for investments in real estate and reducing the yields realizable with respect to such investments. With respect to properties presently owned by the Trust, or in which it has an investment, the Trust competes with other owners of properties for tenants. The Trust's properties compete for tenants primarily on the basis of location, rent and the condition and design of improvements. Its properties compete with similar properties located in their geographic area, and such properties may be newer and larger than those in which the Trust has an interest. There are no statistics readily available which would enable the Trust to determine its position with respect to its competitors in the real estate investment industry. -4- The Trust has been able to compete effectively despite recessionary conditions in certain regions from time to time and believes that it will be able to do so in the future, by reason of the diverse make-up of its income producing properties, as well as their geographic diversity. However, recessionary economic conditions in certain regions or any adverse changes in local or national economic conditions could result in the inability of some existing tenants (or borrowers) of the Trust to meet their lease or other obligations and could otherwise adversely affect the Trust's ability to attract or retain tenants. Management believes, however, that by reason of the factors stated above and the Trust's financial strength and operating practices, particularly its ability to implement renovations and improvements, it will be able to maintain and over time increase rental income from its properties (although there can be no assurance thereof). -5- Item 2. Properties. The following table sets forth certain information concerning the Trust's properties.
- ---------------------------------------------------------------------------------------------- ------------------------------------- Net Carrying Value Scheduled Lease Expirations Percentage Number of Lease INDUSTRIAL Sq. Ft. Dollars Sq. Ft Leased 1996 1997 Tenants Principal Tenant Expiration - ---------------------------------------------------------------------------------------------- ------------------------------------- Distribution and Manufacturing Wilmington, MA 294,000 $6,922,000 $23.54 100% -- -- 4 Avon Dispatch 5/31/00 St. Louis, MO 200,600 4,045,000 20.16 100% 100% -- 2 Home Decorators 8/31/96 N. Charleston, SC 191,900 2,312,000 12.05 100% -- -- 2 Mill Transportation 12/31/97 St. Louis, MO 95,700 2,158,000 22.54 100% 25% -- 2 S.P. Richards 8/31/98 Bedford, MA 93,200 2,420,000 25.97 100% 49% -- 3 Imaging Technology 7/25/96 Westwood, MA 77,400 1,460,000 18.86 100% -- 100% 1 P.B. Diagnostics 5/31/97 St. Louis, MO 61,300 1,498,000 24.44 100% -- -- 2 I.C.S. Diversified 4/15/97 St. Louis, MO 61,200 1,511,000 24.69 100% -- -- 1 Tyler Mountain Water 12/31/97 Blue Ash, OH 53,200 593,000 11.15 100% 100% -- 1 Aero Mailing 2/28/96 St. Louis, MO 41,000 1,149,000 28.02 100% -- -- 2 Zepp Manufacturing 5/31/00 Blue Ash, OH 38,700 478,000 12.35 100% -- -- 1 Ethicon 9/30/97 Research and Development Tewksbury, MA 189,200 10,665,000 56.37 100% -- -- 1 Avid Technology 6/30/10 Andover, MA 128,400 6,282,000 48.93 100% -- -- 1 Hewlett Packard 7/31/99 Billerica, MA 122,300 4,713,000 38.54 100% -- -- 1 Precision Robots 7/31/02 Wilmington, MA 109,400 4,417,000 40.37 100% -- -- 3 United Shoe Machinery 12/31/01 Chelmsford, MA 108,500 4,611,000 42.50 100% -- -- 1 Telebit, Inc. 7/31/01 Andover, MA 105,500 6,949,000 65.87 100% -- -- 1 ISI Systems, Inc. 4/30/99 Northborough, MA 102,300 2,298,000 22.46 100% -- 24% 3 Folio, Inc. 10/31/00 Wilmington, MA 100,200 2,518,000 25.13 100% -- -- 1 Datawatch 4/30/99 Billerica, MA 100,000 4,182,000 41.82 100% -- -- 1 Bay Networks 6/30/98 Chelmsford, MA 70,900 1,988,000 28.04 100% 5% 4% 6 W.J. Schaffer Assoc. 7/31/98 Bedford, MA 70,600 2,164,000 30.65 100% -- -- 1 Atex Publishing 7/31/98 Littleton, MA 66,500 2,367,000 35.59 100% -- -- 4 X-Rite 12/31/97 Marlborough, MA 59,400 2,337,000 39.34 100% -- -- 4 Diebold Incorporated 11/30/02 Billerica, MA 60,000 2,048,000 34.13 100% -- -- 2 Bay Networks 3/30/00 Billerica, MA 56,300 1,989,000 35.33 100% -- -- 1 Bay Networks 12/31/99 St. Louis, MO 40,900 1,282,000 31.34 100% -- 3% 8 Southtowne Machining 4/30/98 St. Louis, MO 35,600 1,880,000 52.84 100% 57% 20% 3 Interlock Pharmacy Systems 5/31/96 - ------------------------------------------------------------------------------------------------------------------------------------ Total 2,734,200 $87,236,000 $31.91 100% 13% 4% 63 - ------------------------------------------------------------------------------------------------------------------------------------ -6- Item 2. Properties. (continued) - ------------------------------------------------------------------------------------------------------------------------------------ Net Carrying Value Scheduled Lease Expirations Percentage Number of Lease OFFICE Sq. Ft. Dollars Sq. Ft Leased 1996 1997 Tenants Principal Tenant Expiration - ------------------------------------------------------------------------------------------------------------------------------------ Somerset, NJ 178,500 $14,929,000 $83.64 96% 9% 57% 14 Merrill Lynch 6/30/97 Tampa, FL 122,400 9,271,000 75.74 83% 8% 1% 17 Bally's Health 6/30/00 Framingham, MA 107,000 7,257,000 67.82 98% 13% 17% 27 IDG Expo 10/12/99 Boston, MA 106,000 8,732,000 82.38 90% 4% 8% 11 Cambridge Associates 4/26/99 Andover, MA 97,700 7,653,000 78.33 95% -- -- 10 Computer Associates 12/31/02 Ann Arbor, MI 80,000 6,760,000 84.50 100% -- -- 4 Comshare 2/28/05 Naperville, IL 65,300 4,534,000 69.43 96% 5% -- 15 Eby Brown 6/30/04 Greenville, SC 48,600 2,208,000 45.43 90% 31% 4% 26 S.C. Tax Commission 6/30/96 Greenville, SC 46,000 1,605,000 34.97 54% -- 3% 6 S.C. Voc. Rehab. Dept. TAW Boston, MA 37,700 1,900,000 50.40 86% 34% -- 13 ML Securities 9/30/99 Boston, MA 27,100 1,325,000 48.89 83% 8% -- 8 Winthrop Law 2/28/98 Charlotte, NC 16,300 846,000 51.90 100% 47% -- 2 Comprehensive Medical 9/21/96 - ------------------------------------------------------------------------------------------------------------------------------------ Total 932,600 $67,020,000 $71.86 91% 9% 14% 153 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - ------------------------------------------------------------------------------------------------------------------------------------ Aurora, IL 313,000 $26,983,000 $86.21 93% 26% 2% 26 Best Buy 8/31/10 Baltimore, MD 134,800 6,471,000 48.00 100% -- 4% 16 Kmart Corp. 1/30/05 Nashville, TN 111,400 3,792,000 34.04 95% -- 1% 8 Burlington Coat Factory 1/31/10 Peabody, MA 106,900 10,410,000 97.38 100% -- -- 1 Bradlees 10/31/15 Tampa, FL 100,500 8,127,000 80.87 98% 12% -- 19 Publix Supermarket 11/30/06 Hagerstown, MD 40,200 1,423,000 35.40 100% -- -- 1 Giant Food Stores, Inc. 12/31/04 - ------------------------------------------------------------------------------------------------------------------------------------ Total 806,800 $57,206,000 $70.90 96% 12% 2% 71 - ------------------------------------------------------------------------------------------------------------------------------------ Net Carrying Value Percentage APARTMENT Units Dollars Per Unit Leased - ------------------------------------------------------------------------------------------------------------------------------------ Harrison Township, MI 376 $ 7,096,000 $18,875 96% Bloomfield Hills, MI 346 14,381,000 41,564 100% Tampa, FL 264 7,732,000 29,288 94% Laurel, MD 237 11,293,000 47,650 93% Tampa, FL 112 4,863,000 43,420 98% - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,335 $45,365,000 $33,981 96% - ------------------------------------------------------------------------------------------------------------------------------------ Net PARTNERSHIPS Units Carrying Value - ------------------------------------------------------------------------------------------------------------------------------------ Washington, DC (4% ) 778 $ 16,000 San Bruno, CA (2% ) 430 225,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,208 $241,000 - ------------------------------------------------------------------------------------------------------------------------------------
