-----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, L5H4DmtVrSER6cp5d92ZlOn2ggFyqGzk4JEXHd2S4sFtfQbJHZF2YlwVas/ljYGQ gSrRFiDMl1UAgyrE3UcsDg== 0000950146-99-000112.txt : 19990203 0000950146-99-000112.hdr.sgml : 19990203 ACCESSION NUMBER: 0000950146-99-000112 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990202 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-K405 SEC ACT: SEC FILE NUMBER: 001-06833 FILM NUMBER: 99519593 BUSINESS ADDRESS: STREET 1: ONE WINTHROP SQUARE CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174226000 MAIL ADDRESS: STREET 1: ONE WINTHROP SQUARE 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-K405 1 MGI PROPERTIES FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 1998 Commission file number 1-6833 MGI PROPERTIES (Exact name of Registrant as specified in its charter) Massachusetts 04-6268740 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Winthrop Square, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 422-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares New York Stock Exchange (par value $l per share) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of January 28, 1999, the aggregate market value of the voting shares of the Registrant held by non-affiliates of the Registrant was $378,873,000. Common Shares Outstanding as of January 28, 1999: 13,774,221 The information required by Part III of Form 10-K will be incorporated by reference to a definitive proxy statement involving the election of Trustees which is expected to be filed by the Registrant pursuant to Regulation 14A within 120 days after the close of its fiscal year ended November 30, 1998. TABLE OF CONTENTS
Page PART I .............................................................. 1 Item 1. Business................................................. 1 Item 2. Properties...............................................10 Item 3. Legal Proceedings........................................12 Item 4. Submission of Matters to a Vote of Security Holders......12 PART II .............................................................13 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................13 Item 6. Selected Financial Data..................................14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............15 Item 8. Financial Statements and Supplementary Data..............22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................22 PART III ............................................................23 PART IV .............................................................24 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................24 POWER OF ATTORNEY ...................................................27 SIGNATURES ..........................................................27
PART I ITEM 1. BUSINESS GENERAL MGI Properties[RegTM] (the "Trust" or "MGI") is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts. MGI[RegTM] commenced operations in 1971 as a real estate investment trust (a "REIT"). Since that time, the Trust has elected to be treated as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and expects to continue to operate in a manner which will entitle the Trust to be so treated. For each taxable year in which the Trust qualifies as a REIT under the Internal Revenue Code, taxable income distributed to the holders of its Common Shares will not be taxable to the Trust (other than certain items of tax preference which are subject to minimum tax in the hands of the Trust). See "Adoption of Liquidation Plan," "Investment and Operating Policies" and "Portfolio" below and the description of dividend policy included under Item 5 of this Annual Report on Form 10-K for the year ended November 30, 1998 (the "Report"). References herein to the Trust include its wholly-owned subsidiaries. NARRATIVE DESCRIPTION OF BUSINESS MGI is a self-administered equity REIT that owns and operates a diversified portfolio of income producing real estate, which as of November 30, 1998, consisted of 66 commercial properties and three multi-family residential properties. The commercial portfolio consists of 5.6 million square feet, 87% of which is comprised of office, office/research and development and industrial properties. The multi-family properties consist of three residential communities aggregating 959 units. At November 30, 1998, the commercial and residential properties were 97.9% and 94.5% leased, respectively. Since 1992, the Trust has focused on the commercial segment of the real estate market, specifically office, office/research and development and industrial properties located in New England. At November 30, 1998, 66%, based upon cost, of the Trust's real estate assets were located in New England. During the fiscal year ended November 30, 1997, the Trust began the internalization of the property management function of its New England properties. As of November 30, 1998, the Trust had 4.1 million square feet of space under management. The Trust, formerly known as Mortgage Growth Investors[RegTM], initially operated as a hybrid REIT with a significant portion of its assets invested in mortgage loans. In 1985, the Trust began the conversion to an equity REIT, which has direct ownership of income producing properties. The conversion was completed by January 1993. The Trust currently employs 39 persons. ADOPTION OF LIQUIDATION PLAN On June 18, 1998, the Trust publicly announced that its Board of Trustees had decided to undertake a review of strategic alternatives available to the Trust to maximize shareholder value, including a possible liquidation of the Trust's properties. The Trustees ultimately determined that the appropriate course for the Trust to maximize shareholder value was to pursue the sale of its assets pursuant to a plan of complete liquidation of the Trust. Accordingly, on August 12, 1998, the Trustees unanimously approved a Plan of Complete Liquidation and Termination of the Trust (the "Plan") and directed that the Plan be submitted to the Trust's shareholders for approval. The shareholders of the Trust approved the Plan at a special meeting held on October 14, 1998. The Trust's primary business objective is to sell its assets pursuant to the Plan. Based upon management's current estimates, the Trustees expect that sales of the Trust's assets pursuant to the Plan will be made at prices that will yield aggregate net cash liquidation proceeds at approximately the lower end of the originally announced range of between $30 and $33 per share; however, no assurance can be given that per share net cash proceeds will be within this range or will reach this range. The current revised estimate of liquidation proceeds takes into consideration the lingering effects of the fall 1998 credit crisis which adversely impacted the national credit and real estate markets, but which now seems to be receding to some degree. Such estimate does not anticipate renewal of such adverse or other unstable economic conditions. The timing of any distributions of such net cash proceeds will be affected by, among other things, the timing of sales of assets, income tax considerations and the establishment of reserves. Accordingly, no assurances can be made as to the timing of such distributions, which could be made over a substantial period of time; provided, however, 1 that in accordance with the Plan, the final distribution shall be made no later than October 14, 2000 (albeit such distribution could be made to a liquidating trust for the benefit of shareholders). To date, no definitive agreements have been entered into with any prospective buyers with respect to the terms of any liquidating sales of Trust properties, although the Trust has received indications of interest. It is not expected that properties would be sold to any persons deemed to be affiliates of the Trust, though it is possible that one or more shareholders of the Trust who could be deemed "affiliates" of the Trust could purchase properties by virtue of submitting the highest bids in respect of such properties. Each offer to purchase the Trust's assets must be acted upon by the Board of Trustees. As part of the Plan, existing debts and obligations of the Trust will be satisfied from existing cash balances and the proceeds of the sale of the Trust's assets. In addition, reserves may be established, as the Board of Trustees deems necessary, for liabilities or expenses, contingent or otherwise, that may arise. The remaining proceeds will be distributed on a schedule established by the Board of Trustees, on a pro rata basis, to the Trust's shareholders, as full payment for the Common Shares held by each shareholder. Although it is expected that the Trust will continue to qualify under the Internal Revenue Code as a REIT for the period prior to the distribution of the Trust's assets to shareholders (including the possible transfer of assets to a liquidating trust if the liquidation is not completed within two years), no assurance can be given that the Trust will not lose or terminate its status as a REIT as a result of unforeseen circumstances. In the event that the Trust is unable to dispose of all of its assets within the 24 months after adoption of the Plan or if it is otherwise advantageous or appropriate to do so, the Trustees may establish a liquidating trust to which the Trust could distribute in kind its unsold assets. The Trustees would not expect to transfer assets to a liquidating trust except (i) when such a transfer is required to avoid the imposition of federal income taxes on the Trust or (ii) to establish reserves for liabilities and obligations of the Trust (contingent or otherwise) out of amounts that would otherwise be distributed to shareholders. The Plan gives the Trust's Board of Trustees the power to sell any and all of the assets of the Trust without further approval by the shareholders. The Trustees intend to conduct the sale of the Trust's assets in an orderly manner, and are seeking offers for specific pools of assets, although individual sales of assets may be effected and offers for the entire portfolio of investments may be sought. It is currently estimated that substantially all of the properties will be sold within 9-12 months, however, no assurances can be made as to the actual timing of such sales and subsequent distributions, which could be made over a substantial period of time. It is impossible to determine at this time with any precision the aggregate net proceeds that may ultimately be available for distribution to the Trust's shareholders upon liquidation. That amount will depend upon a variety of factors, including national and/or local economic conditions, including the availability of financing upon reasonable terms, the timing of and the net proceeds realized from the sale of the Trust's assets, as well as the ultimate amounts of liquidation-related expenses and other obligations and liabilities that must be satisfied out of the Trust's assets. The assets could be sold to one or more purchasers, in one or more transactions over a period of time, in which case the Trust would continue to operate until all investments are sold or transferred to a liquidating trust. It is the current objective of the Trustees to sell the Trust's assets at aggregate sales prices that will yield net cash proceeds within or as close to the originally announced range of between $30 and $33 per share as possible, however, no assurance can be given that this will be the case. Moreover, in view of the fact that assets may be sold in multiple transactions, the possibility exists that there could be unforeseen events that adversely impact the price of the remaining (unsold) assets, and no assurance can be given that the net proceeds per share will therefore equal such amount. The Trustees also reserve the right to abandon the Plan at any time, due to adverse or unstable real estate or financial market conditions. Reference is made to the Trust's definitive Proxy Statement, dated September 10, 1998, in respect of the Special Meeting of Shareholders held on October 14, 1998, which is incorporated herein by reference and filed as an exhibit hereto, for a discussion of the Trust's Plan of Liquidation, including the risk factors and certain other considerations 2 associated therewith, as well as the income tax consequences of the Plan to shareholders and to the Trust. See also "Risk Factors" below. INVESTMENT AND OPERATING POLICIES The Trust's primary business objective, prior to the adoption of the Plan, had been to increase funds from operations ("FFO"), while building additional value of its real estate investments through income growth and capital appreciation. The Trust's policies have been subject to ongoing review by the Board of Trustees and may be modified from time to time to take into consideration changes in business or economic conditions or otherwise as circumstances warrant. Prior to the adoption of the Plan, the cornerstones of the Trust's operating policies were (1) the active management of its real estate, (2) a focus on maintaining the quality of its properties and the demand for its properties at a level that will support high occupancy rates, leasing attractiveness to quality tenants and increasing rental rates and (3) the acquisition of high quality properties. During the last several years, the Trust's investment focus with respect to type of property has been directed primarily toward the commercial segment of the New England real estate market, particularly industrial, office/research and development and office properties. MGI's philosophy has been to seek what management believes to be value-creating opportunities by frequently acquiring quality properties that have not met their full potential, at a cost believed to be below replacement value. Management believes that its investments can be actively managed to create a total return which includes current income and capital appreciation. MGI's commercial portfolio is generally comprised of general purpose, functional buildings rather than properties characterized by demand limited to a specific type and size of tenant. Many of the Trust's properties are easily divisible so as to accommodate users of various amounts of space. A significant number of MGI's properties are located in recognized business parks or at nodes with easy access to highways and commercial areas and sufficient residential support. MGI's leasing, maintenance and tenant and capital improvement activities have been designed to attract and retain quality tenants and maintain high occupancy rates. Management believes that the internalization of the property management function with respect to its New England properties has improved service, reduced operating costs and provided a strategic competitive advantage. With regard to certain properties outside of New England, MGI believes that using local property management companies currently provides cost effective management and has resulted in improved access to significant market information and improved tenant satisfaction as a result of the personnel dedicated solely to MGI's properties. MGI's officers typically work with local property managers to actively manage these properties. Generally, MGI is directly involved in establishing the strategic direction for each property, identifying new tenants, negotiating leases, budgeting and monitoring operating performance and implementing and directing significant renovations and rehabilitations. MGI has sought to maintain a well-balanced, conservative and flexible capital structure by: (i) maintaining a conservative dividend pay-out ratio that enables MGI to both reinvest in capital and tenant improvements for existing properties and increase cash available for investment; (ii) borrowing primarily at fixed rates; (iii) extending and sequencing the maturity dates of its debt; and (iv) maintaining conservative debt service coverage ratios. Management believes that these strategies have enabled the Trust to access debt and/or equity capital markets for its long-term investment requirements, upon satisfactory terms. The Trust's business has been limited to investments in real estate, direct or indirect, including investments in real estate companies. To the extent that the Trust has assets not otherwise invested in real estate, the Trust may invest such assets in other securities, including United States government obligations and commercial paper, so long as, in the opinion of the Trustees, such securities may be held without jeopardizing the Trust's qualification as a REIT under the Internal Revenue Code. Funds necessary to conduct operations have been provided from rental and interest income, mortgaging of equity investments, lines of credit, corporate borrowings, the sale of marketable securities, loan repayments and amortization. Such operations include the Trust's continuous incurrence of costs, reimbursed and unreimbursed, for improvements and renovations of its existing properties in order to maintain and enhance their value. The Trust has operated on a 3 leveraged basis by incurring indebtedness in order to increase its capital available for investment when, in the Board of Trustees' judgment, the Trust would benefit thereby (see "Risk Factors--Leverage"). The Trust has employed short-term or long-term borrowings to fund some of its investments. The Trust's Debt to Total Assets ratio was 33% at November 30, 1998. Reference is made to Note 5 of the Notes to Consolidated Financial Statements included in Item 14 below. PORTFOLIO The Trust's portfolio at November 30, 1998 consisted of investments in 66 commercial properties and three multi-family residential properties. The Trust's real estate investments can be classified by type of properties and geographic location. As of November 30, 1998, the Trust's real estate investments were diversified by property type as follows:
% of Portfolio % of Based on Number of Square Feet/ Portfolio 1998 Property % Properties Units Based on Cost Operating Income Leased - ----------------------------------------------------------------------------------------------------- Office 24 1,813,900 39.9% 37.7% 97.6% Office/R&D 17 1,394,000 17.0% 19.2% 100.0% Industrial 16 1,684,800 16.4% 20.0% 97.6% Retail 5 755,400 14.7% 11.0% 95.4% Land and Other 4 - .7% 1.0% 100.0% - ----------------------------------------------------------------------------------------------------- Total Commercial 66 5,648,100 88.7% 88.9% 97.9% ===================================================================================================== Multi-family 3 959 11.3% 11.1% 94.5% - ----------------------------------------------------------------------------------------------------- Total Portfolio 69 100.0% 100.0% 97.3% =====================================================================================================
As of November 30, 1998, the Trust's real estate investments were diversified by geographic region as follows:
% of Portfolio Square Feet of % of Based on Number of Commercial Apartment Portfolio 1998 Property % Location Properties Property Units Based on Cost Operating Income Leased - ------------------------------------------------------------------------------------------------------- New England 55 4,521,300 - 65.8% 71.1% 98.5% Mid-West 5 442,500 722 17.7% 14.1% 93.4% Southeast 5 318,800 - 6.8% 5.7% 92.8% Mid-Atlantic 4 365,500 237 9.7% 9.1% 99.0% - ------------------------------------------------------------------------------------------------------- Total Portfolio 69 5,648,100 959 100.0% 100.0% 97.3% =======================================================================================================