Note: See Note 2 of the Notes to Consolidated Financial Statements included under Item 14 of this Report. -7- Reference is made to Notes 1, 2 and 3 in the Notes to the Consolidated Financial Statement and Schedules III and IV of the Financial Statement Schedules for descriptions of the Trust's investments and properties. Executive Office. The Trust's headquarters, at 30 Rowes Wharf, Boston, Massachusetts, includes approximately 5,400 square feet and is occupied under a lease expiring during 1996. Item 3. Legal Proceedings The Trust is not a party to any material legal proceedings as to which it does not have adequate insurance coverage. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. -8- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) Market Information and Dividends. The principal market on which the Trust's common shares are traded is the New York Stock Exchange, under the symbol MGI. The table below sets forth, for the fiscal quarters indicated, the high and low sales prices on the New York Stock Exchange of the Trust's common shares and dividends paid per common share. Fiscal Sales Price 1995 High Low Dividends ---- ---- --- --------- First Quarter 14 7/8 13 3/8 $.22 Second Quarter 15 1/2 14 1/8 $.22 Third Quarter 15 1/8 14 $.23 Fourth Quarter 16 1/8 14 7/8 $.23 Fiscal Sales Price 1994 High Low Dividends ---- ---- --- --------- First Quarter 15 5/8 13 1/8 $.21 Second Quarter 16 5/8 14 3/8 $.21 Third Quarter 16 14 3/8 $.22 Fourth Quarter 16 13 5/8 $.22 Future dividends will be determined by the Trust's Board of Trustees and will be dependent upon the earnings, financial position and cash requirements of the Trust and other relevant factors existing at the time. The Trust must distribute at least 95% of the Trust's taxable income in order to enable it to qualify as a real estate investment trust for tax purposes. So long as the Trust continues to qualify as a REIT, shareholders will, therefore, receive in the form of dividends at least 95% of the taxable income of the Trust. (b) Approximate Number of Holders of Common Shares. Approximate Number of Holders (as of Title of Class January 30, 1996) - -------------- ----------------- Common Shares, $1.00 2,800 par value -9- Item 6. Selected Financial Data (a)
- ---------------------------------------------------------------------------------------------------------------------- Five Years Ended November 30, ------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Rental and other income $ 44,811,000 $ 43,422,000 $ 36,094,000 $ 27,928,000 $ 30,662,000 Property operating expenses and real estate taxes 17,948,000 17,854,000 14,704,000 11,442,000 12,442,000 - ---------------------------------------------------------------------------------------------------------------------- 26,863,000 25,568,000 21,390,000 16,486,000 18,220,000 Interest and other income 578,000 458,000 804,000 2,661,000 2,469,000 Less expenses: Depreciation and amortization 7,814,000 7,654,000 6,987,000 5,996,000 5,974,000 Interest 5,807,000 5,781,000 5,059,000 5,511,000 6,429,000 General and administrative 2,651,000 2,580,000 2,191,000 2,036,000 2,108,000 - ---------------------------------------------------------------------------------------------------------------------- Income before net gains 11,169,000 10,011,000 7,957,000 5,604,000 6,178,000 Net gains 3,150,000 4,480,000 -- 1,644,000 -- - ---------------------------------------------------------------------------------------------------------------------- Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000 - ---------------------------------------------------------------------------------------------------------------------- SUMMARY OF FINANCIAL POSITION Investments in real estate, at $293,469,000 $267,530,000 $258,663,000 $209,905,000 $208,011,000 cost - ---------------------------------------------------------------------------------------------------------------------- Total assets $274,651,000 $255,971,000 $246,700,000 $214,161,000 $217,428,000 - ---------------------------------------------------------------------------------------------------------------------- Mortgage and other loans $ 84,506,000 $70,954,000 $66,949,000 $ 60,571,000 $67,852,000 payable - ---------------------------------------------------------------------------------------------------------------------- Total shareholders' equity $180,540,000 $176,095,000 $171,039,000 $145,748,000 $145,873,000 - ---------------------------------------------------------------------------------------------------------------------- Weighted average shares 11,487,677 11,450,451 10,574,104 9,402,476 9,396,992 outstanding - ---------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Income before net gains $ .98 $ .87 $ .75 $ .60 $ .66 Net gains .27 .39 -- .17 -- - ---------------------------------------------------------------------------------------------------------------------- Net income $ 1.25 $ 1.26 $ .75 $ .77 $ .66 - ---------------------------------------------------------------------------------------------------------------------- Funds from operations $ 1.65 $ 1.54 $ 1.42 $ 1.24 $ 1.30 - ---------------------------------------------------------------------------------------------------------------------- Dividends $ .90 $ .86 $ .81 $ .80 $ .80 - ----------------------------------------------------------------------------------------------------------------------
Note: Reference is made to the Index to Consolidated Financial Statements filed as part of this report under Item 14. Item 6, Selected Financial Data, should be read in conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere herein. -10- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY Shareholders' equity at November 30, 1995 was $180.5 million, compared to $176.1 million at November 30, 1994. The increase primarily reflects net income in excess of distributions. At November 30, 1995 financial liquidity was provided by $7.0 million in cash and investment securities and by unused lines of credit of $33.0 million. The $5.8 million decrease in cash and investment securities, from $12.9 million at November 30, 1994, reflects the Trust's investing activity during 1995. The principal sources and uses of funds in fiscal 1995 are summarized below: Source of Funds - --------------- Trust operations $19,300,000 Sales of real estate, net 16,900,000 New borrowing, net of fees, prepayments and amortization 12,600,000 $48,800,000 Uses of Funds - ------------- Real estate acquisitions $38,300,000 Dividends 10,300,000 Additions to real estate 4,400,000 Deferred tenant charges 1,600,000 $54,600,000 During 1995, the Trust acquired eight Massachusetts properties -- three office and five industrial buildings. In addition, upon the completion of construction, the Trust acquired title to a department store which was subject to the Trust's $10.2 million first mortgage construction loan and which had been previously reflected as an investment in real estate for financial reporting purposes. In December 1995, the Trust acquired three additional industrial buildings. A summary of real estate acquisitions is as follows: Date Square Fiscal 1995 Acquisitions Acquired Feet Cost - ------------------------ -------- ---- ---- Industrial Tewksbury, Massachusetts 3/95 189,200 $10,700,000 Northborough, Massachusetts 5/95 102,300 2,300,000 Marlborough, Massachusetts 6/95 59,400 2,400,000 Littleton, Massachusetts 9/95 66,500 2,400,000 Chelmsford, Massachusetts 10/95 108,500 4,600,000 Office Boston, Massachusetts 12/94 37,700 1,900,000 Andover, Massachusetts 10/95 97,700 7,700,000 Boston, Massachusetts 11/95 27,100 1,300,000 Retail Peabody, Massachusetts 8/95 106,900 5,000,000 (Additions) ------- --------- 