Lease terms relating to the Trust's properties range from tenancies-at-will up to 17 years. The Trust leases commercial space to 375 commercial tenants, including 233 office tenants, 63 retail tenants, 49 industrial tenants and 30 office/research and development tenants. Additional information concerning the Trust's real estate investments is set forth under Item 2 and in Notes 1, 2, 3, 4 and 5 in the Notes to Consolidated Financial Statements and Schedule III of the Financial Statement Schedule included in Item 14 below. COMPETITION, REGULATION AND OTHER FACTORS The success of the Trust's operations has been dependent, among other factors, upon general economic conditions and trends, including interest rates, availability of credit, real estate trends, construction costs, income tax laws, governmental regulations and legislation, increases or decreases in operating expenses, zoning laws, population trends and the abil- 4 ity of the Trust to attract tenants and keep its properties leased at profitable levels. The Trust does not consider its real estate business to be seasonal in nature. In the areas of investment permitted to the Trust, there have been a wide variety of competing investors and lenders. The Trust has competed with life insurance companies, REITs, pension funds, other financial institutions, partnerships, corporations, individuals and other business entities, both domestic and foreign. With respect to properties presently owned by the Trust, or in which the Trust has an investment, the Trust competes with other owners of properties for tenants. The Trust's properties compete for tenants primarily on the basis of location, rent and the condition and design of improvements. Its properties compete with similar properties located in their geographic area, and such properties may be newer and larger than those in which the Trust has an interest. There are no statistics readily available which would enable the Trust to determine its position with respect to its competitors in the real estate investment industry. The Trust has been able to compete effectively despite recessionary conditions in certain regions from time to time and management believes that this will continue principally by reason of the diverse make-up of the Trust's income producing properties and the diversity of its tenant base. However, recessionary economic conditions in certain regions (particularly New England, where 80% of the Trust's commercial properties, based on square footage, are located) or any adverse changes in local, national or international economic conditions could result in the inability of some existing tenants of the Trust to meet their lease or other obligations and could otherwise adversely affect the Trust's ability to attract or retain tenants. Management believes, however, that by reason of the factors stated above and the Trust's financial strength and operating practices, particularly its ability to implement renovations and improvements, it will be able to maintain occupancies and, over time, increase rental income from its properties, although there can be no assurance thereof. RISK FACTORS Factors Pertaining to Plan of Liquidation No Assurances of Distributions. There can be no assurance that the Trust will be successful in disposing of properties for values approximating those currently estimated by the Trust or that related liquidating distributions will occur within the original timetable. If values of the Trust's assets decline or the costs and expenses related to such sales and to the liquidation process exceed those which are currently estimated by the Trust, the liquidation may not yield distributions as great as or greater than the recent market prices of the Common Shares. No assurances can be made as to the actual amount and timing of distributions, which could be made over a substantial period of time. The implementation of the Plan, including the actual amount and timing of distributions, could be affected by negative or unstable global, national or local economic conditions, including the lingering effects of the fall 1998 credit crisis which has adversely impacted the national credit and real estate markets. Decreasing Liquidity. As assets of the Trust are sold and proceeds are distributed, the market capitalization and "float" will diminish further and market interest in the Common Shares by the investment community may diminish, thereby reducing or effectively eliminating the market demand and liquidity for the Common Shares, which would adversely affect the market price for the Common Shares. At a later stage of the liquidation process, the New York Stock Exchange will cause the common shares to be delisted. Sales of Assets Not Subject to Shareholder Approval. The Trustees have the authority to sell any and all of the Trust's assets on such terms as the Board of Trustees determines appropriate. Notably, the shareholders will have no subsequent opportunity to vote on such matters and will, therefore, have no right to approve or disapprove the terms of such sales. Qualification as a REIT. The calculation of the estimated liquidation price per share set forth herein, assumes that the Trust will continue to qualify as a REIT under the Code during the entire liquidation process and, therefore, no provision has been made for federal income taxes. Although the Trust expects to maintain such REIT qualification, there can be no assurance thereof. See "Adverse Consequences of Failure to Qualify as a REIT and Other Tax Risks" below. 5 Risks of Abandonment of Plan. In the event the Plan is abandoned by the Trustees (at any time during the liquidation process) due to unstable or unfavorable real estate or financial market conditions and at a time when the Trust is significantly reduced in size, certain operating risks will increase, as will the risk that the Trust's share price will trade at a greater discount to the perceived underlying value of its real estate holdings. Leverage The Trust's obligations for borrowed money totaled $130.5 million at November 30, 1998, representing 33% of its total assets. The formation documents of the Trust do not contain any limitation on the amount or percentage of indebtedness the Trust might incur. The Trustees reserve the right to increase such leverage in the event (not now anticipated) investment activities are resumed. Increases in the Trust's leverage could increase the risk of default under its outstanding indebtedness. The Trust's failure to pay its debt obligations when due could result in the Trust's loss of the properties collateralizing such indebtedness or otherwise adversely affect the Trust. The Trust's debt obligations subject to floating interest rates at November 30, 1998 aggregated approximately $35 million at a weighted average interest rate of approximately 6.5% and represented 26.8% of the Trust's outstanding debt. Significant increases in interest rates on floating rate debt would adversely affect the net income, funds from operations and cash available for distribution to shareholders. These risks may inhibit the Trust's ability to raise capital, a situation no longer anticipated. Geographic Concentration The Trust's operating income and the value of its properties may be affected by a number of factors, including the local economic climate (which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other factors) and local real estate conditions (such as oversupply of or reduced demand for commercial or other properties). At November 30, 1998, approximately 80% of MGI's commercial real estate assets, based on square footage (66% based upon cost), were located in New England, primarily in the suburban Boston area. The Trust's performance and its ability to make distributions to shareholders have been largely dependent on the economic conditions in the markets where the Trust's properties are located. There can be no assurance as to the continued growth of the economy in these markets or other markets upon which the Trust's tenants depend. Negative economic changes in these markets may, therefore, adversely affect the Trust. Miscellaneous Real Estate Investment Considerations Real property investments are subject to varying degrees of risk. The returns available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If the Trust's properties do not generate revenues sufficient to meet operating expenses, including debt service, tenant improvements, leasing commissions and other capital expenditures, the Trust may have to borrow additional amounts to cover costs, and the Trust's cash flow and ability to make distributions to its shareholders will be adversely affected. The Trust's operating income and the value of its properties may be adversely affected by a number of factors, including the national economic climate (including the availability of financing upon reasonable terms); the local economic climate; local real estate conditions; the perceptions of prospective tenants of the attractiveness of the property; the ability of the Trust to provide adequate management, maintenance and insurance; and increased operating costs (including real estate taxes and utilities). In addition, real estate values and income from properties are also affected by such factors as applicable laws, including tax laws, interest rate levels and the availability of financing. Numerous office and industrial properties compete with the Trust's properties in attracting tenants to lease space. Some of these competing properties are newer or are in more desirable locations than some of the Trust's properties. Significant development of office or industrial properties in a particular area could have an adverse effect, material or otherwise, on the Trust's ability to lease space in its properties and on the rents charged. The Trust is subject to the risks that upon expiration of leases for space located in its properties, the leases may not be renewed, the space may not be re-let or the terms of renewal or re-letting (including the cost of required renovations) may be less favorable than current lease terms. In addition, certain leases provide for early cancellation in certain 6 events. If the Trust were unable to promptly re-let or renew the leases for all or a substantial portion of this space or if the rental rates upon such renewal or re-letting were significantly lower than expected, the Trust's cash flow and ability to make distributions to shareholders may be adversely affected. Although the Trust believes its properties are generally multi-purpose and could be re-let to other tenants, some properties could require reconfiguration or remodeling before the property could be re-let to other tenants. Any such required activity could delay immediate occupancy by the re-letting tenant. Equity real estate investments are relatively illiquid. Such illiquidity will tend to limit the ability of the Trust to vary its portfolio promptly in response to changes in economic or other conditions. Furthermore, the tax laws impose a 100% tax on net gain from "prohibited transactions," i.e., sales of property held primarily for sale to customers in the ordinary course of a trade or business. The 100% tax is not imposed on net gain from sales of property held for at least four years, if certain other conditions are met, including a limitation as to the number of such sales per year. Generally, the potential application of the 100% tax limits the Trust's ability to sell properties without adversely affecting returns to the holders of Common Shares. Although the Trust believes that the sale of the Trust's assets pursuant to the Plan of Liquidation should not be subject to the 100% tax, the Trust will nevertheless attempt to structure the sale or other disposition of the Trust's assets in a manner that will prevent such sales or dispositions from being taxed as prohibited transactions. Because increases in certain taxes and expenses are not always passed through to tenants under leases, such increases may adversely affect the Trust's cash flow and its ability to make distributions to shareholders. The Trust's properties are also subject to various federal, state and local regulatory requirements, such as the Americans with Disabilities Act and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. The Trust believes that the properties are currently in compliance with all such regulatory requirements. However, there can be no assurance that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by the Trust and could have an adverse effect on the Trust's cash flow and distributions. Financial Condition (and Bankruptcy) of Tenants The Trust's net income, funds from operations and cash available for distribution would be adversely affected if a significant tenant or a significant number of tenants becomes unable to meet their obligations. In the event of a default by a tenant, the Trust could experience delays and incur substantial costs in enforcing its rights as lessor. Upon such a default, the Trust's cash flow could also be reduced if the Trust was unable to re-lease, upon satisfactory terms, any significant portion of its properties. At any time, a tenant of the Trust's properties may seek the protection of the bankruptcy laws, which could result in the rejection and termination of such tenant's lease and thereby cause a reduction in the Trust's net income, funds from operations and cash available for distribution. No assurance can be given that tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will affirm their leases and continue to make rental payments in a timely manner. Furthermore, protection of the Trust's investments may require foreclosure or other action leading to acquisition of title to properties underlying its mortgage loans or similar investments. As of November 30, 1998, one significant tenant, Bradlees, Inc., is operating under Chapter 11 of the Federal Bankruptcy Code and its plan of reorganization has been confirmed. Although its lease with the Trust has been affirmed, there can be no assurance that future operating performance will not be adversely affected by developments with respect to Bradlees, Inc., which is expected to emerge from bankruptcy as early as February 1999. Potential Environmental Liabilities Under various Federal, state and local laws, ordinances and regulations, such as the Comprehensive Environmental Response Compensation and Liability Act or "CERCLA," and common laws, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property as well as certain other costs, including governmental fines and injuries to persons and property. Such laws often impose such 7 liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to remediate such substances properly, may adversely affect the owner's or operator's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real property for personal injuries associated with asbestos-containing materials. Substantially all of the Trust's properties have been subjected to Phase I or similar environmental audits by independent environmental consultants. These environmental audit reports have not revealed any potential significant environmental liability, nor is the Trust aware of any environmental liability with respect to its properties that it believes would have a material adverse effect on the Trust's business, properties or results of operations. This evaluation however, could prove to be incorrect depending on certain factors. For example, the Trust's assessments may not reveal all environmental liabilities or there may be material environmental liabilities of which the Trust is unaware. In addition, assumptions regarding groundwater flow and the existence of contamination are based on available sampling data, and there are no assurances that the data is reliable in all cases. Moreover, there can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability on the Trust or (ii) the current environmental condition of the Trust's properties will not be affected by tenants, by the condition of land or operations in the vicinity of the Trust's properties (such as the presence of underground storage tanks), or by third parties unrelated to the Trust. Some tenants use or generate hazardous substances in the ordinary course of their respective businesses. These tenants are required under their leases to comply with all applicable laws and have agreed to indemnify the Trust for any claims resulting from noncompliance, and the Trust is not aware of any environmental problems resulting from the tenants' use or generation of hazardous substances. There are no assurances that all tenants will comply with the terms of their leases or remain solvent and that the Trust may not at some point be responsible for contamination caused by such tenants. Insurance Although there can be no assurance thereof, MGI carries comprehensive general liability coverage and umbrella liability coverage on all of its properties with limits of liability deemed adequate to insure against liability claims and provide for cost of defense. The Trust is also insured against the risk of physical loss in amounts estimated to be adequate to reimburse it on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. However, there can be no assurance that this coverage will be adequate or that it will insure all of the risks to which the Trust's properties are subject. By reason of the high cost of earthquake and flood insurance and the fluctuations in the price and availability, management has determined that the risk of loss due to earthquake and flood does not currently justify the cost of such coverage, however, management may periodically reconsider its position. In the event of an uninsured loss or a loss in excess of uninsured limits, the Trust could lose its equity in the subject property, as well as the anticipated future revenue from such property. Adverse Consequences of Failure to Qualify as a REIT and Other Tax Risks The Trust believes that it has operated in a manner that permits it to qualify as a REIT under the Internal Revenue Code for each taxable year since its formation. No assurance can be given that the Trust will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations and the determination of various factual matters and circumstances not entirely within the Trust's control. For example, in order to qualify as a REIT, at least 95% of the Trust's gross income in any year must be derived from qualifying sources and the Trust must make dividend distributions to shareholders equal to 95% of its REIT taxable income (excluding net capital gains). Distributions pursuant to the Plan made within 24 months after adoption of the Plan will 8 satisfy this requirement. No assurance can be given that new legislation, regulations or administrative decisions will not change the tax laws with respect to REIT qualification or the Federal income tax consequences of such qualification. If the Trust fails to qualify as a REIT, it will be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income (including gains recognized in connection with liquidating sales of the Trust's assets) at corporate rates. Unless entitled to relief under certain statutory provisions, the Trust could also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce the net earnings available for investment or distribution to shareholders because of the additional tax liability for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to shareholders have already been made in anticipation of its assumed qualification as a REIT, the Trust could be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT may also constitute a default under certain Trust indebtedness. The Plan contemplates a sale of the Trust's assets for cash. So long as the Trust continues to qualify as a REIT, any net gain from "prohibited transactions" (i.e., sales of property held primarily for sale to customers in the ordinary course of a trade or business) would be subject to a 100% tax. Whether a real estate asset is property held primarily for sale to customers in the ordinary course of a trade or business, the sale of which would be a prohibited transaction for a REIT, is a highly factual determination. The Trust does not believe that any of its property should be so characterized but rather that all its properties are all held for investment and the production of rental income. Nevertheless, the Trust will attempt to structure the dispositions of the Trust's assets in furtherance of the Plan in a manner that will prevent such dispositions from being treated as prohibited transactions. 9 ITEM 2. PROPERTIES The following table sets forth certain information concerning the Trust's properties at November 30, 1998.
Carrying Value Percentage Weighted INDUSTRIAL Sq. Ft. Dollars Per Sq. Ft. Leased Average Rent - -------------------------------------------------------------------------------------- Flex Tewksbury, MA 189,200 $10,373,000 $ 54.83 100% $ 9.00 Nashua, NH 150,400 5,028,000 33.43 81% 5.19 Wilmington, MA 109,500 4,296,000 39.23 100% 5.79 Methuen, MA 106,800 4,697,000 43.98 100% 5.28 Wilmington, MA 100,200 2,355,000 23.50 100% 4.07 Franklin, MA 100,000 4,871,000 48.71 100% 5.94 Nashua, NH 98,100 3,084,000 31.44 88% 4.09 Bedford, MA 93,200 2,352,000 25.24 100% 7.26 Franklin, MA 83,500 3,628,000 43.45 100% 5.64 Andover, MA 82,500 4,501,000 54.56 100% 6.39 Marlborough, MA 75,000 3,001,000 40.01 100% 7.22 Marlborough, MA 59,400 2,468,000 41.55 100% 6.63 Hopkinton, MA 39,000 1,924,000 49.33 100% 6.50 Methuen, MA 38,700 1,707,000 44.11 100% 6.00 Distribution and Manufacturing Wilmington, MA 294,000 6,595,000 22.43 100% 4.26 Franklin, MA 65,300 3,071,000 47.03 100% 6.00 - ----------------------------------------------------------------------------------- Total 1,684,800 $63,951,000 $ 37.96 98% $ 5.79 =================================================================================== Scheduled Lease Expirations Number Lease INDUSTRIAL 1999 2000 of Tenants Principal Tenant Expiration - --------------------------------------------------------------------------------------------- Flex Tewksbury, MA - - 1 Avid Technology, Inc. 06/30/10 Nashua, NH 32% - 7 Logicraft, Inc. 12/31/00 Wilmington, MA - - 3 United Shoe Machinery Corp. 12/31/01 Methuen, MA - - 2 Microtouch Systems, Inc. 04/30/03 Wilmington, MA 52% 48% 2 Datawatch Corporation 04/30/99 Franklin, MA - - 1 Thermo Instruments Systems 01/31/06 Nashua, NH 44% 40% 9 Pure Distributors, Inc. 02/14/00 Bedford, MA - 51% 3 Imaging Technology, Inc. 07/31/01 Franklin, MA - - 2 Chromatic Technologies, Inc. 06/30/02 Andover, MA 24% - 4 LANcity Corporation 04/30/01 Marlborough, MA - - 4 The Concorde Group 09/30/02 Marlborough, MA - - 4 Diebold Incorporated 08/31/03 Hopkinton, MA - - 1 SCP Pool Corp. 12/31/03 Methuen, MA - - 2 Larson Juhl, Inc. 10/31/03 Distribution Wilmington, MA 14% 36% 3 MVP Sports 02/05/03 Franklin, MA - - 1 Massachusetts Electric Company 12/31/02 - ------------------------------------------------------------------------------------------- Total 12% 14% 49 ===========================================================================================
OFFICE/RESEARCH & DEVELOPMENT - ----------------------------------------------------------------------------------- Tewksbury, MA 140,000 $ 8,471,000 $ 60.51 100% $ 9.30 Andover, MA 128,400 5,900,000 45.95 100% 5.00 Billerica, MA 122,300 4,397,000 35.95 100% 4.67 Chelmsford, MA 110,100 4,485,000 40.74 100% 8.92 Andover, MA 105,500 6,534,000 61.93 100% 11.60 Billerica, MA 100,000 4,937,000 49.37 100% 12.00 Hudson, NH 76,800 3,484,000 45.36 100% 5.61 Hopkinton, MA 76,100 5,255,000 69.05 100% 10.09 Chelmsford, MA 70,900 1,905,000 26.87 100% 9.05 Bedford, MA 70,600 2,127,000 30.13 100% 3.65 Littleton, MA 66,800 2,532,000 37.90 100% 10.33 Andover, MA 60,600 3,829,000 63.18 100% 7.01 Billerica, MA 60,000 1,896,000 31.60 100% 4.75 Westford, MA 59,700 3,411,000 57.14 100% 5.50 Billerica, MA 56,300 1,871,000 33.23 100% 3.85 Raynham, MA 49,100 2,525,000 51.54 100% 7.34 Hopkinton, MA 40,800 2,817,000 69.04 100% 10.08 - ----------------------------------------------------------------------------------- Total 1,394,000 $66,376,000 $ 47.62 100% $ 7.57 =================================================================================== OFFICE/RESEARCH & DEVELOPMENT - ------------------------------------------------------------------------------------------- Tewksbury, MA - - 1 Avid Technology, Inc. 06/30/10 Andover, MA - 100% 1 Hewlett-Packard Company 07/31/00 Billerica, MA - - 1 PRI Automation, Inc. 07/31/01 Chelmsford, MA - 75% 3 ITK Telecom 12/31/99 Andover, MA 100% - 1 ISI Systems, Inc. 04/30/99 Billerica, MA - - 1 Peritus Software Services 02/28/06 Hudson, NH - - 1 Atrium Medical Corp. 06/30/04 Hopkinton, MA - - 1 Zymark Corporation 12/31/05 Chelmsford, MA - - 5 Biscom, Inc. 02/28/03 Bedford, MA - 100% 1 Atex Media Solutions, Inc. 07/31/00 Littleton, MA - - 4 Inforonics 05/31/03 Andover, MA - - 1 Cabletron Systems, Inc. 05/31/01 Billerica, MA - 100% 1 Bay Networks, Inc. 03/30/00 Westford, MA - - 2 Hewlett-Packard Company 05/14/01 Billerica, MA - 100% 1 Bay Networks, Inc. 12/31/99 Raynham, MA 61% 19% 4 Johnson & Johnson, Inc. 07/31/99 Hopkinton, MA - - 1 Zymark Corporation 12/31/05 - ------------------------------------------------------------------------------------------- Total 10% 38% 30 ===========================================================================================
10
Carrying Value Percentage Weighted OFFICE Sq. Ft. Dollars Per Sq. Ft. Leased Average Rent - ------------------------------------------------------------------------------------------- Somerset, NJ 178,600 $ 13,891,000 $ 77.78 100% $16.86 Hopkinton, MA 159,800 12,458,000 77.96 100% 7.60 Portland, ME 149,200 16,156,000 108.28 99% 19.42 Manchester, NH 127,900 10,930,000 85.46 100% 15.73 Tampa, FL 122,400 8,617,000 70.40 92% 12.65 Boston, MA 114,300 10,145,000 88.76 91% 26.44 Framingham, MA 109,800 7,144,000 65.06 100% 23.15 Portland, ME 101,900 11,738,000 115.19 100% 19.08 Andover, MA 97,700 7,555,000 77.33 100% 15.89 Ann Arbor, MI 81,500 6,005,000 73.68 100% 12.59 Farmington, CT 68,100 5,503,000 80.81 100% 15.80 Nashua, NH 66,200 4,532,000 68.46 95% 12.17 South Portland, ME 56,100 5,072,000 90.41 100% 14.28 Greenville, SC 49,600 1,839,000 37.08 95% 10.47 Greenville, SC 46,300 1,293,000 27.93 89% 11.09 Glastonbury, CT 40,900 3,771,000 92.20 98% 19.86 Glastonbury, CT 39,900 3,607,000 90.40 100% 18.51 Peabody, MA 37,000 4,255,000 115.00 100% 19.79 Nashua, NH 36,000 2,404,000 66.78 99% 14.69 South Portland, ME 31,800 3,292,000 103.52 100% 15.97 Raynham, MA 27,300 2,574,000 94.29 79% 17.40 Boston, MA 27,100 1,595,000 58.86 100% 22.41 Nashua, NH 26,100 1,573,000 60.27 84% 15.42 South Portland, ME 18,400 1,707,000 92.77 100% 13.26 - ----------------------------------------------------------------------------------------- Total 1,813,900 $147,656,000 $ 81.40 98% $16.18 ========================================================================================= Scheduled Lease Expirations Number Lease OFFICE 1999 2000 of Tenants Principal Tenant Expiration - -------------------------------------------------------------------------------------------------- Somerset, NJ 2% 9% 13 Merrill Lynch 06/30/01 Hopkinton, MA - - 1 EMC Corporation 04/30/04 Portland, ME 5% - 12 UNUM Life Insurance Co. 01/31/01 Manchester, NH - 24% 12 Fleet Bank 04/07/02 Tampa, FL 11% 41% 21 Olsten Kimberly Quality Care 02/28/02 Boston, MA 3% 4% 5 Cambridge Associates, Inc. 12/31/02 Framingham, MA 9% 42% 26 Dolphin Interconnect Solutions 11/30/00 Portland, ME 5% 1% 11 People's Heritage Bank 07/31/04 Andover, MA 15% 44% 12 Computer Associates 12/31/02 Ann Arbor, MI 13% - 2 Comshare, Inc. 02/28/05 Farmington, CT - 84% 4 McGraw-Hill Companies, Inc. 07/31/00 Nashua, NH 25% 2% 13 Hesser, Inc. 08/31/05 South Portland, ME 45% 36% 22 American Express Financial Advisors 11/30/05 Greenville, SC 26% 23% 24 S.C. Tax Commission 06/30/01 Greenville, SC 38% 14% 5 S.C. Voc. Rehab. Dept. 01/07/03 Glastonbury, CT 6% - 3 Hewlett-Packard Company 03/31/03 Glastonbury, CT - 89% 4 Equator U.S.A., Inc. 12/31/99 Peabody, MA - - 1 Oxford & Associates, Inc. 10/31/01 Nashua, NH 16% 18% 10 Puma 09/14/03 South Portland, ME - 28% 7 S.D. Warren Company 01/31/00 Raynham, MA 38% - 7 Parent, McLaughlin & Nangle 03/31/03 Boston, MA - 12% 10 Pierce, Davis, Fahey & Perritano 09/30/03 Nashua, NH 8% - 4 Promis Systems Corp. 05/31/01 South Portland, ME 31% 14% 4 Tufts Health Plan 03/31/01 - ------------------------------------------------------------------------------------------------- Total 9% 19% 233 ================================================================================================= RETAIL - ----------------------------------------------------------------------------------------- Aurora, IL 361,100 $ 26,842,000 $ 74.33 92% $ 8.39 Baltimore, MD 146,700 6,133,000 41.81 100% 6.35 Peabody, MA 106,900 9,876,000 92.39 100% 11.75 Temple Terrace, FL 100,500 7,550,000 75.12 95% 10.02 Hagerstown, MD 40,200 1,332,000 33.13 100% 5.22 - ----------------------------------------------------------------------------------------- Total 755,400 $ 51,733,000 $ 68.48 95% $ 8.45 ========================================================================================= RETAIL - ------------------------------------------------------------------------------------------------- Aurora, IL 2% 2% 29 Best Buy 01/31/11 Baltimore, MD 11% 4% 14 Kmart Corp. 11/30/05 Peabody, MA - - 1 Bradlees, Inc. 10/31/15 Temple Terrace, FL 6% 7% 18 Publix Super Market, Inc. 11/30/06 Hagerstown, MD - 0% 1 Giant Food Stores, Inc. 12/31/04 - ------------------------------------------------------------------------------------------------- Total 4% 3% 63 ================================================================================================= Carrying Value Percentage MULTI-FAMILY Sq. Ft. Dollars Per Unit Leased - ---------------------------------------------------------------------------- Harrison Township, MI 376 $ 9,064,000 $24,106 92% Bloomfield Hills, MI 346 13,201,000 38,153 96% Laurel, MD 237 10,587,000 44,671 97% - ------------------------------------------------------------------------- Total 959 $ 32,852,000 $34,257 95% =========================================================================
11
Carrying Value LAND AND OTHER Dollars - -------------------------------- Portland, ME $ 2,321,000 Tampa, FL 427,000 Mount Clemens, MI 25,000 Hopkinton, MA 202,000 - -------------------------------- Total $ 2,975,000 ================================
Reference is made to Notes 1, 2, 3, 4 and 5 in the Notes to the Consolidated Financial Statements and Schedule III of the Financial Statement Schedule under Item 14 of this report for descriptions of the Trust's investments and properties. EXECUTIVE OFFICE The Trust's headquarters, at One Winthrop Square, Boston, Massachusetts, includes approximately 9,320 square feet. The building is owned by the Trust and, accordingly, no rent expense or rental income has been recorded since the Trust commenced occupying the space in April 1996. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which the Trust or any of its subsidiaries are a party or with respect to which any of its properties is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 14, 1998, the Trust held a Special Meeting of Shareholders, whereby the shareholders (i) approved the Plan and (ii) approved an amendment to the Trust's Declaration of Trust to permit all sales of assets in liquidation without further shareholder approval even if the assets disposed of might be considered substantially all of the assets of the Trust. The affirmative vote on such matters, in each case by majority of the outstanding shares, was as follows: 1. APPROVAL OF THE PLAN: To approve the Plan of Complete Liquidation and Termination of the Trust.
For Against Abstain 8,988,836 211,643 70,541
2. APPROVAL OF THE AMENDMENT TO THE DECLARATION OF TRUST: To approve the amendment to the Trust's Declaration of Trust to permit any and all sales of assets without further shareholder approval.
For Against Abstain 8,723,189 471,460 76,370
12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION AND DIVIDENDS. The principal market on which the Trust's common shares are traded is the New York Stock Exchange, under the symbol MGI. The table below sets forth, for the fiscal quarters indicated, the high and low sales prices on the New York Stock Exchange of the Trust's common shares and dividends paid per common share.
- ------------------------------------------------------- Sales Price ----------------------- Fiscal 1998 High Low Dividends - ------------------------------------------------------- First Quarter $25 13/16 $23 5/8 $.29 Second Quarter $25 7/8 $23 1/2 $.29 Third Quarter $27 13/16 $23 1/16 $.31 Fourth Quarter $29 1/2 $26 1/16 $.33
Sales Price --------------------- Fiscal 1997 High Low Dividends - ------------------------------------------------------- First Quarter $22 3/4 $20 1/8 $.27 Second Quarter $22 3/8 $20 3/8 $.27 Third Quarter $23 5/8 $20 3/4 $.28 Fourth Quarter $25 3/8 $22 1/8 $.28
On December 17, 1998, the Board of Trustees declared a dividend of $.33 per share payable on January 19, 1999 to shareholders of record on January 8, 1999. Future dividends will be determined by the Trust's Board of Trustees and will be dependent upon the results of the execution of the Plan, and in the interim will also be dependent upon the earnings, financial position and cash requirements of the Trust and other relevant factors existing at the time. The Trust must distribute at least 95% of the Trust's taxable income in order to enable it to qualify as a real estate investment trust for tax purposes. So long as the Trust continues to qualify as a REIT, shareholders will, therefore, receive in the form of dividends at least 95% of the taxable income of the Trust. APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES.