795,300 $38,300,000 ======= =========== Fiscal 1996 Acquisitions through January 1996 - --------------------------------------------- Industrial Marlborough, Massachusetts 12/95 75,000 $ 2,800,000 Franklin, Massachusetts 12/95 83,500 3,800,000 Franklin, Massachusetts 12/95 65,300 3,200,000 ------ --------- 223,800 $ 9,800,000 ======= =========== -11- Mortgage and other loans payable totaled $84.5 million at November 30, 1995 (79% at fixed rates and 21% at floating rates), a net increase of $13.5 million compared to $71.0 million at November 30, 1994. During 1995, the Trust executed four mortgages totaling $29.0 million with an average effective interest rate of 7.8%. In addition, the Trust repaid $24.0 million of debt in conjunction with mortgage refinancings. The retired debt had an average effective rate of 9.1%. Scheduled payments of loan principal amortization and other payments totaled $1.5 million. In 1995, MGI increased its secured lines of credit by approximately $9.0 million, which increased the total lines of credit to $45.0 million. At November 30, 1995, the Trust had $12.0 million outstanding on its lines. Subsequent to year end, the Trust borrowed an additional $9.5 million from its lines which was used to acquire the three industrial properties. Scheduled loan principal payments due within twelve months of November 30, 1995 total $7.8 million. MGI believes it will continue to be able to extend or refinance maturing mortgage loans upon satisfactory terms. Other cash requirements in 1996 are distributions to shareholders, capital and tenant improvements and other leasing expenditures required to maintain MGI's current occupancy levels and other investment undertakings. During 1995, expenditures for capital and tenant improvements totaled $1.8 million and $2.5 million, respectively. Included in the amount for capital improvements are $0.4 million of costs associated with building renovations. During 1996, budgeted renovation costs are anticipated to aggregate $2.4 million, of which approximately $1.5 million is related to Boston office properties, the balance being associated with the partial remodeling of a Michigan apartment complex. Additionally, for 1996 the Trust has estimated recurring capital expenditures will total $1.1 million, including $0.6 million which pertains to interior and exterior improvements for its apartment complexes and $0.5 million for its commercial properties. The Trust has also budgeted $2.3 million for tenant improvements related to recently executed leases. The Trust is contractually committed to approximately $2.9 million of the 1996 capital and tenant improvement projects. Principal sources of funds in the future are expected to be from property operations, mortgaging or refinancing of existing mortgages on properties and MGI's portfolio of investment securities. Other potential sources of funds include the proceeds of public or private offerings of additional equity or debt securities or the sale of real estate investments. The cost of new borrowings or issuances of equity securities will be measured against the anticipated returns of investments to be acquired with such funds. In lieu of proceeds from real estate sales or the sale of equity securities, it is presently anticipated that the purchase of additional properties in 1996 will be primarily financed by debt and, to a lesser extent, by cash flow from operations and short-term investments. MGI believes the combination of available 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 1995 Compared to 1994 Net income for 1995 of $14.3 million, or $1.25 per share, included a net gain of $3.2 million, or $.27 per share, which resulted from the sale of real estate investments. Net income for 1994 was $14.5 million, or $1.26 per share, which included a net gain of $4.5 million, or $.39 per share, resulting from similar sales. Income before net gains increased by $1.2 million to $11.2 million for 1995, compared to $10.0 million in 1994. Funds from operations in 1995 totaled $19.0 million, or $1.65 per share, compared to $17.7 million, or $1.54 per share, in 1994. MGI defines funds from operations as net income (computed in accordance with generally accepted accounting principles), excluding gains (or -12- 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. When comparing 1995 to 1994, the increase in income before net gains resulted principally from an increase in property operating income, which is defined as rental and other income less property operating expenses and real estate taxes. The change in property operating income reflects improvement in properties owned throughout both 1994 and 1995, as well as the effects resulting from the sales and acquisitions of properties. Property Operating Income 1995 Compared To 1994 Net Change - ----------------------------------------------- ---------- Properties held during 1994 and 1995 $ 800,000 1995 and 1994 acquisitions 3,200,000 1995 and 1994 sales (2,700,000) ---------- $ 1,300,000 ========== The change in operating income from the property segments generally derives from the Trust's pattern of acquisitions and sales. Property Operating Income Change By Segment Net Change - ------------------------------------------- ---------- Industrial $1,100,000 Office 600,000 Apartment (300,000) Retail (100,000) -------- $1,300,000 ========== The income growth in the industrial segment is primarily due to the twelve acquisitions completed during the prior two years. These properties added 1.4 million square feet to this segment which now totals 2.7 million square feet. The properties were near or at 100% occupancy throughout 1995, and the Trust executed 405,400 and 224,600 square feet of leases related to 1995 and 1996 expirations, respectively. Scheduled lease expirations for 1996 are 346,800 square feet. The increase in the office segment reflects $0.3 million from the 1995 acquisitions and a $0.3 million improvement from the properties owned throughout both 1995 and 1994. The three 1995 acquisitions totaled 162,500 square feet and bring the office portfolio to 932,600 square feet. As two of the acquisitions occurred in the latter part of the fourth quarter, their earnings impact will not be appreciable until 1996. The increase in operating income from comparable properties is due to an improvement in occupancy and to a lesser extent rental rates. Average occupancy during 1995 was 90%, compared to 88% in 1994. The Trust executed 141,900 and 22,800 square feet of leases related to 1995 and 1996 expirations, respectively. Scheduled lease expirations for 1996 are 84,100 square feet. The change in the apartment segment reflects improvement from comparable properties offset by the effect of property sales in 1994 and 1995. The comparable properties experienced a 4.5% increase in revenue, principally from an increase in rental rates, while operating expenses were relatively unchanged from 1994. This resulted in an increase in operating income of $0.4 million which was offset by the loss of income of $0.9 million from properties sold, when 1995 is compared to 1994. The Trust's interest in a Metairie, Louisiana apartment complex, which -13- was sold in September 1995 for $12.0 million, had generated $1.1 million of operating income for the ten months it was owned during 1995. The Trust's partnership interests contributed an additional $0.2 million of income compared to 1994. Operating income in the retail segment decreased slightly from 1994 due to charges associated with tenant terminations. During the latter part of the third quarter, the Trust acquired a Peabody, Massachusetts department store. The building is being leased by Bradlees, Inc., which filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code in June 1995. In October 1995, Bradlees affirmed its lease with the Trust and subsequently began paying rent. The commencement and affirmation of the lease should help expand revenue for this segment. The Trust executed 115,100 square feet of leases during 1995. Scheduled lease expirations for 1996 are 94,500 square feet. Also contributing to the change in income before net gains and funds from operations when 1995 is compared to 1994 is an increase in interest income which is due generally to higher interest rates on short-term investments during 1995. Depreciation expense increased due to the increase in the number of properties owned. 