- ------------------------------------------------------------ Approximate Number of Holders of Record Title of Class (as of January 27, 1999) - ------------------------------------------------------------ Common Shares, $1.00 par value 2,054
13 ITEM 6. SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------- Year Ended November 30, --------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Rental income $ 70,338,000 $ 62,567,000 $ 54,507,000 $ 44,875,000 $ 43,486,000 Property operating expenses and real estate taxes (24,482,000) (22,827,000) (20,589,000) (17,423,000) (17,392,000) - ------------------------------------------------------------------------------------------------------------------------- Property operating income 45,856,000 39,740,000 33,918,000 27,452,000 26,094,000 Interest income 651,000 639,000 421,000 514,000 394,000 Less expenses: Depreciation and amortization 10,379,000 10,662,000 9,463,000 8,339,000 8,116,000 Interest 10,122,000 9,539,000 9,198,000 5,807,000 5,781,000 General and administrative 3,592,000 3,206,000 2,873,000 2,651,000 2,580,000 Liquidation plan expense 972,000 - - - - - ------------------------------------------------------------------------------------------------------------------------- Income before net gains 21,442,000 16,972,000 12,805,000 11,169,000 10,011,000 Net gains and extraordinary item 8,375,000 3,494,000 11,500,000 3,150,000 4,480,000 - ------------------------------------------------------------------------------------------------------------------------- Net income $ 29,817,000 $ 20,466,000 $ 24,305,000 $ 14,319,000 $ 14,491,000 ========================================================================================================================= Basic earnings per share $ 2.17 $ 1.54 $ 2.11 $ 1.25 $ 1.26 ========================================================================================================================= Dividends per share $ 1.22 $ 1.10 $ .98 $ .90 $ .86 ========================================================================================================================= Funds from operations $ 32,626,000 $ 27,526,000 $ 22,169,000 $ 19,492,000 $ 18,111,000 ========================================================================================================================= Weighted average shares outstanding 13,736,729 13,289,781 11,540,972 11,487,677 11,450,451 ========================================================================================================================= SUMMARY OF FINANCIAL POSITION Investments in real estate, at cost* $ 415,769,000 $ 381,943,000 $ 356,024,000 $ 293,469,000 $ 267,530,000 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 394,503,000 $ 362,044,000 $ 339,664,000 $ 274,651,000 $ 255,971,000 - ------------------------------------------------------------------------------------------------------------------------- Loans payable $ 130,517,000 $ 113,171,000 $ 138,547,000 $ 84,506,000 $ 70,954,000 - ------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity $ 256,822,000 $ 242,385,000 $ 194,435,000 $ 180,540,000 $ 176,095,000 =========================================================================================================================
Note: Reference is made to the Index to Consolidated Financial Statements filed as part of this report under Item 14. Item 6, Selected Financial Data, should be read in conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere herein. * Effective October 14, 1998 with the adoption of the Liquidation plan, the Trust reclassified $50.2 million of accumulated depreciation and amortization against the original cost of real estate assets, and captioned the resulting total of $365,543,000 as "Properties held for Sale" in the accompanying balance sheet as of November 30, 1998. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MGI is a self-administered equity REIT that owns and operates a diversified portfolio of income producing real estate consisting of 66 commercial properties and three multi-family residential properties. The commercial portfolio consists of 5.6 million square feet, 87% of which is comprised of office, office/research and development and industrial properties. The multi-family properties consist of three residential communities aggregating 959 units. At November 30, 1998, the commercial and residential properties were 97.9% and 94.5% leased, respectively. On August 12, 1998, the Board of Trustees, after completing a review of the strategic alternatives available to MGI to maximize shareholder value, unanimously approved a Plan of Complete Liquidation and Termination of the Trust (the "Plan"). The shareholders of the Trust approved the Plan at a special meeting held on October 14, 1998. In the Trust's definitive Proxy Statement dated September 10, 1998, which was circulated to shareholders in connection with the October 14, 1998 special meeting, the Plan is discussed, including risk factors, income tax consequences and certain other considerations. As part of that discussion, management estimated that substantially all of the properties would be sold within 12 to 15 months of shareholder adoption of the Plan and that it expected sales of the Trust's assets would be made at prices that would yield net aggregate cash liquidation proceeds of between $30 and $33 per share. Currently, management believes that sales of the Trust's assets pursuant to the Plan will be made at prices that will yield aggregate net liquidation proceeds at approximately the lower end of the originally announced range of between $30 and $33 per share, taking into consideration the effects of the recent credit crisis which adversely impacted the national credit and real estate markets, and which now seems to be receding to some degree; however, no assurance can be given that per share net cash proceeds will be within this range or will reach this range. Since 1992, the Trust has focused on the commercial segment of the real estate market, specifically industrial and office properties located in New England. At November 30, 1998, 80%, based upon square feet (66% based upon cost), of MGI's real estate assets were located in New England. The region contributed approximately 71% of the Trust's property operating income for fiscal 1998 up from 60% in fiscal 1997. A number of the properties in New England have average rents in place that management believes to be lower than the prevailing market rates. Much of the Trust's growth from its internal operations is attributable to increased rental rates upon lease rollovers in New England. As of year-end, the Trust had 4.1 million square feet under management in New England, more than doubling the property management operation which the Trust had initiated during the third quarter of 1997. The following table sets forth certain information concerning the Trust's properties at November 30, 1998:
New England Other Regions --------------------------------------- ------------------------------------- Property Type Number Total Cost Sq. Ft. Number Total Cost Sq. Ft. - ---------------------------------------------------------- ------------------------------------- Office 19 $121,707,000 1,335,000 5 $ 43,950,000 479,000 Office/R&D 17 70,770,000 1,394,000 - - - Industrial 16 68,231,000 1,685,000 - - - Retail 1 10,329,000 107,000 4 50,754,000 648,000 Multi-family - - - 3 47,052,000 - Land and Other 2 2,523,000 - 2 453,000 - - ----------------------------------------------------------------------------------------------- Total 55 $273,560,000 4,521,000 14 $142,209,000 1,126,000 ===============================================================================================
During 1998 the Trust acquired 12 properties totaling 740,200 square feet, and a parcel of land, all of which were located in New England, for an aggregate cost of $57.1 million. In addition, the Trust sold seven properties, five of which were located outside of New England and recognized gains of $8.4 million with net proceeds aggregating $22.3 million. 15 RESULTS OF OPERATIONS 1998 Compared to 1997 Net income for 1998 of $29.8 million, or $2.17 per share, included net gains of $8.4 million, which resulted from the sale of seven properties. Net income for 1997 was $20.5 million, or $1.54 per share, which included gains of $3.8 million which was partially offset by an extraordinary item of $0.3 million incurred in connection with a loan refinancing prepayment fee. Income before net gains increased 25.9% from $17.0 million in 1997 to $21.4 million in 1998. Funds from operations ("FFO") totaled $32.6 million for fiscal 1998 compared to $27.5 million in 1997, an 18.5% increase. MGI calculates FFO in conformity with the NAREIT definition which is net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for both unconsolidated partnerships and joint ventures, and for significant non-recurring events (such as Liquidation plan expenses). MGI believes FFO is an appropriate supplemental measure of operating performance. The following is a reconciliation of net income to FFO:
- -------------------------------------------------------------------------------------- Year Ended November 30, ------------------------------ 1998 1997 - -------------------------------------------------------------------------------------- Net income $ 29,817,000 $ 20,466,000 Less net gains and extraordinary item (8,375,000) (3,494,000) Plus building depreciation 7,801,000 8,385,000 Plus tenant improvement and commission amortization 2,411,000 2,169,000 Liquidation plan expenses 972,000 - - -------------------------------------------------------------------------------------- Funds from operations $ 32,626,000 $ 27,526,000 ======================================================================================
The $4.5 million increase in income before net gains, when 1998 is compared to 1997, resulted principally from a $6.1 million increase ($45.8 million versus $39.7 million, respectively) in property operating income (which is defined as rental income less property operating expenses and real estate taxes), offset by increases in interest, general and administrative expenses and liquidation plan expenses. The increase in interest expense of $0.6 million was due primarily to debt incurred in connection with the acquisition of properties. Additionally, general and administrative costs increased by $0.4 million, reflecting higher personnel costs as well as increased legal expenses and the costs associated with shareholder relations. Liquidation plan expenses of $1.0 million reflect those costs, principally professional fees associated with developing the Plan, including the consideration of strategic alternatives, and presenting the proposal to the Trust's shareholders. In addition, included in the amount is the recognition of related employee severance costs which are being recognized over a 15-month period beginning with the approval of the Plan. Depreciation and amortization decreased by $.3 million, as the Trust stopped depreciating its real estate assets on October 14, 1998, the date shareholders approved the Plan. The change in 1998 FFO when compared to 1997 is attributable to the same factors that affected income before net gains in such periods, excluding the effect of changes in depreciation and amortization and liquidation plan expenses. The change in property operating income from 1997 to 1998 reflects improved results from comparable properties (which is defined as properties owned throughout both 1997 and 1998), as well as the effect of the sale and acquisition of properties, is detailed below: 16
Net Change in Property Properties Held 1998 and 1997 1998 and 1997 Operating Property Type Both Years Acquisitions Sales Income - --------------------------------------------------------------------------------------- Office $1,069,000 $4,550,000 $ (837,000) $4,782,000 Office/R&D 704,000 1,362,000 - 2,066,000 Industrial 244,000 1,262,000 (1,855,000) (349,000) Retail 251,000 - (373,000) (122,000) Multi-family 280,000 - (961,000) (681,000) Land and Other 439,000 - (16,000) 423,000 - --------------------------------------------------------------------------------------- Total $2,987,000 $7,174,000 $ (4,042,000) $6,119,000 =======================================================================================
The increase in property operating income from the 43 comparable properties reflects leasing completed during the last two fiscal years, particularly in New England where leases were executed at substantially higher rents. Rental rates for leases signed during 1998 and 1997 increased by 32.6% and 30.6%, respectively, compared to the previous rents in place. Base rents on leases signed or renewed in 1998 are expected to generate approximately $1.5 million of additional revenues in fiscal 1999 as such leases become effective. Rental revenue has also been positively impacted by the portfolio's overall leased rate which increased from 95.4% at the end of fiscal 1997 to 97.3% at November 30, 1998. For the comparable office properties, rents from leases executed in 1998 are, in the aggregate, 15% higher than rents previously in place, with increases of approximately 20% in New England. The office properties also experienced lower operating expenses and lower management costs due to the internalization of property management. The retail operating results benefited from leases executed at the Aurora, Illinois property, which increased the overall retail leased level to 95.4%. The multi-family properties experienced revenue growth of 5.6%, which reflected higher rents and stable occupancy rates. The comparable office/research and development properties experienced the largest growth in rental rates with 324,900 square feet of leases signed at an average rate increase of 77%. Industrial properties benefited from the combined impact of higher overall occupancy and rental rates that increased by 18%. Commercial leases signed in 1998, the percentage of the commercial properties leased and scheduled commercial lease expirations in 1999 and 2000 (in square feet) are as follows:
1998 Leased at Scheduled Expirations Property Type Leasing November 30, 1998 1999 2000 - -------------------------------------------------------------------------- Office 244,300 97.6% 166,100 345,700 Office/R&D 358,200 100.0% 135,500 407,000 Industrial 242,600 97.6% 204,700 242,100 Retail 121,400 95.4% 27,500 19,200 - -------------------------------------------------------------------------- Total 966,500 97.9% 533,800 1,014,000 ==========================================================================
With regard to the 1998 leasing, lease renewals totaled 471,100 square feet, leases signed with new tenants totaled 426,000 square feet of space that was previously leased, and leases executed that were related to space that was vacant as of December 1, 1997 totaled 69,400 square feet. Scheduled expirations in 1999 represent 9.5% of the Trust's total commercial square feet at November 30, 1998, compared to scheduled expirations in 1998 of 769,700 square feet, which represented 14.3% of the Trust's total commercial square feet at November 30, 1997. The fiscal 1999 expirations are scheduled as follows: 125,300 square feet in the first quarter, 220,200 square feet in the second quarter, 136,100 square feet in the third quarter and 52,200 square feet in the fourth quarter. In the Trust's New England portfolio, leases relating to 455,500 and 965,300 square feet are scheduled to expire in 1999 and 2000, 17 respectively, which management believes are subject to rents that are generally below the current market. Included in the 1999 expirations is a 105,500 square foot lease scheduled to expire on April 1, 1999 at an Andover, Massachusetts office building. Management has been in discussions with the existing tenant, as well as other potential tenants, with the resolution uncertain at this time. 1997 Compared to 1996 Net income for 1997 was $20.5 million, or $1.54 per share, which included gains of $3.8 million which were partially offset by an extraordinary item of $0.3 million incurred in connection with a loan refinancing prepayment fee. Net income for 1996 of $24.3 million, or $2.11 per share, included net gains of $11.5 million, which resulted from the sale of three industrial buildings as well as the sale of a partnership interest. Income before net gains increased from $12.8 million in 1996 to $17.0 million in 1997. Funds from operations ("FFO") totaled $27.5 million for fiscal 1997, compared to $22.2 million in 1996. MGI calculates FFO in conformity with the NAREIT definition as previously described. The following is a reconciliation of net income to FFO:
Year Ended November 30, ---------------------------- 1997 1996 - ------------------------------------------------------------------------------------- Net income $20,466,000 $ 24,305,000 Less net gains and extraordinary item (3,494,000) (11,500,000) Plus building depreciation 8,385,000 7,337,000 Plus tenant improvement and commission amortization 2,169,000 2,027,000 - ------------------------------------------------------------------------------------- Funds from operations $27,526,000 $ 22,169,000 =====================================================================================
The $4.2 million increase in income before net gains from 1996 to 1997 resulted principally from a $5.8 million increase ($33.9 million versus $39.7 million, respectively) in property operating income (which is defined as rental income less property operating expenses and real estate taxes), offset by increases in interest and depreciation and amortization expense. The increase in interest expense of $0.3 million was due primarily to debt incurred in connection with the acquisition of properties. Depreciation and amortization increased by $1.2 million, reflecting the greater number of properties owned. Additionally, general and administrative costs increased by $0.3 million, primarily reflecting higher personnel costs. Interest income increased by $0.2 million, reflecting higher average cash balances. The change in 1997 FFO, when compared to 1996, is attributable to the same factors that affected income before net gains in such periods, excluding the effect of changes in depreciation and amortization expense. The change in property operating income from 1996 to 1997 reflects improved results from comparable properties (which is defined as properties owned throughout both 1996 and 1997), as well as the effect of the sale and acquisition of properties, as detailed below:
Net Change in Property Properties Held 1997 and 1996 1997 and 1996 Operating Property Type Both Years Acquisitions Sales Income - --------------------------------------------------------------------------------------- Office $ 491,000 $2,912,000 $ 28,000 $3,431,000 Industrial 64,000 2,115,000 (647,000) 1,532,000 Office/R&D (78,000) 881,000 - 803,000 Multi-family 286,000 - - 286,000 Retail 34,000 - - 34,000 Land and Other (122,000) 218,000 (360,000) (264,000) - --------------------------------------------------------------------------------------- Total $ 675,000 $6,126,000 $(979,000) $5,822,000 =======================================================================================
18 The increase in property operating income from the 40 comparable properties largely reflects leasing completed during 1997, particularly at properties located in Massachusetts where leases totaling 469,000 square feet were executed at substantially higher rents. For the comparable office properties, rents from leases executed in 1997 are, in the aggregate, 27% higher than rents previously in place. Retail operating results were relatively unchanged from 1996. Nevertheless, retail leases executed at the Aurora, Illinois property should positively impact in 1998 the retail properties based upon scheduled expirations. Bradlees, Inc., which, pursuant to Chapter 11 of the Federal Bankruptcy Code, affirmed its lease at the Peabody, Massachusetts store owned by MGI, has obtained an extension to submit a reorganization plan until February 1999. The multi-family properties experienced revenue growth of 4%, which reflected higher rental rates offset by a slight decline in occupancy at two Michigan apartment properties. Property operating income from the office/research and development and industrial properties combined did not change significantly from fiscal 1996 but should benefit in fiscal 1998 from recently executed leases. LIQUIDITY Shareholders' equity at November 30, 1998 was $256.8 million, compared to $242.4 million at November 30, 1997. The increase primarily reflects net income in excess of distributions paid. At November 30, 1998, financial liquidity was provided by $12.3 million in cash and cash equivalents and by $40.0 million available under a line of credit of $75.0 million. The principal sources and uses of cash in fiscal 1998 and 1997 are summarized as follows:
Sources of Cash 1998 1997 - ------------------------------------------------------------------------------ Trust operations $ 30,791,000 $ 29,100,000 Sales of real estate, net 22,274,000 15,600,000 Proceeds from the issuance of common shares 1,137,000 41,600,000 New borrowings, net of fees 46,550,000 26,500,000 - ------------------------------------------------------------------------------ Total $100,752,000 $112,800,000 ============================================================================== Uses of Cash 1998 1997 - ------------------------------------------------------------------------------ Real estate acquisitions $ 57,140,000 $ 48,000,000 Dividends 16,766,000 14,400,000 Additions to real estate 7,482,000 5,800,000 Deferred tenant charges and other 2,665,000 2,600,000 Repayment of mortgage loans payable 18,398,000 43,200,000 - ------------------------------------------------------------------------------ Total $102,451,000 $114,000,000 ==============================================================================
During 1998, the Trust acquired 12 properties totaling 740,200 square feet and a parcel of land for an aggregate cost of $57.1 million. Nine of these properties are located in three separate business parks giving the Trust a more significant presence in their respective markets. In addition, the Trust sold seven properties, five of which were located outside of New England and recognized gains of $8.4 million with net cash proceeds aggregating $22.3 million. The sale of non-New England properties reflects the Trust's strategy of positioning its core portfolio in New England with a focus on office, office/research and development, and industrial properties. Subsequent to the end of fiscal 1998, the Trust completed the sale of a 40,200 square foot retail property located in Hagerstown, Maryland for $1.2 million, which, on an individual sale basis, is a price that falls into the estimated range of net liquidation sales proceeds with respect to such property. A summary of 1998 real estate acquisitions follows: 19
Square Property Type Location Date Acquired Feet Cost - ------------------------------------------------------------------------------------------- Office South Portland, Maine 02/98 56,100 $ 5,147,000 South Portland, Maine 02/98 31,800 3,340,000 South Portland, Maine 02/98 18,400 1,732,000 Hopkinton, Massachusetts 03/98 159,800 12,627,000 Raynham, Massachusetts 03/98 27,300 2,605,000 Manchester, New Hampshire 04/98 127,900 10,978,000 Peabody, Massachusetts 04/98 37,000 4,296,000 Office/R&D Hudson, New Hampshire 03/98 76,800 3,535,000 Hopkinton, Massachusetts 03/98 76,100 5,326,000 Hopkinton, Massachusetts 03/98 40,800 2,850,000 Raynham, Massachusetts 03/98 49,200 2,552,000 Industrial Hopkinton, Massachusetts 03/98 39,000 1,950,000 Land Hopkinton, Massachusetts 03/98 - 202,000 - ------------------------------------------------------------------------------------------- Total 740,200 $57,140,000 ===========================================================================================
Loans payable totaled $130.5 million at November 30, 1998, a net increase of $17.3 million, compared to the $113.2 million outstanding at November 30, 1997. During the second quarter of fiscal 1998, MGI entered into a $75 million unsecured credit facility which replaced two secured lines of credit that totaled $45 million. At year-end, the Trust had $35.0 million outstanding under the line of credit whereas at November 30, 1997, there was $15.5 million outstanding under the then existing lines. In addition, in 1998 the Trust closed on an $11.6 million mortgage loan secured by a Michigan apartment complex and loans totaling $10.8 million were assumed by the purchaser in conjunction with the sale of properties. The balance of $3.0 million represents scheduled principal payments. Scheduled loan principal payments due within 12 months of November 30, 1998 total $3.2 million. Subsequent to year-end, the Trust repaid a $12.3 million loan which had a stated rate of 8.5% and which was secured by an Aurora, Illinois retail center and subsequently drew an additional $13.5 million from its line primarily to fund the Yorkshire loan repayment and capital improvements. MGI believes it will continue to be able to extend or refinance maturing mortgage loans upon satisfactory terms. Cash requirements in 1999 will include liquidating distributions to shareholders, capital and tenant improvements and leasing expenditures. Under the provisions of the Code, distributions made within 24 months of the adoption of the Plan are considered liquidating distributions and will not be dividend income when received by shareholders. Distributions in liquidation should first be used to reduce a shareholder's basis in his or her shares of MGI with any excess constituting a capital gain if the shares were held as a capital asset. If the sum of all liquidating distributions is less than a shareholder's basis, the difference will constitute a capital loss. During 1998, expenditures for capital and tenant improvements totaled $3.8 million and $3.7 million, respectively. Included in the amount for capital improvements were $2.0 million of costs associated with building renovations. The Trust is committed to approximately $3 million for capital and tenant improvements relating to leasing activity completed in 1998 and through fiscal 1999 to date. Of this amount, approximately $2.0 million is for a 60,000 square foot expansion of an office/research and development building located in Hudson, New Hampshire. In connection with the Plan, MGI anticipates incurring a variety of costs and fees including costs related to sales, fees to advisors and other professionals, severance compensation, payments to holders of stock options, and other expenses related to liquidation. Among the costs is an estimated $4.2 million of employee severance compensation, which includes a base and incentive component. Payment of employee severance compensation is contingent upon the 20 employee's continuing employment and is being recognized as an expense over a 15-month period beginning October 14, 1998. The Trust has entered into agreements with a financial advisor and with an exclusive property sales agent. Each agreement provides for a fee of $1.5 million to be paid in the event of a complete liquidation or merger, with a minimum of $400,000 to be paid to each. In addition, the Trust has agreed to reimburse their out-of-pocket expenses up to $650,000 in the aggregate, of which $132,000 has been paid to date. Sources of funds in the future are expected to be derived from property operations, sales of properties, mortgaging or refinancing of existing mortgages on properties, borrowing under MGI's lines of credit and MGI's portfolio of investment securities. MGI believes the combination of available cash and cash equivalents, the value of MGI's unencumbered properties and other resources are sufficient to meet its liquidity requirements while implementing the Plan. OTHER Inflation During the past three years, the impact of inflation on MGI's operations and investment activity has not been significant. Real Estate Considerations Real estate investments and operations are subject to a number of factors, including changes in general economic climate, local conditions (such as an oversupply of space, a decline in effective rents or a reduction in the demand for real estate), competition from other available space, the ability of the owner to provide adequate maintenance or to fund capital and tenant improvements required to maintain market position and control of operating costs. In certain markets in which the Trust owns real estate, overbuilding and local or national economic conditions have, in the past, combined to produce lower effective rents and/or longer absorption periods for vacant space. As the Trust re-leases space, certain effective rents may be less than those earned previously. Management believes its modest diversification by property type and its diverse tenant base somewhat reduce the risks associated with these factors and enhances opportunities for cash flow growth and capital gains potential, although there can be no assurance thereof. Year 2000 Compliance The Year 2000 compliance issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in computer system failures or miscalculations causing disruptions of operations. The Year 2000 issue affects almost all companies and organizations. MGI has conducted an assessment of its core internal computer information systems and believes that its internal financial and information systems are presently substantially Year 2000 compliant. Also, MGI is currently evaluating those computer systems that do not relate to financial and other information needs such as systems designed to operate buildings, its telecommunications systems, security systems, energy management systems and elevator systems. In certain circumstances, MGI may be required to upgrade, modify or replace some of its internal or operational systems. Additionally, no estimates can be made as to any potential adverse impact resulting from the failure of tenants or vendors, or third-party service providers, such as its banks, payroll processor and telecommunications providers, to prepare for the Year 2000 although MGI is attempting to identify the risks. Because MGI's assessment is ongoing, the total cost of bringing all internal systems, equipment and operations into Year 2000 compliance has not yet been fully quantified. To date, MGI has not expended significant funds to assess its Year 2000 issues, since its evaluation of the Year 2000 issue has been conducted by its own personnel or its third-party vendors in connection with their servicing operations. MGI's evaluation has not been subject to any independent verification or review process. While MGI's evaluation efforts may involve additional costs, it believes, based on available information, that these costs will not have a material adverse impact on the business, financial condition or results of operations, although there can be no assurance thereof. MGI believes it will be Year 2000 compliant by December 31, 1999, but if the efforts by MGI or any of its material third-party vendors and service providers are not completed on time, the Year 2000 issue could have an adverse effect on its business. MGI is currently evaluating the consequences of a potential failure to remediate these matters and is in the process of developing contingency plans. 21 Market Risk The Trust is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Trust's real estate investment portfolio and operations. The Trust's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Trust does not enter into derivative or interest rate transactions. The carrying values of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and notes payable, approximate fair value because of the short maturity of these instruments. The Trust's obligations for borrowed money totaled $130.5 million at November 30, 1998, representing 33% of its total assets. At November 30, 1998, fixed rate mortgage loans totaled $95.5 million with an average rate of 7.9%. It is management's belief that as of the date of the report, similar financing would be available at rates ranging from approximately 6.75% to 7.0%, prior to the impact of prepayment fees. The Trust's debt obligations subject to floating interest rates at November 30, 1998 aggregated approximately $35 million at a weighted average interest rate of approximately 6.5% and represented 26.8% of the Trust's outstanding debt. Significant increases in interest rates on floating rate debt would adversely affect the net income, FFO and cash available for distribution to shareholders. The carrying value of long-term debt approximates its fair value, as estimated by using discounted future cash flows based on the Trust's current incremental borrowing rates for similar types of borrowing arrangements and the estimated time to complete the Plan. FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements, estimates or plans within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of MGI to be materially different from results or plans expressed or implied by such forward-looking statements. Such factors generally include, among other things, adverse changes in the real estate markets; risk of default under the Trust's outstanding indebtedness; financial condition and bankruptcy of tenants; environmental/safety requirements; adequacy of insurance coverage; and general and local economic and business conditions. With respect, in particular, to the Plan, such factors include, among other things, the risks of future action or inaction by the Board of Trustees (and the actual results thereof) with respect to the Plan (including the possibility of litigation pertaining thereto), the net realizable value of the properties in the event the Plan is implemented, the effects of financial market conditions and general economic conditions, maintaining the current occupancy and rent levels at the properties, as well as those risk factors set forth in the definitive Proxy Statement relating to the Trust's Special Shareholders' Meeting held on October 14, 1998, which is incorporated herein by reference and filed as an exhibit hereto. Investors should review the more detailed risks and uncertainties set forth under the captions Risk Factors and Competition, Regulation and Other Factors in this report. Although the Trust believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included or incorporated by reference in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Trust or any other person that the objectives and plans of the Trust will be achieved. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are included under Item 14 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 PART III The information required by Items 10, 11, 12 and 13 of this Part III has been omitted from this Report since the Registrant intends to file with the Securities and Exchange Commission a definitive proxy statement which involves the election of Trustees not later than 120 days after the close of the Registrant's last fiscal year. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (A) 1. Consolidated Financial Statements INDEX Independent Auditors' Report Financial Statements: Consolidated Balance Sheets, November 30, 1998 and 1997 Consolidated Statements of Earnings, Years ended November 30, 1998, 1997 and 1996 Consolidated Statements of Cash Flows, Years ended November 30, 1998, 1997 and 1996 Consolidated Statements of Changes in Shareholders' Equity, Years ended November 30, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedule Financial Statement Schedule (as of or for the year ended November 30, 1998): Schedule III, Real Estate and Accumulated Depreciation Exhibit XI - Computation of Diluted Earnings per Share Exhibit XXVII - Financial Data Schedule for year ended November 30, 1998 (EDGAR filing only) Other schedules are omitted for the reasons that they are not required, are not applicable, or the required information is set forth in the financial statements or notes thereto. 3. Exhibits 3(a) Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3 of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1981 (the "1981 10-K"). (b) Certificate of First Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3 of the 1981 10-K. (c) Certificate of Second Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to the Trust's Report on Form 8-K, filed on January 13, 1983. (d) Certificate of Third Amendment of Second Amended and Restated Declaration of Trust, incorporated by reference to Exhibit 3(d) to Amendment No. 1 to the Trust's Registration Statement on Form S-2 filed on June 7, 1985. (e) Certificate of Fourth Amendment of Second Amended and Restated Declaration of Trust, dated October 17, 1986, incorporated by reference to the Trust's Annual Report on Form 10-K for the year ended November 30, 1986. (f) Certificate of Fifth Amendment of Second Amended and Restated Declaration of Trust, dated March 25, 1987, incorporated by reference to Exhibit 3(f) of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1987. (g) Certificate of Sixth Amendment of Second Amended and Restated Declaration of Trust, dated February 10, 1988, incorporated by reference to Exhibit 4(g) of the Trust's Registration Statement on Form S-8 filed on May 3, 1988. (h) Certificate of Seventh Amendment of Second Amended and Restated Declaration of Trust, dated June 30, 1988, incorporated by reference to Exhibit 4.8 of the Trust's Registration Statement on Form S-4 filed on November 10, 1988 (Reg. No. 33-25495). (i) Certificate of Eighth Amendment of Second Amended and Restated Declaration of Trust, dated March 27, 1989, incorporated by reference to Exhibit 3(i) of the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1989 (the "1989 10-K"). 24 (j) Rights Agreement, dated as of June 21, 1989 between the Trust and The First National Bank of Boston as Rights Agent, incorporated by reference to Exhibit 1 to the Trust's Registration Statement on Form 8-A, filed on June 27, 1989. (k) Certificate of Vote of the Trustees Designating a Series of Preferred Shares, dated June 21, 1989, incorporated by reference to Exhibit 3(m) of the 1989 10-K. (l) Certificate of Eleventh Amendment of Second Amended and Restated Declaration of Trust which increased the authorized number of Common Shares from 15,000,000 to 17,500,000, incorporated by reference to Exhibit B to the Trust's Quarterly Report Form 10-Q for the ended May 31, 1996. (m) Certificate of Twelfth Amendment of Second Amended and Restated Declaration of Trust which increased the authorized number of Preferred Shares from 2,000,000 to 6,000,000 incorporated by reference to Exhibit B to the Trust's Quarterly Report Form 10-Q for the quarter ended May 31, 1996. (n) Certificate of Thirteenth Amendment of Second Amended and Restated Declaration of Trust.* (o) By-Law, adopted on December 24, 1982 incorporated by reference to the Trust's Report on Form 8-K, filed on January 12, 1983. (p) Certificate of Amendment of By-Laws, dated March 21, 1989, incorporated by reference to the Trust's Report on Form 8-K dated March 21, 1989. (q) By-Law adopted December 18, 1997, relating to shareholder proposals and nominations, incorporated by reference to the Trust's Annual Report on Form 10-K for the year ended November 30, 1997. 10(a) Mortgage Growth Investors Incentive Stock Option Plan for Key Employees, incorporated by reference to the Trust's Definitive Proxy Statement dated March 15, 1982 (b) Mortgage Growth Investors Stock 1982 Option Plan for Trustees, incorporated by reference to the Trust's Definitive Proxy Statement dated March 15, 1982 (c) MGI Properties 1988 Stock Option and Stock Appreciation Rights Plans for Key Employees and Trustees, incorporated by reference to the Trust's Definitive Proxy Statement, dated February 19, 1988. (d) Amendment to MGI Properties' 1988 Stock Option and Stock Appreciation Rights Plan for Key Employees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(f) of the 1989 10-K. (e) Amendment to MGI Properties' 1988 Stock Option Plan for Trustees, dated as of December 19, 1989, incorporated by reference to Exhibit 10(g) of the 1989 10-K. (f) Amended and Restated Severance Compensation Plan, dated as of December 19, 1989, incorporated by reference to Exhibit 10(i) of the 1989 10-K. (g) MGI Properties 1994 Stock Option and Stock Appreciation Rights Plan for Key Employees and Trustees incorporated by reference to the Trust's Definitive Proxy Statement, dated February 18, 1994. (h) The Dividend Reinvestment and Share Purchase Plan of MGI Properties incorporated by reference to the Trust's Report on Form S-3, filed on July 1, 1994. (i) MGI Properties 1997 Employee Stock Option, Stock Appreciation Rights and Restricted Stock Plan, incorporated by reference to the Trust's Definitive Proxy Statement, dated February 24, 1997 (j) Credit Agreement dated April 2, 1998 among MGI Properties, as Borrower, the Financial Institutions Party thereto and their Assignees under Section 13.5(a), as Lenders, Wells Fargo Bank, National Association, as Documentation Agent, Syndication Agent, and as Arranger and BankBoston, N.A., as Administrative Agent and as Co-Arranger, incorporated by reference to Exhibit 10.1 to the Trust's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998. (k) Form of Indemnity Agreement incorporated by reference to Exhibit 99 to the Trust's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998. (l) Form of Severance Agreement for Key Employees, incorporated by reference to the Trust's Current Report on Form 8-K, dated August 12, 1998. 