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. 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. A primary component of the change in income before net gains is property operating income. 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. 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, increased by $0.2 million to $16.1 million excluding $1.0 million of income received during 1993 in connection with the amendment and assignment of a lease at Yorkshire Plaza located in Aurora, Illinois. With respect to the group of properties owned throughout all of 1993 and 1994, apartment property operating income improved by 6% largely due to increases in rental rates, with average occupancy at 94% for both 1993 and 1994. Industrial property operating income improved 20% due to an increase in occupancy. Overall, average occupancy for all industrial properties owned improved by 2% to 98% during 1994. The increases in property operating income from comparable apartment and industrial buildings were offset, however, by a $0.5 million decline from comparable office buildings. Average occupancy in office buildings 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 was largely unchanged, excluding the $1.0 million lease amendment income received in 1993, and average occupancy increased modestly from 92% in 1993 to 93% in 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 -14- 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 previously mentioned. Exclusive of this income, revenue in the group of properties which the Trust owned throughout all of 1993 and 1994 increased by $0.5 million. Rental income from the comparable portfolio of apartments and industrial buildings increased while revenue in the office segment 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 and (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 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. During the past three fiscal years, the impact of inflation on MGI's operations and investment activity has not been significant. 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. -15- Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data are included under Item 14 of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. -16- PART III The information required by Items 10, 11, 12 and 13 of this Part III has been omitted from this Report since the Registrant intends to file with the Securities and Exchange Commission a definitive proxy statement which involves the election of Trustees not later than 120 days after the close of the Registrant's last fiscal year. -17- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. CONSOLIDATED FINANCIAL STATEMENTS INDEX Independent Auditors' Report Financial Statements: Consolidated Balance Sheets, November 30, 1995 and 1994 Consolidated Statements of Earnings, Years ended November 30, 1995, 1994 and 1993 Consolidated Statements of Cash Flows, Years ended November 30, 1995, 1994 and 1993 Consolidated Statements of Changes in Shareholders' Equity, Years ended November 30, 1995, 1994 and 1993 Notes to Consolidated Financial Statements 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Financial Statement Schedules (as of or for the year ended November 30, 1995): Schedule III, Real Estate and Accumulated Depreciation Schedule IV, Mortgage and Other Loans on Real Estate Exhibit XI - Computation of Net Income Per Share Assuming Full Dilution Exhibit XXVII - Financial Data Schedule for year ended November 30, 1995 (EDGAR filing only) Other schedules are omitted for the reasons that they are not required, are not applicable, or the required information is set forth in the financial statements or notes thereto. 3. EXHIBITS Sequentially Numbered Page 3(a) Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3 of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1981 (the "1981 10-K"). (b) Certificate of First Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3 of the 1981 10-K. (c) Certificate of Second Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to the Trust's Report on Form 8-K, filed on January 13, 1983. -18- (d) Certificate of Third Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3(d) to Amendment No. 1 to the Trust's Registration Statement on Form S-2 filed on June 7, 1985. (e) Certificate of Fourth Amendment of Second Amended and Restated Declaration of Trust, dated October 17, 1986, incorporated by reference to the Trust's Annual Report on Form 10-K for the year ended November 30, 1986. (f) Certificate of Fifth Amendment of Second Amended and Restated Declaration of Trust, dated March 25, 1987, incorporated by reference to Exhibit 3(f) of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1987. (g) Certificate of Sixth Amendment of Second Amended and Restated Declaration of Trust, dated February 10, 1988, incorporated by reference to Exhibit 4(g) of the Trust's Registration Statement on Form S-8 filed on May 3, 1988. (h) Certificate of Seventh Amendment of Second Amended and Restated Declaration of Trust, dated June 30, 1988, incorporated by reference to Exhibit 4.8 of the Trust's Registration Statement on Form S-4 filed on November 10, 1988 (Reg. No. 33-25495). (i) Certificate of Eighth Amendment of Second Amended and Restated Declaration of Trust, dated March 27, 1989, incorporated by reference to Exhibit 3(i) of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1989 (the "1989 10-K"). (j) By-Laws, incorporated by reference to the Trust's Report on Form 8-K, filed on January 12, 1983. (k) Certificate of Amendment of By-Laws, dated March 21, 1989, incorporated by reference to the Trust's Report on Form 8-K dated March 21, 1989. (l) Rights Agreement, dated as of June 21, 1989 between the Trust and The First National Bank of Boston as Rights Agent, incorporated by reference to Exhibit 1 to the -19- Trust's Registration Statement on Form 8-A, filed on June 27, 1989. (m) Certificate of Vote of the Trustees Designating a Series of Preferred Shares, dated June 21, 1989, incorporated by reference to Exhibit 3(m) of the 1989 10-K. (n) Certificate of Eleventh Amendment of Second Amended and Restated Declaration of Trust which increased the authorized number of Common Shares from 15,000,000 to 17,500,000 incorporated by reference to Exhibit B to the Trust's Quarterly Report Form 10-Q for the ended May 31, 1995. (o) Certificate of Twelfth Amendment of Second Amended and Restated Declaration of Trust which increased the authorized number of Preferred Shares from 2,000,000 to 6,000,000 incorporated by reference to Exhibit B to the Trust's Quarterly Report Form 10-Q for the quarter ended May 31, 1995. 10(a) Mortgage Growth Investors Incentive Stock Option Plan for Key Employees, incorporated by reference to the Trust's Definitive Proxy Statement dated March 15, 1982. (b) Mortgage Growth Investors Stock 1982 Option Plan For Trustees, incorporated by reference to the Trust's Definitive Proxy Statement dated March 15, 1982. (c) MGI Properties 1988 Stock Option and Stock Appreciation Rights Plans for Key Employees and Trustees, incorporated by reference to the Trust's Definitive Proxy Statement, dated February 19, 1988. (d) Amendment to MGI Properties' 1982 Incentive Stock Option Plan for Key Employees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(d) of the 1989 10-K. (e) Amendment to MGI Properties' 1982 Stock Option Plan for Trustees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(e) of the 1989 10-K. -20- (f) Amendment to MGI Properties' 1988 Stock Option and Stock Appreciation Rights Plan for Key Employees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(f) of the 1989 10-K. (g) Amendment to MGI Properties' 1988 Stock Option Plan for Trustees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(g) of the 1989 10-K. (h) Amended and Restated Severance Compensation Plan, dated as of December 19, 1989, incorporated by reference to Exhibit 10(i) of the 1989 10-K. (i) Amended and Restated MGI Properties Long Term Share Bonus Plan, dated December 18, 1991, incorporated by reference to Exhibit 10(i) of the 1991 10-K. (j) MGI Properties 1994 Stock Option and Stock Appreciation Rights Plan for Key Employees and Trustees incorporated by reference to the Trust's Definitive Proxy Statement, dated February 18, 1994. (k) The Dividend Reinvestment and Share Purchase Plan of MGI Properties incorporated by reference to the Trust's Report on Form S-3, filed on July 1, 1994. 11 Computation of Net Income Per Share, Assuming Full Dilution, included under Item 14 of this Report. 24 Auditors' consent. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended November 30, 1995. ------------------------- MGI Properties (the "Trust") is a Massachusetts business trust and all persons dealing with the Trust must look solely to the property of the Trust for the enforcement of any claims against the Trust. Neither the Trustees, officers, agents nor shareholders of the Trust assume any personal liability in connection with its business or assume any personal liability for obligations entered into in its behalf. -21- POWER OF ATTORNEY MGI Properties and each of the undersigned do hereby appoint W. Pearce Coues and Phillip C. Vitali and each of them severally, its or his true and lawful attorneys to execute on behalf of MGI Properties and the undersigned any and all amendments to this Report and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Each of such attorneys shall have the power to act hereunder with or without the other. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 31, 1996 MGI PROPERTIES (Registrant) By: /s/ W. Pearce Coues W. Pearce Coues, Chairman of the Board of Trustees Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ W. Pearce Coues Chairman of the Board of January 31, 1996 W. Pearce Coues Trustees and Chief Executive Officer /s/ Phillip C. Vitali Principal Financial Officer January 31, 1996 Phillip C. Vitali /s/ David P. Morency Principal Accounting Officer January 31, 1996 David P. Morency /s/ George S. Bissell Trustee January 31, 1996 George S. Bissell /s/ Herbert D. Conant Trustee January 31, 1996 Herbert D. Conant /s/ Francis P. Gunning Trustee January 31, 1996 Francis P. Gunning /s/ Colin C. Hampton Trustee January 31, 1996 Colin C. Hampton /s/ George M. Lovejoy, Jr. Trustee January 31, 1996 George M. Lovejoy, Jr. /s/ Rodger P. Nordblom Trustee January 31, 1996 Rodger P. Nordblom -22- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS November 30, 1995 MGI PROPERTIES MGI PROPERTIES Index to Consolidated Financial Statements and Schedules Page Independent Auditors' Report 1 Financial Statements: Consolidated Balance Sheets, November 30, 1995 and 1994 2 Consolidated Statements of Earnings, Years ended November 30, 1995, 1994 and 1993 3 Consolidated Statements of Cash Flows, Years ended November 30, 1995, 1994 and 1993 4 Consolidated Statements of Changes in Shareholders' Equity, Years ended November 30, 1995, 1994 and 1993 5 Notes to Consolidated Financial Statements 6-11 Financial Statement Schedules (as of or for the year ended November 30, 1995): Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage and Other Loans on Real Estate Exhibit XI - Computation of Net Income Per Share, Assuming Full Dilution Other schedules are omitted as they are not required, are not applicable, or the required information is set forth in the consolidated financial statements or notes thereto. Independent Auditors' Report The Board of Trustees and Shareholders MGI Properties: We have audited the accompanying consolidated balance sheets of MGI Properties and subsidiaries as of November 30, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1995 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Boston, Massachusetts December 29, 1995 MGI PROPERTIES Consolidated Balance Sheets November 30, 1995 and 1994
Assets 1995 1994 ------ ---- ---- Real estate, at cost (notes 2, 3 and 4) $ 293,469,000 $ 267,530,000 Accumulated depreciation and amortization (36,375,000) (32,029,000) ----------- ----------- Net investments in real estate 257,094,000 235,501,000 Cash 2,456,000 1,774,000 Short-term investments, at cost, which approximates market value (note 4) 4,589,000 11,118,000 Accounts receivable 3,354,000 2,901,000 Other assets 7,158,000 4,677,000 ----------- ----------- $ 274,651,000 $ 255,971,000 ============= ============= Liabilities and Shareholders' Equity ------------------------------------ Liabilities: Mortgage and other loans payable (note 4) $ 84,506,000 $ 70,954,000 Other liabilities 5,905,000 5,222,000 ----------- ----------- Total liabilities 90,411,000 76,176,000 Deferred gain (note 2) 3,700,000 3,700,000 Commitments (note 7) Shareholders' equity (notes 5 and 6): Preferred shares - $1 par value: 6,000,000 shares authorized; none issued -- -- Common shares - $1 par value: 17,500,000 shares authorized; 11,502,271 issued (11,465,842 at November 30, 1994) 11,502,000 11,466,000 Additional paid-in capital 166,348,000 165,921,000 Undistributed (distributions in excess of) net income 2,690,000 (1,292,000) ----------- ----------- Total shareholders' equity 180,540,000 176,095,000 ----------- ----------- $ 274,651,000 $ 255,971,000 ============= =============
See accompanying notes to consolidated financial statements. 2 MGI PROPERTIES Consolidated Statements of Earnings
Year ended November 30, ----------------------- 1995 1994 1993 ---- ---- ---- Income: Rental and other income $ 44,811,000 $ 43,422,000 $ 36,094,000 Interest 514,000 394,000 713,000 Other 64,000 64,000 91,000 ---------- ---------- ---------- Total income 45,389,000 43,880,000 36,898,000 ---------- ---------- ---------- Expenses: Property operating expenses 12,348,000 12,437,000 10,457,000 Real estate taxes 5,600,000 5,417,000 4,247,000 Depreciation and amortization 7,814,000 7,654,000 6,987,000 Interest 5,807,000 5,781,000 5,059,000 General and administrative 2,651,000 2,580,000 2,191,000 ---------- ---------- ---------- Total expenses 34,220,000 33,869,000 28,941,000 ---------- ---------- ---------- Income before net gains 11,169,000 10,011,000 7,957,000 Net gains (note 2) 3,150,000 4,480,000 -- ---------- ---------- ---------- Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 ========== ========== ========== Per share data: Income before net gains $ .98 $ .87 $ .75 Net gains .27 .39 -- --- --- Net income $ 1.25 $ 1.26 $ .75 ====== ====== ====== Weighted average shares outstanding 11,487,677 11,450,451 10,574,104 ========== ========== ==========
See accompanying notes to consolidated financial statements. 3 MGI PROPERTIES Consolidated Statements of Cash Flows
Year ended November 30, 1995 1994 1993 Cash flows from operating activities: Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,814,000 7,654,000 6,987,000 Net gains (3,150,000) (4,480,000) -- Other 323,000 (244,000) 1,524,000 ------------- ------------- ------------ Net cash provided by operating activities 19,306,000 17,421,000 16,468,000 ------------- ------------- ------------ Cash flows from investing activities: Acquisitions of real estate (38,302,000) (31,786,000) (40,963,000) Additions to real estate (1,825,000) (2,157,000) (1,688,000) Tenant improvements (2,542,000) (1,051,000) (984,000) Deferred tenant charges (1,634,000) (581,000) (528,000) Net proceeds from sales of real estate interests 16,902,000 15,020,000 -- Other (289,000) 58,000 468,000 ------------- ------------- ------------ Net cash used in investing activities (27,690,000) (20,497,000) (43,695,000) ------------- ------------- ------------ Cash flows from financing activities: Proceeds from sale of common shares, net 322,000 251,000 25,722,000 Repayment of mortgage and other loans payable (25,473,000) (10,439,000) (7,688,000) Additions to mortgage and other loans payable, net 38,025,000 24,188,000 13,338,000 Cash distributions paid (10,337,000) (9,848,000) (8,460,000) ------------- ------------- ------------ Net cash provided by financing activities 2,537,000 4,152,000 22,912,000 ------------- ------------- ------------ Net increase (decrease) in cash and short-term investments (5,847,000) 1,076,000 (4,315,000) Cash and cash equivalents: Beginning of year 12,892,000 11,816,000 16,131,000 ------------- ------------- ------------ End of year $ 7,045,000 $ 12,892,000 $ 11,816,000 ============= ============= ============