25 (m) MGI Properties Long Term Performance Plan, incorporated by reference to the Trust's Current Report on Form 8-K dated August 15, 1998. (n) MGI Properties Definitive Proxy Statement dated September 10, 1998 in respect of the Special Meeting of Shareholders held on October 14, 1998.* 11 Computation of Diluted Earnings per Share, included under Item 14 of this Report. 24 Auditors' consent. (B) Reports on Form 8-K: Current Report on Form 8-K dated August 12, 1998 reporting Item 5, Other Events filed on October 1, 1998. Current Report on Form 8-K dated October 14, 1998 reporting Item 5, Other Events filed on October 15, 1998. *Filed herewith MGI Properties (the "Trust") is a Massachusetts business trust and all persons dealing with the Trust must look solely to the property of the Trust for the enforcement of any claims against the Trust. Neither the Trustees, officers, agents nor shareholders of the Trust assume any personal liability in connection with its business or assume any personal liability for obligations entered into in its behalf. 26 POWER OF ATTORNEY MGI Properties and each of the undersigned do hereby appoint W. Pearce Coues and Phillip C. Vitali and each of them severally, its or his true and lawful attorneys to execute on behalf of MGI Properties and the undersigned any and all amendments to this Report and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Each of such attorneys shall have the power to act hereunder with or without the other. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 29, 1999 MGI PROPERTIES (Registrant) By: /s/ W. Pearce Coues -------------------------------- W. Pearce Coues, Chairman of the Board of Trustees Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ W. Pearce Coues Chairman of the Board of Trustees and - --------------------- Chief Executive Officer January 29, 1999 W. Pearce Coues /s/ Phillip C. Vitali - --------------------- Phillip C. Vitali Principal Financial Officer January 29, 1999 /s/ David P. Morency - --------------------- David P. Morency Principal Accounting Officer January 29, 1999 /s/ George S. Bissell - --------------------- George S. Bissell Trustee January 29, 1999 /s/ Francis P. Gunning - --------------------- Francis P. Gunning Trustee January 29, 1999 /s/ George M. Lovejoy, Jr. - --------------------- George M. Lovejoy, Jr. Trustee January 29, 1999 /s/ Robert M. Melzer - --------------------- Robert M. Melzer Trustee January 29, 1999 /s/ William F. Murdoch, Jr. - --------------------- William F. Murdoch, Jr. Trustee January 29, 1999 /s/ Rodger P. Nordblom - --------------------- Rodger P. Nordblom Trustee January 29, 1999
27 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ITEM 8-CONSOLIDATED FINANCIAL STATEMENTS November 30, 1998 MGI PROPERTIES MGI PROPERTIES Index to Consolidated Financial Statements and Schedules
Page ---- Independent Auditors' Report F-1 Financial Statements: Consolidated Balance Sheets, November 30, 1998 and 1997 F-2 Consolidated Statements of Earnings, Years ended November 30, 1998, 1997 and 1996 F-3 Consolidated Statements of Cash Flows, Years ended November 30, 1998, 1997 and 1996 F-4 Consolidated Statements of Changes in Shareholders' Equity, Years ended November 30, 1998, 1997 and 1996 F-5 Notes to Consolidated Financial Statements F-6 - F-13 Schedules and Exhibits Financial Statement Schedule (as of or for the year ended November 30, 1998): Schedule III-Real Estate and Accumulated Depreciation F-14 - F-16 Exhibit XI-Computation of Diluted Earnings per Share F-17
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 TO THE BOARD OF TRUSTEES AND SHAREHOLDERS MGI PROPERTIES: We have audited the consolidated financial statements of MGI Properties and subsidiaries (the "Trust") as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MGI Properties and subsidiaries as of November 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1998 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As further described in footnote 1, in 1998 the Trust announced its intention, and secured shareholder approval, to liquidate its assets, distribute the proceeds to shareholders and terminate the Trust. KPMG Peat Marwick LLP Boston, Massachusetts December 16, 1998 F-1 MGI PROPERTIES Consolidated Balance Sheets November 30, 1998 and 1997
1998 1997 - ---------------------------------------------------------------------------------- ASSETS Real estate (notes 2, 3, 4, and 5): Properties held for sale $365,543,000 $ - Net investments in real estate - 334,785,000 Cash and cash equivalents 12,265,000 13,964,000 Accounts receivable 5,040,000 3,654,000 Other assets 11,655,000 9,641,000 - ---------------------------------------------------------------------------------- $394,503,000 $362,044,000 ================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Loans payable (note 5) $130,517,000 $113,171,000 Other liabilities 7,164,000 6,488,000 - ---------------------------------------------------------------------------------- Total liabilities 137,681,000 119,659,000 Shareholders'equity (notes 6, 7 and 8): Common shares-$1 par value; 17,500,000 shares authorized; 13,764,221 issued at November 30, 1998 (13,625,489 at November 30, 1997) 13,764,000 13,625,000 Additional paid-in capital 208,278,000 207,031,000 Undistributed net income 34,780,000 21,729,000 - ---------------------------------------------------------------------------------- Total shareholders' equity 256,822,000 242,385,000 - ---------------------------------------------------------------------------------- $394,503,000 $362,044,000 ==================================================================================
See accompanying notes to consolidated financial statements. F-2 MGI PROPERTIES Consolidated Statements of Earnings
Year ended November 30, --------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------ INCOME: Rental $70,338,000 $62,567,000 $54,507,000 Interest 651,000 639,000 421,000 - ------------------------------------------------------------------------------------------ Total income 70,989,000 63,206,000 54,928,000 - ------------------------------------------------------------------------------------------ EXPENSES: Property operating expenses 16,348,000 15,384,000 14,099,000 Real estate taxes 8,134,000 7,443,000 6,490,000 Depreciation and amortization 10,379,000 10,662,000 9,463,000 Interest 10,122,000 9,539,000 9,198,000 General and administrative 3,592,000 3,206,000 2,873,000 Liquidation plan expenses 972,000 - - - ------------------------------------------------------------------------------------------ Total expenses 49,547,000 46,234,000 42,123,000 - ------------------------------------------------------------------------------------------ Income before net gains 21,442,000 16,972,000 12,805,000 Net gains on sale of real estate assets 8,375,000 3,800,000 11,500,000 - ------------------------------------------------------------------------------------------ Income before extraordinary item 29,817,000 20,772,000 24,305,000 Extraordinary item--prepayment of debt - (306,000) - - ------------------------------------------------------------------------------------------ Net income $29,817,000 $20,466,000 $24,305,000 ========================================================================================== PER SHARE DATA: Basic earnings $ 2.17 $ 1.54 $ 2.11 ========================================================================================== Diluted earnings $ 2.12 $ 1.51 $ 2.07 ========================================================================================== Weighted average shares outstanding 13,736,729 13,289,781 11,540,972 ==========================================================================================
See accompanying notes to consolidated financial statements. F-3 MGI PROPERTIES Consolidated Statements of Cash Flows
Year ended November 30, ------------------------------------------------ 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 29,817,000 $ 20,466,000 $ 24,305,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,379,000 10,662,000 9,463,000 Net gains (8,375,000) (3,800,000) (11,500,000) Extraordinary item -- 306,000 -- Other (1,030,000) 1,456,000 (1,231,000) - ---------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 30,791,000 29,090,000 21,037,000 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of real estate (57,140,000) (48,000,000) (38,667,000) Additions to real estate (3,816,000) (3,114,000) (3,234,000) Tenant improvements (3,666,000) (2,669,000) (2,702,000) Deferred tenant charges (2,579,000) (2,085,000) (1,348,000) Net proceeds from sales of real estate 22,274,000 15,562,000 11,103,000 Other (86,000) (112,000) 35,000 - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (45,013,000) (40,418,000) (34,813,000) - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common shares 1,137,000 41,566,000 678,000 Repayment of loans payable (18,398,000) (43,184,000) (2,242,000) Additions to loans payable 46,550,000 26,500,000 34,743,000 Mortgage prepayment penalty -- (306,000) -- Cash distributions (16,766,000) (14,424,000) (11,308,000) - ---------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 12,523,000 10,152,000 21,871,000 - ---------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (1,699,000) (1,176,000) 8,095,000 Cash and cash equivalents: Beginning of year 13,964,000 15,140,000 7,045,000 - ---------------------------------------------------------------------------------------------------------- End of year $ 12,265,000 $ 13,964,000 $ 15,140,000 ==========================================================================================================
See accompanying notes to consolidated financial statements. F-4 MGI PROPERTIES Consolidated Statements of Changes in Shareholders' Equity
Additional Common paid-in Undistributed shares capital net income - ----------------------------------------------------------------------------------------- Balance at November 30, 1995 $11,502,000 $166,348,000 $ 2,690,000 Net income - - 24,305,000 Dividend reinvestment and share purchase plan (note 6) 23,000 357,000 - Distributions (note 8) - - (11,308,000) Options exercised and other (note 7) 38,000 480,000 - - ----------------------------------------------------------------------------------------- Balance at November 30, 1996 11,563,000 167,185,000 15,687,000 Net income - - 20,466,000 Dividend reinvestment and share purchase plan (note 6) 18,000 365,000 - Distributions (note 8) - - (14,424,000) Sales of common shares (note 6) 2,000,000 39,075,000 - Options exercised and other (note 7) 44,000 406,000 - - ----------------------------------------------------------------------------------------- Balance at November 30, 1997 13,625,000 207,031,000 21,729,000 Net income - - 29,817,000 Dividend reinvestment and share purchase plan (note 6) 13,000 333,000 - Distributions (note 8) - - (16,766,000) Options exercised and other (note 7) 126,000 914,000 - - ----------------------------------------------------------------------------------------- Balance at November 30, 1998 $13,764,000 $208,278,000 $ 34,780,000 =========================================================================================
See accompanying notes to consolidated financial statements. F-5 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 1-THE TRUST (A) Organization MGI Properties (the "Trust" or "MGI") is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts. MGI commenced operations in 1971 as a real estate investment trust (a "REIT"). The Trust qualifies to be treated as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). MGI is a self-administered equity REIT that directly and through its wholly-owned subsidiaries owns and operates a diversified portfolio of real estate assets. At November 30, 1998, the Trust owned 66 commercial properties, containing approximately 5.6 million square feet and three multi-family residential properties aggregating 959 units. As of November 30, 1998, approximately 4.5 million square feet, representing 66% of the Trust's total real estate assets, at cost, were located in New England. (B) Plan of Liquidation On August 12, 1998, the Board of Trustees unanimously voted to recommend a Plan of Complete Liquidation and Termination of the Trust (the "Plan") and directed that the Plan be submitted to the Trust's shareholders for approval. The shareholders of the Trust approved the Plan at a special meeting held on October 14, 1998. The Plan calls for the sale of all of the Trust's assets. Net sales proceeds and available cash will be used to satisfy existing debts and obligations with remaining funds to be distributed to shareholders (see note 8). It is presently estimated that substantially all of the Trust's assets will be sold within 12 to 15 months from the adoption of the Plan and that net proceeds will be distributed on a schedule to be determined by the Board of Trustees. Although it is expected that the Trust will continue to qualify as a REIT for the period prior to the distribution of MGI's assets to shareholders, no assurance can be given that the Trust will not lose or terminate its status as a REIT as a result of unforeseen circumstances. In association with the Plan, MGI anticipates incurring a variety of costs and fees including costs related to sales, fees to advisors and other professionals, severance compensation, payments to holders of stock options (see note 7), and other expenses related to liquidation. Among the costs is an estimated $4.2 million of employee severance compensation, which includes a base and incentive component. Payment of employee severance compensation is contingent upon the employee's continuing employment and is being recognized as an expense over a 15-month period beginning October 14, 1998. The Trust has entered into agreements with a financial advisor and with an exclusive sales agent. Each agreement provides for a fee of $1.5 million to be paid in the event of a complete liquidation or merger, with a minimum of $400,000 to be paid to each. In addition, the Trust has agreed to reimburse their out-of-pocket expenses up to $650,000 in the aggregate. The costs and professional fees associated with the Plan are separately reflected in the statement of earnings under the caption "Liquidation plan expenses." 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Consolidation The consolidated financial statements of MGI Properties (the "Trust") include the accounts of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. (B) Income Taxes The Trust intends to continue to qualify to be taxed as a REIT under the Code. In order to qualify as a REIT for tax purposes, the Trust, among other things, must distribute to shareholders at least 95% of its taxable income. It has been the Trust's policy to distribute 100% of its taxable income to shareholders; accordingly, no provision has been made for Federal income taxes. (See notes 1 and 8.) F-6 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 (C) Real Estate As a result of the Plan, all of the Trust's real estate assets are classified as held for sale and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, are reported at carrying value, which is less than estimated fair market value. The Trust ceased depreciating real estate assets based upon shareholder approval of the Plan. The Trust expects to sell the real estate assets over a 12-15 month period and is engaged in an ongoing marketing program. Prior to the adoption of the Plan, real estate assets were stated at cost less depreciation. Realestate investments, excluding land costs, were previously depreciated using the straight-line method over their estimated useful lives. Tenant improvements were amortized over the shorter of their estimated useful lives or lease terms. Maintenance and repairs are charged to expense as incurred; major improvements are capitalized. (D) Revenues Rental income from leases with scheduled rent increases is recognized using the straight-line method over the life of the lease. (E) Deferred Financing and Leasing Costs Included in other assets are costs incurred in connection with financing or leasing which are capitalized and amortized using the straight-line method over the terms of the related loan or lease. Amortization of deferred financing costs is included in interest expense in the consolidated statements of earnings. Unamortized deferred costs are charged to expense upon the early termination of the lease or upon the early prepayment of the financing. (F) Statements of Cash Flows For purposes of the statements of cash flows, short-term investments with a maturity at date of purchase of three months or less are considered to be cash equivalents. During 1998, the Trust sold two apartment complexes for $15.5 million. The properties secured mortgage loans totaling $10.8 million which were assigned to the seller at closing. During 1997, the Trust sold seven industrial properties for $14.9 million in a single transaction. The properties secured an $8.7 million loan payable which was assigned to the purchaser at closing. During 1996, the Trust acquired three properties that were subject to an aggregate of $21.3 million of existing debt. Only the cash portion of these transactions is reflected in the accompanying consolidated statements of cash flows. Cash interest payments of $9.5 million, $8.7 million and $8.6 million were made for the years ended November 30, 1998, 1997 and 1996, respectively. (G) Fair Value of Financial Instruments The Trust estimated the fair values of its financial instruments at November 30, 1998 using discounted cash flow analysis and quoted market prices. Such financial instruments include short-term investments, U.S. Government securities, mortgage loans payable and a line of credit. The excess of the aggregate fair value of the Trust's financial instruments over their aggregate carrying amounts is not material. (H) Net Income Per Share During fiscal 1998, the Trust adopted SFAS No. 128, Earnings Per Share. Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is based upon the weighted average number of shares outstanding during the period and includes the effect of the potential issuance of additional shares if stock options were exercised or converted into common shares. (I) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of con- F-7 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 tingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3-REAL ESTATE ASSETS With shareholder approval of the plan of liquidation on October 14, 1998, the Trust reclassified its real estate assets to "properties held for sale" and on that date ceased depreciation of the assets and reclassified accumulated depreciation and amortization on that date of $50,226,000 to the appropriate categories. A summary of real estate assets at November 30 follows:
1998 - ---------------------------------------------------------------------------- Land $ 83,129,000 Buildings and improvements, net 272,115,000 Tenant improvements, net 10,299,000 - ---------------------------------------------------------------------------- Properties held for sale $365,543,000 ============================================================================
1997 - ---------------------------------------------------------------------------- Land $ 82,989,000 Buildings and improvements 288,095,000 Tenant improvements 10,859,000 - ---------------------------------------------------------------------------- Total real estate assets 381,943,000 Accumulated depreciation and amortization (47,158,000) - ---------------------------------------------------------------------------- Net investments in real estate $ 334,785,000 ============================================================================