See accompanying notes to consolidated financial statements. 4 MGI PROPERTIES Consolidated Statements of Changes in Shareholders' Equity
Undistributed Additional (distributions Common paid-in in excess of) shares capital net income ------ ------- ---------- Balance at November 30, 1992 $ 9,448,000 $ 142,060,000 $ (5,432,000) Net income -- -- 7,957,000 Sale of common shares 2,000,000 23,640,000 -- Distributions (note 6) -- -- (8,460,000) Options exercised and other -- (27,000) -- ------------ -------------- ------------ Balance at November 30, 1993 11,448,000 165,673,000 (5,935,000) Net income -- -- 14,491,000 Dividend reinvestment and share purchase plan (note 5) 4,000 57,000 -- Distributions (note 6) -- -- (9,848,000) Options exercised and other 14,000 191,000 -- ------------ -------------- ------------ Balance at November 30, 1994 11,466,000 165,921,000 (1,292,000) Net income -- -- 14,319,000 Dividend reinvestment and share purchase plan (note 5) 19,000 250,000 -- Distributions (note 6) -- -- (10,337,000) Options exercised and other 17,000 177,000 -- ------------ -------------- ------------ Balance at November 30, 1995 $ 11,502,000 $ 166,348,000 $ 2,690,000 ============ ============== ============
See accompanying notes to consolidated financial statements. 5 MGI PROPERTIES 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 1 to 20 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 $6.5 million, $5.8 million and $5.3 million were made for the years ended November 30, 1995, 1994 and 1993, respectively. During 1995, the Trust capitalized interest of $.4 million. (f) Fair Value of Financial Instruments The Trust estimated the fair values of its financial instruments at November 30, 1995 using dis-counted 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. (Continued) 6 MGI PROPERTIES Notes to Consolidated Financial Statements (g) Net Income Per Share Net income per share is computed based on the weighted average number of common shares outstanding. (h) Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. (2) Investments (a) Real Estate A summary of real estate investments follows: Accumulated Buildings depreciation Type of and and Net carrying amount Investment Land improvements amortization 1995 1994 - ---------- ---- ------------ ------------ ---- ---- Industrial $ 19,432,000 $ 72,139,000 $ 4,335,000 $ 87,236,000 $ 69,321,000 Office 15,254,000 63,128,000 11,362,000 67,020,000 55,332,000 Retail 23,647,000 40,401,000 6,842,000 57,206,000 47,760,000 Apartment 8,691,000 50,536,000 13,836,000 45,391,000 57,377,000 Construction in Progress - 5,470,000 Partnership 241,000 241,000 ------------ ------------ ------------ ------------ ------------ $ 67,024,000 $ 226,204,000 $ 36,375,000 $ 257,094,000 $235,501,000 ============ ============= ============ ============= ============ A discussion of certain real estate investments follows: Effective August 1995, the Trust acquired title to the completed department store which was subject to the Trust's $10.2 million first mortgage construction loan. The building is being leased in its entirety by Bradlees, Inc. which filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code in June 1995. In October 1995, Bradlees affirmed its lease with the Trust and subsequently began paying rent. 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 was scheduled to mature in 1995, and the Trust agreed to extend the maturity until January 1997 on essentially the same terms including an interest rate of 7% and a provision 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's 35% ownership interest, direct and indirect, in the partnership owning this complex will increase to 46%. The Trust will retain a purchase option which will allow it to obtain a maximum equity interest of 100%. At November 30, 1995, the Trust carried this asset as a real estate investment at a net carrying value of $7.1 million, which excludes the gain from the sale. (Continued) 7 MGI PROPERTIES Notes to Consolidated Financial Statements With respect to a San Bruno, California partnership interest, 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 connection with a December 1991 refinancing by the partnership, the Trust has deferred the recognition of a gain of $3.7 million. 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 real estate investment for financial reporting purposes. 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 1995, the Trust recognized gains of $3.2 million principally from the sale of one industrial building and the repayment of its loan on a Metairie, Louisiana apartment complex that had been carried as real estate owned for financial reporting purposes. 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. (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, 1995 are: $30.3 million in 1996, $25.9 million in 1997, $20.9 million in 1998, $16.6 million in 1999, $11.7 million in 2000, and $64.5 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 $5.6 million in 1995, $5.4 million in 1994 and $3.4 million in 1993. Operating leases on apartments generally have a term of one year or less. (Continued) 8 MGI PROPERTIES Notes to Consolidated Financial Statements (4) Mortgage and Other Loans Payable Mortgage and other loans payable at November 30 follow:
1995 1994 ---- ---- Mortgage loans, maturing 2000 through 2014, at effective interest rates ranging from 7.56% to 8.85% $ 66,756,000 $ 52,224,000 Mortgage loan at an effective variable interest rate of 8.1% at November 30, 1994 -- 10,884,000 Housing revenue bond, maturing 2007, at 5.70% and 5.40% at November 30, 1995 and 1994, respectively 5,750,000 5,750,000 Amounts outstanding under lines of credit, at an effective interest rate of 8.40% and 9.10% at November 30, 1995 and 1994, respectively 12,000,000 2,000,000 Other, with interest at 7.50% at November 30, 1994 -- 96,000 ------------- ------------- $ 84,506,000 $ 70,954,000 ============= ============= Weighted average interest rate 7.99% 8.48% ==== ====
The mortgage loans payable are nonrecourse and are collateralized by certain real estate investments having a net carrying value of $107 million and the Trust's guarantee of $4.5 million. Loans require monthly principal amortization and/or a balloon payment at maturity. The housing revenue bond is tax exempt and is secured by real estate having a net carrying value of $4.8 million. The bond is also secured by a letter of credit which is collateralized by $2.6 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 3.75% at November 30, 1995 (an effective interest rate of 5.7% due to the payment of fees). The Trust has lines of credit of $30.0 million and $15.0 million maturing August 1998 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 having a net carrying value of $53.1 million and are subject to a variable interest rate. A fee in the amount of .25% per annum is charged on the unused amounts. Principal payments on mortgage and other loans payable due in the next five years and thereafter are as follows: $7.8 million in 1996, $1.9 million in 1997, $8.0 million in 1998, $2.2 million in 1999, $13.9 million in 2000, and $50.7 million thereafter. (Continued) 9 MGI PROPERTIES Notes to Consolidated Financial Statements (5) Shareholders' Equity (a) Stock Option Plans Under the Trust's 1994 and 1988 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: 1995 1994 1993 ---- ---- ---- Balance at beginning of year 549,632 464,532 467,000 Granted 132,000 101,000 24,000 Exercised (7,221) (15,900) (14,468) Expired (5,000) -- (12,000) ------- ------- ------- Balance at end of year 669,411 549,632 464,532 ======= ======= ======= Shares reserved for granting future options 458,325 590,325 121,325 ======= ======= ======= The weighted average exercise price per option at November 30, 1995, 1994 and 1993 was $13.02, $12.62 and $12.16, respectively. The shares reserved expire by April 2004 and all outstanding options expire by April 2005. Of the options granted in fiscal 1995, 56,000 became exercisable in December 1995. Subsequent to November 30, 1995, 132,500 options were granted, of which half are currently exercisable and half are exercisable in December 1996. 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 Under the Trust's Dividend Reinvestment and Share Purchase Plan shareholders of record who own 100 shares or more have the option of electing to receive, in full or in part, dividends in the form of MGI shares in lieu of cash. The price of shares purchased with reinvested dividends is at a 3% discount in the case of newly issued shares. If MGI purchases shares in the open market for the plan, the price for such shares is 100% of the average purchase price paid. Participants in the plan may make additional cash purchases of shares at the same price as shares purchased through the reinvestment of dividends. During the years ended November 30, 1995 and 1994 the Trust issued 18,828 shares and 4,121 shares of common stock through its Dividend Reinvestment and Share Purchase Plan, respectively. (Continued) 10 MGI PROPERTIES Notes to Consolidated Financial Statements (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 $.90 per share ($10.3 million) in 1995, and 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. On December 19, 1995, the Trust declared a dividend of $.24 per share payable on January 12, 1996 to shareholders of record on January 5, 1996. (7) Commitments As of November 30, 1995, the Trust had commitments to purchase three industrial buildings located in Massachusetts totaling 224,000 square feet for an aggregate purchase price of $9.8 million. The three acquisitions were completed in December 1995. In addition, the Trust is contractually committed to approximately $2.9 million of capital and tenant improvements which are expected to be completed during 1996. (8) Quarterly Financial Information (Unaudited) Quarterly results of operations for the years ended November 30, 1995 and 1994 follow:
Quarter Ended ------------- 1995 February 28 May 31 August 31 November 30 ---- ----------- ------ --------- ----------- Total income $ 10,937,000 $ 11,299,000 $ 11,295,000 $ 11,858,000 Total expenses 8,331,000 8,379,000 8,462,000 9,048,000 ------------ ------------ ------------ ------------ Income before net gains 2,606,000 2,920,000 2,833,000 2,810,000 Net gains 1,400,000 -- -- 1,750,000 ------------ ------------ ------------ ------------ Net income $ 4,006,000 $ 2,920,000 $ 2,833,000 $ 4,560,000 ============ ============ ============ ============ Net income per share $ .35 $ .25 $ .25 $ .40 ====== ===== ====== ====== Quarter Ended ------------- 1994 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 ====== ===== ====== ======
11 Schedule III MGI PROPERTIES Real Estate and Accumulated Depreciation November 30, 1995
Gross amounts at which carried at close of period Initial cost Costs ------------------------------- ------------ capitalized Building Building and subsequent to and Description Encumbrances Land improvements acquisition Land improvements Total ----------- ------------ ---- ------------ ----------- ---- ------------ ----- Office Building: Charlotte, NC $ -- $ 150,000 $ 933,000 $ 106,000 $ 150,000 $ 1,039,000 $ 1,189,000 Naperville, IL -- 1,400,000 3,318,000 1,458,000 1,400,000 4,776,000 6,176,000 Greenville, SC -- 246,000 2,490,000 359,000 246,000 2,849,000 3,095,000 Greenville, SC -- 213,000 1,647,000 538,000 213,000 2,185,000 2,398,000 Ann Arbor, Ml -- 686,000 5,618,000 1,804,000 686,000 7,422,000 8,108,000 Tampa, FL -- 2,667,000 8,980,000 217,000 2,667,000 9,197,000 11,864,000 Somerset, NJ -- 3,264,000 13,379,000 1,233,000 3,264,000 14,612,000 17,876,000 Boston, MA (A) 1,730,000 6,925,000 524,000 1,730,000 7,449,000 9,179,000 Framingham, MA (A) 2,105,000 5,109,000 350,000 2,105,000 5,459,000 7,564,000 Boston, MA -- 691,000 1,145,000 92,000 691,000 1,237,000 1,928,000 Andover, MA -- 1,263,000 6,417,000 -- 1,263,000 6,417,000 7,680,000 Boston, MA -- 839,000 486,000 -- 839,000 486,000 1,325,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- -- 15,254,000 56,447,000 6,681,000 15,254,000 63,128,000 78,382,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- Retail: Hagerstown, MD -- 364,000 1,459,000 -- 364,000 1,459,000 1,823,000 Nashville, TN (A) 1,570,000 2,655,000 505,000 1,570,000 3,160,000 4,730,000 Baltimore, MD (A) 2,000,000 5,710,000 (9,000) 1,832,000 5,869,000 7,701,000 Tampa, FL 5,121,000 2,600,000 6,540,000 485,000 2,600,000 7,025,000 9,625,000 Aurora, IL 13,171,000 12,576,000 15,372,000 1,763,000 12,576,000 17,135,000 29,711,000 Peabody, MA -- 4,705,000 5,753,000 -- 4,705,000 5,753,000 10,458,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- 18,292,000 23,815,000 37,489,000 2,744,000 23,647,000 40,401,000 64,048,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- Apartments: Harrison Township, Ml (A) 700,000 1,948,000 9,540,000 700,000 1,488,000 12,188,000 Tampa, FL 5,231,000 1,850,000 7,009,000 843,000 1,850,000 7,852,000 9,702,000 Tampa, FL 5,750,000 1,178,000 4,466,000 157,000 1,178,000 4,623,000 5,801,000 Bloomfield Hills, Ml 11,093,000 4,325,000 12,126,000 2,065,000 4,325,000 14,191,000 18,516,000 Laurel, MD 9,501,000 613,000 12,722,000 (340,000) 613,000 12,382,000 12,995,000 Mount Clemens, MI -- 25,000 -- -- 25,000 -- 25,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- 31,575,000 8,691,000 38,271,000 12,265,000 8,691,000 50,536,000 59,227,000 ========== ========= ========== ========== ========= ========== ========== Accumulated epreciation and Date Depreciable Description Eamortization acquired life (years) ----------- ------------- -------- ------------ Office Building: Charlotte, NC $ 343,000 1/85 40 Naperville, IL 1,642,000 8/86 20 Greenville, SC 887,000 11/86 20 Greenville, SC 793,000 11/86 20 Ann Arbor, Ml 1,348,000 12/88 40 Tampa, FL 2,593,000 12/88 25 Somerset, NJ 2,947,000 12/88 40 Boston, MA 447,000 6/93 40 Framingham, MA 307,000 9/93 40 Boston, MA 28,000 12/94 40 Andover, MA 27,000 10/95 40 Boston, MA -- 11/95 40 ---------- 11,362,000 ---------- Retail: Hagerstown, MD 400,000 12/84 40 Nashville, TN 938,000 8/86 40 Baltimore, MD 1,230,000 7/87 40 Tampa, FL 1,498,000 12/87 40 Aurora, IL 2,728,000 5/90 40 Peabody, MA 48,000 8/95 40 ---------- 6,842,000 ---------- Apartments: Harrison Township, Ml 5,091,000 11/74 40 Tampa, FL 1,970,000 10/86 40 Tampa, FL 938,000 3/88 40 Bloomfield Hills, Ml 4,135,000 1/89 40 Laurel, MD 1,702,000 9/90 40 Mount Clemens, MI -- ---------- 13,836,000 ----------
12 Schedule III (Continued) MGI PROPERTIES Real Estate and Accumulated Depreciation November 30, 1995