Properties held for sale at November 30, 1998 consist of 1,814,000 square feet of office space, 1,685,000 square feet of industrial space, 1,394,000 square feet of office/research and development space, 755,000 square feet of retail space, and 959 apartment units. 4-LEASES All leases relating to real estate investments are operating leases; accordingly, rental income is reported when earned. Operating leases on apartments generally have a term of one year or less. Future minimum lease payments on noncancelable operating leases at commercial properties at November 30, 1998 are: $52.1 million in 1999, $34.4 million in 2000, $15.4 million in 2001, $9.5 million in 2002, and $12.4 million thereafter. The above amounts do not include rental income which is received under certain leases based upon tenant sales, ad valorem taxes, property operating expenses and/or costs to maintain common areas. This rental income was $10.1 million in 1998, $8.1 million in 1997 and $7.4 million in 1996. One of the Trust's real estate investments, a 107,000 square foot retail building, is being leased in its entirety by Bradlees, Inc. which filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code in June 1995. Bradlees has obtained an extension to submit a reorganization plan until February 1999. Bradlees is current with its rent through November 30, 1998. F-8 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 5-LOANS PAYABLE Loans payable at November 30 follow:
1998 1997 - -------------------------------------------------------------------------------------------------------------------- Mortgage loans, maturing 2000 through 2014, at effective interest rates ranging from 7.5% to 8.9% $ 95,517,000 $ 91,921,000 Housing revenue bond at an effective interest rate of 5.9% at November 30, 1997 -- 5,750,000 Amounts outstanding under the line of credit, at an effective interest rate of 6.53% and 7.7% at November 30, 1998 and 1997, respectively 35,000,000 15,500,000 - -------------------------------------------------------------------------------------------------------------------- $130,517,000 $113,171,000 ==================================================================================================================== Weighted average interest rate 7.75% 7.89% ====================================================================================================================
Mortgage Loans The mortgage loans payable are nonrecourse and are collateralized by certain real estate investments having a net carrying value of $142.9 million. Loans require monthly principal amortization and/or a balloon payment at maturity. Principal payments on mortgage loans payable due in the next five years and thereafter are as follows: $3.2 million in 1999, $14.9 million in 2000, $44.5 million in 2001, $2.8 million in 2001, $3.1 million in 2003, and $62.0 million thereafter. Subsequent to November 30, 1998, the Trust repaid a $12.3 million mortgage loan maturing in 2000, which had a stated rate of 8.5%. The repayment was funded from available cash and a $7.5 million advance under the line of credit. The Trust incurred a prepayment penalty of $286,000 in conjunction with the transaction. Line of Credit During fiscal 1998, MGI entered into a $75 million unsecured syndicated credit facility (the "Agreement") which replaced two secured lines of credit that totaled $45 million. The line, which matures in March of 2001, bears interest at either LIBOR plus 1.25% or prime. A fee, which does not exceed .25% per annum, is charged on the unused amounts. The Agreement contains customary representations, covenants and events of default including covenants that, among other things, requires the Trust to maintain certain financial ratios and restricts the incurrence of certain indebtedness, the making of certain investments, and distributions. The Agreement contains exceptions to these limitations to allow the Trust to make distributions necessary to maintain its status as a REIT. It is not anticipated that this covenant will adversely affect MGI's ability to make distributions or to declare dividends, including the execution of the plan of liquidation. 6-SHAREHOLDERS' EQUITY (A) Shelf Registration In October 1996, the Trust filed a shelf registration with the Securities and Exchange Commission to register $100 million of common shares, preferred shares, debt securities, warrants, rights or units that the Trust may issue through underwriters or in privately negotiated transactions from time to time. In January 1997, the Trust completed a public offering of 2,000,000 common shares at a price of $22 per share. (B) Dividend Reinvestment and Share Purchase Plan Under the Trust's Dividend Reinvestment and Share Purchase Plan, shareholders of record who own 100 shares or more have the option of electing to receive, in full or in part, dividends in the form of MGI shares in lieu of cash. The price of shares purchased with reinvested dividends is at a 3% discount in the case of newly issued shares. If MGI purchases shares in the open market for the plan, the price for such shares is 100% of the average purchase price paid. F-9 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 Participants in the plan may make additional cash purchases of shares at the same price as shares purchased through the reinvestment of dividends. During the years ended November 30, 1998, 1997 and 1996, the Trust issued 13,456, 18,217, and 22,808, respectively, common shares through its Dividend Reinvestment and Share Purchase Plan. (C) Preferred Shares At November 30, 1998 and 1997, the Trust had six million preferred shares, $1 par value authorized, of which none were issued. (D) Shareholder Rights Plan On June 21, 1989, the Board of Trustees adopted a shareholder rights plan. Under this plan, one right was attached to each outstanding common share on July 5, 1989, and one right is attached to each share issued thereafter. Each right entitles the holder to purchase, under certain conditions, one one-hundredth of a share of Series A participating preferred stock for $60. The rights may also, under certain conditions, entitle the holders to receive common shares of the Trust, common shares of an entity acquiring the Trust, or other consideration, each having a value equal to twice the exercise price of each right ($120). One hundred fifty thousand preferred shares have been designated as Series A participating preferred shares and are reserved for issuance under the shareholder rights plan. The rights are redeemable by the Trust at a price of $.01 per right. If not exercised or redeemed, all rights expire in July 1999. 7. STOCK OPTION PLANS Under the Trust's 1997 and 1994 stock option plans for key employees and Trustees (the "Option Plans"), incentive stock options or nonqualified options and related stock appreciation rights and restricted stock awards may be granted to employees, and nonqualified options may be granted to Trustees. Under the Option Plans, options may be granted at an exercise price not less than fair market value of the Trust's common shares on the date of grant. Following shareholder approval of the Plan on October 14, 1998, option holders, in accordance with their option agreements, have elected, as an alternative to exercising their options, to receive in cash the difference between the per share option exercise price and the aggregate per share net liquidation proceeds to be distributed to shareholders. The estimated expense associated with these elections, which is the difference between the per share option exercise price and the aggregate per share net liquidation proceeds expected to be distributed to shareholders, will be recognized upon declaration of the related liquidating dividends. Holders of approximately 1.5 million options with an aggregate average exercise price of approximately $19.84 have made this election. F-10 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 Changes in options outstanding during the years ended November 30 were as follows:
1998 1997 1996 -------------------- ------------------- ------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ---------------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 997,619 $15.59 810,411 $13.68 669,411 $13.02 Granted 680,000 $24.38 240,000 $21.42 161,500 $16.24 Exercised (169,394) $12.99 (51,792) $12.31 (14,500) $11.86 Expired or forfeited (750) $24.19 (1,000) $21.00 (6,000) $12.63 - ---------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 1,507,475 $19.84 997,619 $15.59 810,411 $13.68 ====================================================================================================================== Options exercisable, end of year 1,397,350 $19.49 893,619 $14.91 739,661 $13.42 ====================================================================================================================== Weighted average fair value of options granted during the year $ 2.95 $ 3.44 $ 2.28 ======================================================================================================================
The following table summarizes information about stock options outstanding at November 30, 1998:
Options Outstanding Options Exercisable ------------------------------------------------ ------------------------------- Weighted Average Remaining Weighted Weighted Range of Number Contractual Average Number Average Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price - -------------------------------------------------------------------------------------------------------- $7.375 to $11.125 47,500 2.8 years $10.10 47,500 $10.10 $12.625 to $16.75 547,225 4.5 years $14.37 547,225 $14.37 $21.00 to $26.50 912,750 9.1 years $23.62 802,625 $23.52 - -------------------------------------------------------------------------------------------------------- $7.375 to $26.50 1,507,475 7.3 years $19.84 1,397,350 $19.49 ========================================================================================================
As provided for in the Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Trust applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method prescribed by SFAS No. 123, the Trust's net income and net income per share would have been reduced to the pro forma amounts indicated as follows:
Year ended November 30: 1998 1997 1996 ---------------------------------------------- Net income: As reported $29,817,000 $20,466,000 $24,305,000 Pro forma $27,825,000 $19,842,000 $23,969,000 Net income per share: Basic earnings per share $ 2.17 $ 1.54 $ 2.11 Pro forma $ 2.03 $ 1.49 $ 2.08
F-11 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998 For purposes of this pro forma disclosure, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: dividend yield of 5.7% for 1998, 6.2% for 1997, and 6.9% for 1996; expected volatility of 19.1% for 1998, 24.8% for 1997, and 26.1% for 1996; expected lives of seven years for all three years; and risk-free interest rates of 5.57% for 1998, 6.38% for 1997, and 6.78% for 1996. 8-CASH DISTRIBUTIONS The Trust made cash distributions of $16.8 million in 1998, $14.4 million in 1997 and $11.3 million in 1996, which is allocated between taxable ordinary income and taxable capital gain, on a per share basis, as follows:
Ordinary Capital Taxable Year ended November 30: Income Gain Income -------------------------------- 1998 $1.08 $0.14 $1.22 1997 $1.06 $0.04 $1.10 1996 $0.56 $0.42 $0.98
On December 17, 1998, the Trust declared a dividend of $.33 per share payable on January 19, 1999 to shareholders of record on January 8, 1999. Under the provisions of the Code, distributions made within 24 months of the adoption of the Plan are considered liquidating distributions and will not be dividend income when received by shareholders. Distributions in liquidation should first be used to reduce a shareholder's basis in his or her shares of MGI with any excess constituting a capital gain if the shares were held as a capital asset. If the sum of all liquidating distributions is less than a shareholder's basis, the difference will constitute a capital loss. 9-QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly results of operations for the years ended November 30, 1998 and 1997 follow:
Quarter Ended --------------------------------------------------------------- 1998 February 28 May 31 August 31 November 30 - ------------------------------------------------------------------------------------------- Total income $16,488,000 $17,584,000 $18,277,000 $18,640,000 Total expenses 11,735,000 12,459,000 13,387,000 11,968,000 - ------------------------------------------------------------------------------------------- Income before net gains 4,735,000 5,125,000 4,890,000 6,672,000 Net gains 6,075,000 1,950,000 350,000 -- - ------------------------------------------------------------------------------------------- Net income $10,828,000 $ 7,075,000 $ 5,240,000 $ 6,672,000 =========================================================================================== Per Share Data Basic earnings $ .79 $ .51 $ .38 $ .48 =========================================================================================== Diluted earnings $ .78 $ .50 $ .37 $ .47 ===========================================================================================
F-12 MGI PROPERTIES Notes to Consolidated Financial Statements November 30, 1998
Quarter Ended --------------------------------------------------------------- 1997 February 28 May 31 August 31 November 30 - ------------------------------------------------------------------------------------------------------------------ Total income $15,088,000 $15,574,000 $16,145,000 $16,399,000 Total expenses 11,433,000 11,310,000 11,601,000 11,890,000 - ------------------------------------------------------------------------------------------------------------------ Income before net gains and extraordinary item 3,655,000 4,264,000 4,544,000 4,509,000 Net gains and extra-ordinary item 294,000 -- -- 3,200,000 - ------------------------------------------------------------------------------------------------------------------ Net income $ 3,949,000 $ 4,264,000 $ 4,544,000 $ 7,709,000 ================================================================================================================== Per Share Data Basic earnings $ .32 $ .31 $ .33 $ .57 ================================================================================================================== Diluted earnings $ .31 $ .31 $ .33 $ .55 ==================================================================================================================
F-13 MGI PROPERTIES Schedule III Real Estate and Accumulated Depreciation November 30, 1998
Gross amounts at which Initial Cost carried at close of period* ---------------------------- Costs ----------------------------------------------- Building capitalized Building and subsequent to and Date Description Encumbrances Land Improvements acquisition Land Improvements Total acquired - --------------------------------------------------------------------------------------------------------------------------------- Office: Greenville, SC $ - $ 246,000 $ 2,490,000 $ 523,000 $ 246,000 $ 1,593,000 $ 1,839,000 11/86 Greenville, SC - 213,000 1,647,000 717,000 253,000 1,040,000 1,293,000 11/86 Ann Arbor, MI - 686,000 5,618,000 1,751,000 686,000 5,319,000 6,005,000 12/88 Tampa, FL - 2,667,000 8,980,000 750,000 2,667,000 5,950,000 8,617,000 12/88 Somerset, NJ - 3,264,000 13,379,000 1,019,000 3,264,000 10,627,000 13,891,000 12/88 Boston, MA - 1,730,000 6,925,000 2,769,000 1,730,000 8,415,000 10,145,000 6/93 Framingham, MA - 2,105,000 5,109,000 993,000 2,020,000 5,124,000 7,144,000 9/93 Andover, MA 4,817,000 1,263,000 6,417,000 471,000 1,263,000 6,292,000 7,555,000 10/95 Boston, MA - 861,000 507,000 363,000 861,000 734,000 1,595,000 11/95 Portland, ME 8,893,000 996,000 11,182,000 237,000 996,000 10,742,000 11,738,000 7/96 Portland, ME 8,225,000 1,577,000 15,369,000 118,000 1,577,000 14,579,000 16,156,000 7/96 Glastonbury, CT - 649,000 3,011,000 64,000 651,000 2,956,000 3,607,000 4/97 Glastonbury, CT - 616,000 3,257,000 17,000 618,000 3,153,000 3,771,000 4/97 Nashua, NH - 1,106,000 3,504,000 16,000 1,106,000 3,426,000 4,532,000 9/97 Nashua, NH - 452,000 1,110,000 41,000 452,000 1,121,000 1,573,000 9/97 Nashua, NH - 499,000 1,768,000 189,000 499,000 1,905,000 2,404,000 9/97 Farmington, CT - 766,000 4,831,000 12,000 766,000 4,737,000 5,503,000 11/97 South Portland, ME - 338,000 1,394,000 0 338,000 1,369,000 1,707,000 2/98 South Portland, ME - 938,000 4,209,000 0 938,000 4,134,000 5,072,000 2/98 South Portland, ME - 608,000 2,732,000 0 608,000 2,684,000 3,292,000 2/98 Hopkinton, MA - 126,000 12,501,000 0 126,000 12,332,000 12,458,000 3/98 Raynham, MA - 297,000 2,308,000 0 297,000 2,277,000 2,574,000 3/98 Manchester, NH - 1,915,000 9,063,000 82,000 1,915,000 9,015,000 10,930,000 4/98 Peabody, MA - 701,000 3,595,000 0 701,000 3,554,000 4,255,000 4/98 - --------------------------------------------------------------------------------------------------------------------------------- 21,935,000 24,619,000 130,906,000 10,132,000 24,578,000 123,078,000 147,656,000 ================================================================================================================================= Office/Research & Development: Billerica, MA - 376,000 1,749,000 1,000 376,000 1,520,000 1,896,000 7/93 Bedford, MA - 662,000 1,585,000 77,000 662,000 1,465,000 2,127,000 11/93 Andover, MA 4,108,000 1,441,000 5,799,000 9,000 1,441,000 5,093,000 6,534,000 11/93 Billerica, MA - 752,000 3,611,000 1,051,000 752,000 4,185,000 4,937,000 12/93 Billerica, MA - 420,000 1,652,000 0 420,000 1,451,000 1,871,000 12/93 Andover, MA 3,500,000 1,185,000 5,307,000 0 1,185,000 4,715,000 5,900,000 5/94 Chelmsford, MA - 354,000 1,567,000 193,000 354,000 1,551,000 1,905,000 11/94 Billerica, MA - 681,000 4,111,000 14,000 681,000 3,716,000 4,397,000 11/94 Littleton, MA - 285,000 2,091,000 322,000 285,000 2,247,000 2,532,000 9/95 Chelmsford, MA - 946,000 3,680,000 147,000 946,000 3,539,000 4,485,000 10/95 Tewksbury, MA 4,560,000 1,640,000 7,289,000 22,000 1,648,000 6,823,000 8,471,000 3/96 Andover, MA - 1,171,000 2,818,000 1,000 1,171,000 2,658,000 3,829,000 7/96 Westford, MA - 1,053,000 2,426,000 21,000 1,058,000 2,353,000 3,411,000 4/97 Hudson, NH - 274,000 3,261,000 0 274,000 3,210,000 3,484,000 3/98 Hopkinton, MA - 384,000 2,466,000 0 384,000 2,433,000 2,817,000 3/98 Hopkinton, MA - 53,000 5,273,000 0 53,000 5,202,000 5,255,000 3/98 Raynham, MA - 534,000 2,018,000 0 534,000 1,991,000 2,525,000 3/98 - --------------------------------------------------------------------------------------------------------------------------------- 12,168,000 12,211,000 56,703,000 1,858,000 12,224,000 54,152,000 66,376,000 =================================================================================================================================
F-14 MGI PROPERTIES Schedule III (continued) Real Estate and Accumulated Depreciation November 30, 1998