Gross amounts at which carried at close of period Initial cost Costs -------------------------- ------------ capitalized Building Building and subsequent to and Description Encumbrances Land improvements acquisition Land improvements Total ----------- ------------ ---- ------------ ----------- ---- ------------ ----- Industrial Properties N. Charleston, SC -- 300,000 2,738,000 52,000 300,000 2,790,000 3,090,000 Blue Ash, OH -- 176,000 549,000 10,000 176,000 559,000 735,000 Blue Ash, OH -- 129,000 398,000 71,000 129,000 469,000 598,000 St. Louis, MO 1,074,000 218,000 1,171,000 252,000 218,000 1,423,000 1,641,000 St. Louis, MO 1,120,000 360,000 1,337,000 100,000 360,000 1,437,000 1,797,000 Bedford, MA (A) 512,000 2,062,000 33,000 512,000 2,095,000 2,607,000 St. Louis, MO 1,444,000 570,000 1,695,000 38,000 570,000 1,733,000 2,303,000 St. Louis, MO 766,000 500,000 708,000 -- 500,000 708,000 1,208,000 St. Louis, MO 1,027,000 300,000 1,321,000 -- 300,000 1,321,000 1,621,000 St. Louis, MO 1,264,000 613,000 1,347,000 34,000 613,000 1,381,000 1,994,000 Wilmington, MA 4,622,000 2,390,000 4,638,000 209,000 2,390,000 4,847,000 7,237,000 Billerica, MA (A) 376,000 1,749,000 68,000 376,000 1,817,000 2,193,000 Wilmington, MA (A) 1,394,000 3,208,000 -- 1,394,000 3,208,000 4,602,000 Bedford, MA (A) 662,000 1,585,000 -- 662,000 1,585,000 2,247,000 Andover, MA 4,696,000 1,441,000 5,799,000 5,000 1,441,000 5,804,000 7,245,000 Westwood, MA -- 548,000 967,000 18,000 548,000 985,000 1,533,000 Billerica, MA (A) 752,000 3,611,000 -- 752,000 3,611,000 4,363,000 Billerica, MA (A) 420,000 1,652,000 -- 420,000 1,652,000 2,072,000 Andover, MA 4,000,000 1,185,000 5,307,000 -- 1,185,000 5,307,000 6,492,000 Chelmsford, MA -- 354,000 1,567,000 119,000 354,000 1,686,000 2,040,000 Wilmington, MA (A) 501,000 2,013,000 61,000 501,000 2,074,000 2,575,000 St. Louis, MO 2,626,000 526,000 3,617,000 -- 526,000 3,617,000 4,143,000 Billerica, MA -- 681,000 4,130,000 14,000 681,000 4,144,000 4,825,000 Tewksbury, MA -- 1,739,000 8,994,000 -- 1,739,000 8,994,000 10,733,000 Northborough, MA -- 514,000 1,810,000 -- 514,000 1,810,000 2,324,000 Marlborough, MA -- 1,040,000 1,303,000 8,000 1,040,000 1,311,000 2,351,000 Littleton, MA -- 285,000 2,091,000 -- 285,000 2,091,000 2,376,000 Chelmsford, MA -- 946,000 3,680,000 -- 946,000 3,680,000 4,626,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- 22,639,000 19,432,000 71,047,000 1,092,000 19,432,000 72,139,000 91,571,000 ---------- ---------- ---------- --------- ---------- ---------- ---------- 72,506,000 $67,192,000 $203,254,000 $22,782,000 $67,024,000 $226,204,000 293,228,000 =========== ============ =========== =========== ============ Lines of credit 12,000,000 ---------- Partnerships San Bruno, CA 225,000 Washington, D.C. 16,000 ------ 241,000 ------- $84,506,000 $293,469,000 =========== ============ Accumulated depreciation and Date Depreciable Description amortization acquired life (years) ----------- ------------ -------- ------------ Industrial Properties N. Charleston, SC 778,000 12/84 40 Blue Ash, OH 142,000 11/85 40 Blue Ash, OH 120,000 11/85 40 St. Louis, MO 359,000 12/86 40 St. Louis, MO 299,000 5/87 40 Bedford, MA 187,000 10/92 40 St. Louis, MO 145,000 12/92 40 St. Louis, MO 59,000 12/92 40 St. Louis, MO 110,000 12/92 40 St. Louis, MO 114,000 12/92 40 Wilmington, MA 315,000 5/93 40 Billerica, MA 145,000 7/93 40 Wilmington, MA 185,000 8/93 40 Bedford, MA 83,000 11/93 40 Andover, MA 296,000 11/93 40 Westwood, MA 73,000 11/93 40 Billerica, MA 181,000 12/93 40 Billerica, MA 83,000 12/93 40 Andover, MA 210,000 4/94 40 Chelmsford, MA 52,000 11/94 40 Wilmington, MA 57,000 11/94 40 St. Louis, MO 98,000 11/94 40 Billerica, MA 112,000 11/94 40 Tewksbury, MA 68,000 3/95 40 Northborough, MA 26,000 5/95 40 Marlborough, MA 14,000 6/95 40 Littleton, MA 9,000 9/95 40 Chelmsford, MA 15,000 10/95 40 ------- 4,335,000 --------- $36,375,000 ===========
(A) These properties collateralize the Trust's $45 million credit facilities. 13 Schedule III (Continued) MGI PROPERTIES Real Estate and Accumulated Depreciation Years ended November 30, 1995, 1994 and 1993 A summary of real estate investments and accumulated depreciation and amortization for the three years ended November 30 follows:
Real Estate Investments 1995 1994 1993 ---- ---- ---- Balance at beginning of year $ 267,530,000 $ 258,663,000 $ 209,905,000 Add: Investments 38,302,000 31,786,000 47,692,000 Building improvements 1,825,000 2,157,000 1,688,000 Tenant improvements 2,542,000 1,051,000 984,000 ------------- ------------- ------------- 310,199,000 293,657,000 260,269,000 Deduct: Real estate dispositions 15,385,000 24,312,000 -- Other 1,345,000 1,815,000 1,606,000 ------------- ------------- ------------- Balance at end of year $ 293,469,000 $ 267,530,000 $ 258,663,000 ============= ============= ============= Accumulated Depreciation and Amortization Balance at beginning of year $ 32,029,000 $ 29,992,000 $ 24,583,000 Add: Depreciation and amortization 7,798,000 7,638,000 6,969,000 Deduct: Real estate dispositions 1,701,000 3,920,000 -- Other 1,751,000 1,681,000 1,560,000 ------------- ------------- ------------- Balance at end of year $ 36,375,000 $ 32,029,000 $ 29,992,000 ============= ============= =============
The aggregate cost for Federal income tax purposes of the above investments at November 30, 1995 is approximately $283 million. Refer to Note 1 regarding the Trust's accounting policies on real estate investments and depreciation and amortization. 14 Schedule IV MGI PROPERTIES Mortgage and Other Loans on Real Estate Years ended November 30, 1995, 1994 and 1993 A summary of mortgage and other loan activity for the years ended November 30 follows: 1995 1994 1993 ---- ---- ---- Balance at beginning of year $ -- $ -- $ 5,880,000 (a) Add: Additions and advances -- -- 79,000 ----------- ----------- ---------- -- -- 5,959,000 Less: Other principal reductions -- -- (5,959,000)(a) ----------- ----------- ---------- Balance at end of year $ -- $ -- $ -- =========== =========== ============= Notes: (a) The face value of this wrap-around mortgage loan was $6,613,000 and was carried net of four first mortgage loans. At November 30, 1992, the Trust had reached agreement with the borrower to purchase the four industrial properties securing this loan. The acquisition was completed on December 31, 1992. 15 Exhibit XI MGI PROPERTIES Computation of Net Income Per Share Assuming Full Dilution Year ended November 30,
1995 1994 1993 1992 1991 Income before net gains $ 11,169,000 $ 10,011,000 $ 7,957,000 $ 5,604,000 $ 6,178,000 Net gains 3,150,000 4,480,000 -- 1,644,000 -- ------------ ------------ ----------- ----------- ----------- Net income $ 14,319,000 $ 14,491,000 $ 7,957,000 $ 7,248,000 $ 6,178,000 ============ ============ =========== =========== =========== Weighted average number of common shares outstanding 11,487,677 11,450,451 10,574,104 9,402,476 9,396,992 Additional number of share equivalents assuming exercise of options and support 82,408 91,834 55,312 20,274 16,941 ------------ ------------ ----------- ----------- ----------- Weighted average number of shares assuming full dilution 11,570,085 11,542,285 10,629,416 9,422,750 9,413,933 ============ ============ =========== =========== =========== Net income per share assuming full dilution: Income before net gains $ .97 $ .87 $ .75 $ .60 $ .66 Net gains .27 .39 -- .17 -- ------ ------ ----- ----- ----- Net income per share assuming full dilution $ 1.24 $ 1.26 $ .75 $ .77 $ .66 ====== ====== ===== ===== =====
16 Consent of Independent Auditors The Board of Trustees MGI Properties: We consent to incorporation by reference in the registration statements (Nos. 33-21584, 2-97270, 33-65844, 33-53433 and 33-63901) on Form S-8 of MGI Properties and subsidiaries of our report dated December 29, 1995, relating to the consolidated balance sheets of MGI Properties and subsidiaries as of November 30, 1995 and 1994, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows and related schedules for each of the years in the three-year period ended November 30, 1995, which report appears in the November 30, 1995 annual report on Form 10-K of MGI Properties and subsidiaries. KPMG Peat Marwick LLP Boston, Massachusetts January 31, 1996 EX-27 2 R14 FINANCIAL DATA SCHEDULE FOR 1995 10-K
5 1,000 12-MOS NOV-30-1995 NOV-30-1995 7,045 000 3,354 000 000 7,158 293,469 36,375 274,651 5,905 84,506 11,502 000 000 169,038 274,651 0 45,389 000 28,413 0 000 5,807 11,169 000 11,169 0 000 000 14,319 1.25 1.25
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