Gross amounts at which Initial Cost carried at close of period* ---------------------------- Costs ----------------------------------------------- Building capitalized Building and subsequent to and Date Description Encumbrances Land Improvements acquisition Land Improvements Total acquired - --------------------------------------------------------------------------------------------------------------------------------- Industrial Properties: Bedford, MA - 512,000 2,062,000 154,000 512,000 1,840,000 2,352,000 10/92 Wilmington, MA 3,930,000 2,390,000 4,638,000 259,000 2,390,000 4,205,000 6,595,000 5/93 Wilmington, MA - 1,394,000 3,208,000 151,000 1,394,000 2,902,000 4,296,000 8/93 Wilmington, MA - 501,000 2,013,000 61,000 501,000 1,854,000 2,355,000 11/94 Tewksbury, MA 8,065,000 1,739,000 8,994,000 723,000 1,739,000 8,634,000 10,373,000 3/95 Marlborough, MA - 1,040,000 1,303,000 238,000 1,040,000 1,428,000 2,468,000 6/95 Marlborough, MA - 579,000 2,244,000 377,000 579,000 2,422,000 3,001,000 12/95 Franklin, MA - 599,000 3,256,000 0 599,000 3,029,000 3,628,000 12/95 Franklin, MA - 706,000 2,523,000 20,000 706,000 2,365,000 3,071,000 12/95 Franklin, MA - 932,000 4,160,000 0 932,000 3,939,000 4,871,000 8/96 Methuen, MA - 540,000 1,220,000 2,000 541,000 1,166,000 1,707,000 12/96 Methuen, MA - 1,334,000 3,518,000 3,000 1,335,000 3,362,000 4,697,000 12/96 Andover, MA - 1,084,000 3,444,000 93,000 1,088,000 3,413,000 4,501,000 5/97 Nashua, NH - 785,000 2,360,000 0 785,000 2,299,000 3,084,000 9/97 Nashua, NH - 1,478,000 3,641,000 4,000 1,478,000 3,550,000 5,028,000 9/97 Hopkinton, MA - 29,000 1,921,000 0 29,000 1,895,000 1,924,000 3/98 - --------------------------------------------------------------------------------------------------------------------------------- 11,995,000 15,642,000 50,505,000 2,085,000 15,648,000 48,303,000 63,951,000 ================================================================================================================================= Retail: Hagerstown, MD - 364,000 1,459,000 0 364,000 968,000 1,332,000 12/84 Baltimore, MD - 2,000,000 5,710,000 131,000 1,832,000 4,301,000 6,133,000 7/87 Temple Terrace, FL 4,734,000 2,600,000 6,540,000 335,000 2,600,000 4,950,000 7,550,000 12/87 Aurora, IL 12,292,000 12,576,000 15,372,000 3,667,000 12,576,000 14,266,000 26,842,000 5/90 Peabody, MA - 4,705,000 5,623,000 1,000 4,705,000 5,171,000 9,876,000 8/95 - --------------------------------------------------------------------------------------------------------------------------------- 17,026,000 22,245,000 34,704,000 4,134,000 22,077,000 29,656,000 51,733,000 ================================================================================================================================= Apartments: Harrison Township, MI 11,462,000 700,000 1,948,000 12,453,000 701,000 8,363,000 9,064,000 11/74 Bloomfield Hills, MI 10,171,000 4,325,000 12,126,000 2,236,000 4,325,000 8,876,000 13,201,000 1/89 Laurel, MD 9,066,000 613,000 12,722,000 (71,000) 613,000 9,974,000 10,587,000 9/90 - --------------------------------------------------------------------------------------------------------------------------------- 30,699,000 5,638,000 26,796,000 14,618,000 5,639,000 27,213,000 32,852,000 ================================================================================================================================= Other: Portland, ME 1,694,000 2,309,000 12,000 - 2,309,000 12,000 2,321,000 7/96 Tampa, FL - 427,000 - - 427,000 - 427,000 12/95 Mount Clemens, MI - 25,000 - - 25,000 - 25,000 7/86 Hopkinton, MA - 202,000 - - 202,000 - 202,000 3/98 - --------------------------------------------------------------------------------------------------------------------------------- 1,694,000 2,963,000 12,000 - 2,963,000 12,000 2,975,000 ================================================================================================================================= $95,517,000 $83,318,000 $299,626,000 $32,827,000 $83,129,000 $282,414,000 $365,543,000 =================================================================================================================================
*Effective October 14, 1998 with the adoption of the Plan, the Trust reclassified $50.2 million of accumulated depreciation and amortization against the original cost of real estate assets, and captioned the resulting total of $365,543,000 as "Properties held for Sale" in the accompanying balance sheet of November 30, 1998. F-15 MGI PROPERTIES Schedule III (continued) Real Estate and Accumulated Depreciation November 30, 1998 A summary of real estate investments and accumulated depreciation and amortization for the three years ended November 30 follows:
November 30, 1998 1997 1996 -------------------------------------------------- Real Estate Investments Balance at beginning of year $381,943,000 $356,024,000 $293,469,000 Add: Investments 57,140,000 48,000,000 59,950,000 Building improvements 3,816,000 3,114,000 3,307,000 Tenant improvements 3,666,000 2,669,000 2,702,000 - --------------------------------------------------------------------------------------------------- 446,565,000 409,807,000 359,428,000 Deduct: Real estate dispositions 30,796,000 24,046,000 3,404,000 Fully amortized assets and other - 3,818,000 - Reclassification to properties held for sale 50,226,000 - - - --------------------------------------------------------------------------------------------------- Balance at end of year $365,543,000 $381,943,000 $356,024,000 =================================================================================================== Accumulated Depreciation and Amortization Balance at beginning of year $ 47,158,000 $ 44,810,000 $ 36,375,000 Add: Depreciation and amortization 9,200,000 9,874,000 8,832,000 Deduct: Real estate dispositions 6,132,000 4,292,000 397,000 Fully amortized and other - 3,234,000 - Reclassification to properties held for sale 50,226,000 - - - --------------------------------------------------------------------------------------------------- Balance at end of year $ - $ 47,158,000 $ 44,810,000 ===================================================================================================
The aggregate cost for Federal income tax purposes of the above investments at November 30, 1998 was approximately $414 million. Refer to note 2 regarding the Trust's accounting policies on real estate investments and depreciation amortization. F-16 MGI PROPERTIES Exhibit XI Computation of Diluted Earnings per Share
Year ended November 30 -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Net income $29,817,000 $20,466,000 $24,305,000 $14,319,000 $14,491,000 ============================================================================================================================== Weighted average number of common shares outstanding 13,736,729 13,289,781 11,540,972 11,487,677 11,450,451 Additional number of share equivalents assuming exercise of options 337,400 302,326 180,257 82,408 91,834 - ------------------------------------------------------------------------------------------------------------------------------ Weighted average number of shares assuming full dilution 14,074,129 13,592,107 11,721,229 11,570,085 11,542,285 ============================================================================================================================== Diluted earnings per share $ 2.12 $ 1.51 $ 2.07 $ 1.24 $ 1.26 ==============================================================================================================================
F-17 CONSENT OF INDEPENDENT AUDITORS THE BOARD OF TRUSTEES MGI PROPERTIES: We consent to incorporation by reference in the registration statements (Nos. 33-21584, 2-97270, 33-65844, 33-53433 and 33-63901) on Form S-8 of MGI Properties and subsidiaries of our report dated December 16, 1998, relating to the consolidated balance sheets of MGI Properties and subsidiaries as of November 30, 1998 and 1997, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended November 30, 1998, and related schedule, which report appears in the November 30, 1998 annual report on Form 10-K of MGI Properties and subsidiaries. KPMG Peat Marwick LLP Boston, Massachusetts December 16, 1998 EX-3.N 2 CERTIFICATE OF THIRTEENTH AMENDMENT MGI PROPERTIES CERTIFICATE OF THIRTEENTH AMENDMENT OF SECOND AMENDED AND RESTATED DECLARATION OF TRUST The undersigned, a Trustee of MGI Properties (the "Trust"), hereby certifies pursuant to Article XIV, Section 14.3 of the Second Amended and Restated Declaration of Trust (the "Declaration of Trust") that at a special meeting of the Shareholders of the Trust duly called and held on October 14, 1998, in accordance with the Declaration of Trust, at which a quorum was present and voting throughout, pursuant to Section 13.1 of the Declaration of Trust, the holders of Shares of the Trust representing not less than a majority of the total number of votes authorized to be cast by Shares of all classes then outstanding and entitled to vote thereon, voted to amend Section 13.1(b) of the Declaration of Trust to read in its entirety as follows: " (b) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration of Trust shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business, including but not limited to the transfer of Trust Property to a liquidating trust or similar entity." IN WITNESS WHEREOF, W. Pearce Coues, as Trustee aforesaid, has signed these presents this 14th day of October 1998. /s/ W. Pearce Coues ---------------------------------- W. Pearce Coues EX-10.N 3 MGI PROPERTIES FORM DEFS14A SCHEDULE 14A INFORMATION (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12 MGI Properties - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Charter) - -------------------------------------------------------------------------------- (Name of Person(s) filing Proxy Statement, if other than Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): In accordance with Rule 0-11(c), the fee was calculated to be one-fiftieth of one percent of the aggregate of the cash and value of securities and other property to be distributed to the shareholders of MGI Properties. - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: $454,123,133 (5) Total fee paid: $90,824.63 [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: MGI PROPERTIES One Winthrop Square Boston, Massachusetts 02110 ---------------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS October 14, 1998 To the Shareholders of MGI Properties: NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting") of MGI Properties (the "Trust") will be held in the Captain's Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts, on October 14, 1998 at 10:00 A.M. for the following purposes: 1. To consider and act upon a proposed Plan of Complete Liquidation and Termination of the Trust which is described in Exhibit A to the accompanying Proxy Statement; 2. To consider and act upon a proposal to amend the Declaration of Trust's requirements regarding shareholder approval for the disposition of properties of the Trust; and 3. To consider and act upon such other business as may properly come before the Meeting. Only shareholders of record at the close of business on September 1, 1998 will be entitled to vote at the Meeting. If you do not expect to attend the Meeting, please sign, date and promptly mail the enclosed proxy in order that your shares may be voted for you. A return envelope is provided for your convenience. By Order of the Trustees, W. Pearce Coues Chairman of the Board of Trustees Dated: Boston, Massachusetts September 10, 1998 MGI PROPERTIES is a Massachusetts trust and all persons dealing with the Trust must look solely to the property of this Trust for the enforcement of any claims against the Trust. Neither the Trustees, officers, agents nor shareholders of this Trust assume any personal liability for obligations entered into on its behalf. This Notice also includes a Notice regarding appraisal rights of dissenting shareholders. (This page intentionally left blank) MGI PROPERTIES One Winthrop Square Boston, Massachusetts 02110 ---------------- SPECIAL MEETING OF SHAREHOLDERS October 14, 1998 ---------------- PROXY STATEMENT This Proxy Statement is being mailed to the shareholders of MGI Properties (the "Trust") on or about September 10, 1998, in connection with the solicitation by the Trust's Board of Trustees (the "Board of Trustees") of proxies for a Special Meeting of Shareholders (the "Meeting") to be held in the Captain's Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts, on October 14, 1998. The Meeting has been called for the following purposes: (1) to consider and act upon a proposed Plan of Complete Liquidation and Termination of the Trust (the "Plan"); (2) to consider and act upon a proposal to amend the Declaration of Trust's requirements regarding shareholder approval for the disposition of properties of the Trust; and (3) to consider and act upon such other business as may properly come before the Meeting. The principal executive office of the Trust is located at One Winthrop Square, Boston Massachusetts 02110. The Trust's telephone number at such office is (617) 422-6000. PROXIES AND VOTING RIGHTS The voting securities of the Trust outstanding on September 1, 1998 consisted of 13,761,307 of the Trust's Common Shares (the "Common Shares") entitling the holders thereof to one vote per Common Share. Shareholders of record at the close of business on September 1, 1998 are entitled to notice of and to vote at the Meeting. A majority of the outstanding Common Shares is required to be represented to constitute a quorum for the holding of the Meeting. The affirmative vote of not less than a majority of the outstanding Common Shares entitled to vote on the Plan (Proposal No. 1) is required for the approval of the Plan and the affirmative vote of not less than a majority of the outstanding Common Shares entitled to vote on the amendment to the Declaration of Trust (Proposal 2) is required for the approval of the amendment. Votes may be cast in favor, against or withheld; votes that are withheld will have the same effect as votes against the Plan. Under the rules of the New York Stock Exchange (the "NYSE"), brokers who hold Common Shares in street name for customers have the authority to vote, under certain circumstances, on items when they have not received instructions from beneficial owners. Brokers that do not receive instructions are not entitled to vote on Proposal 1 (the Plan) or Proposal 2 (amendment to the Declaration of Trust). Broker non-votes (shares not voted by brokers due to the absence of instructions from street name holders) are not considered voted, present or represented and, therefore, will have the same effect as votes against the Plan and the amendment to the Declaration of Trust. All proxies delivered pursuant to this solicitation may be revoked by the person executing the same by notice in writing received at the office of the Trust at any time prior to exercise. If not revoked, the Common Shares represented thereby will be voted at the Meeting. All proxies will be voted in accordance with the instructions specified thereon. All expenses in connection with the solicitation will be borne by the Trust. It is expected that the solicitation will be made primarily by mail, but regular employees or representatives of the Trust may also solicit proxies by telephone, telecopier or in person, without additional compensation. Beacon Hill Partners, Inc., a proxy solicitation firm, will assist the Trust in soliciting proxies at a cost of $7,500, plus reasonable out-of-pocket expenses. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning ownership of the Common Shares as of September 1, 1998 by (i) each executive officer of the Trust, (ii) each Trustee of the Trust, (iii) all executive officers and Trustees of the Trust as a group, and (iv) each person who, to the knowledge of management, owned beneficially more than 5% of the Common Shares. Unless otherwise indicated, the address of each person listed below is One Winthrop Square, Boston, Massachusetts 02110.
Common Shares Beneficial Owner(1) Beneficially Owned Percent of Class(2) - ---------------------------------------------------------------------- -------------------- -------------------- George S. Bissell ................................................... 26,000(3) * W. Pearce Coues ..................................................... 486,600(4) 3.5% Davenport & Co. of Virginia, Inc. 901 E. Cary Street Suite 1110 Richmond, Virginia 23219 ........................................... 824,274(5) 6.0% Francis P. Gunning .................................................. 26,000(6) * George M. Lovejoy, Jr. .............................................. 25,300(7) * Robert M. Melzer .................................................... 21,500(8) * William F. Murdoch, Jr. ............................................. 26,000(3) * Rodger P. Nordblom .................................................. 26,800(6) * Phillip C. Vitali ................................................... 299,526(9) 2.1% David D. Wamester ................................................... 35,347(10) * Robert Ware. ........................................................ 228,500(11) 1.6% Karl W. Weller. ..................................................... 217,904(12) 1.6% All Executive Officers and Trustees as a group (11 persons) ......... 1,419,477(13) 9.5%
- ------------ * Less than 1%. (1) Except as outlined herein, the persons named in the table, to the Trust's knowledge, have sole voting and dispositive power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes hereunder. (2) Calculations assume that all options which are exercisable by such person within 60 days after September 1, 1998 have been exercised. (3) Includes presently exercisable options to purchase an aggregate of 25,000 Common Shares granted pursuant to the Trust's 1988 Stock Option Plan for Trustees (the "1988 Trustees Plan") and the Trust's 1994 Trustees Stock Option Plan (the "1994 Trustees Plan"). (4) Includes 355,439 presently exercisable options and excludes 20,000 options not presently exercisable, to purchase an aggregate of 375,439 Common Shares granted pursuant to the Trust's 1982 Stock Option Plan for Trustees (the "1982 Trustees Plan"), the 1988 Stock Option and Stock Appreciation Rights Plan for Key 2 Employees (the "1988 Employee Plan"), the 1988 Trustees Plan, the Trust's 1994 Employee Stock Option and Stock Appreciation Rights Plan (the "1994 Employee Plan"), the 1994 Trustees Plan and the Trust's 1997 Employee Stock Option, Stock Appreciation Rights and Restricted Stock Plan (the "1997 Employee Plan"). Also includes 207 Common Shares owned by Mr. Coues' wife, as to which Mr. Coues disclaims beneficial ownership. (5) Based on a Schedule 13G dated January 23, 1998, Davenport & Co. of Virginia, Inc., a Virginia corporation with its principal place of business located at 901 E. Cary Street, Suite 1100, Richmond, Virginia 23219 ("Davenport"), beneficially owned 824,274 of the then outstanding Common Shares, representing 6.0% thereof as of such date. Of such Common Shares, Davenport had (i) sole voting and dispositive power with respect to 85,613 of such shares and (ii) shared voting and dispositive power with respect to 738,661 of such shares. (6) Includes presently exercisable options to purchase an aggregate of 25,000 Common Shares granted pursuant to the 1982 Trustees Plan, the 1988 Trustees Plan and the 1994 Trustees Plan. (7) Includes presently exercisable options to purchase an aggregate of 24,025 Common Shares granted pursuant to the 1998 Trustees Plan and the 1994 Trustees Plan. (8) Includes presently exercisable options to purchase an aggregate of 20,000 Common Shares granted pursuant to the 1994 Trustees Plan. (9) Includes 270,511 presently exercisable options and excludes 17,500 options not presently exercisable, to purchase an aggregate of 288,011 Common Shares granted pursuant to the Trust's 1982 Incentive Stock Option Plan for Key Employees (the "1982 Incentive Plan"), the 1988 Employee Plan, the 1994 Employee Plan and the 1997 Employee Plan. (10) Includes 35,000 presently exercisable options and excludes 15,000 options not presently exercisable, to purchase aggregate of 50,000 Common Shares granted pursuant to the 1997 Employee Plan. (11) Includes 178,500 presently exercisable options and excludes 17,500 options not presently exercisable, to purchase an aggregate of 196,000 Common Shares granted pursuant to the 1982 Incentive Plan, the 1988 Employee Plan, the 1994 Employee Plan and the 1997 Employee Plan. (12) Includes 203,943 presently exercisable options and excludes 17,500 options not presently exercisable, to purchase an aggregate of 221,443 Common Shares granted pursuant to the 1988 Employee Plan, the 1994 Employee Plan and the 1997 Employee Plan. (13) Includes 1,187,418 presently exercisable options and excludes 87,500 options not presently exercisable, to purchase an aggregate of 1,274,918 Common Shares. PROPOSAL NO. 1 PROPOSED PLAN OF COMPLETE LIQUIDATION AND TERMINATION On June 18, 1998, the Trust publicly announced that its Board of Trustees had decided to undertake a review of strategic alternatives available to the Trust to maximize shareholder value, including a possible liquidation of the Trust's properties. On August 12, 1998, the Trustees unanimously approved the Plan and directed that the Plan be submitted to the Trust's shareholders for approval. At the Meeting, the shareholders of the Trust will be asked to approve the Plan in the form attached to this Proxy Statement as Exhibit A. Approval of the Plan will require the affirmative vote of the holders of at least a majority of the outstanding Common Shares entitled to vote. Trustees and officers of the Trust who own Common Shares (constituting approximately 1.7% of the outstanding shares) have indicated to the Trust that they intend to vote all such shares to approve the Plan. The Board of Trustees believes 3 that the Plan is in the best interests of the Trust and its shareholders and recommends that shareholders vote FOR this proposal. The information that is set forth below is furnished in connection with the proposal. Reasons for the Liquidation The Trust is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts. The Trust commenced operations in 1971 as a real estate investment trust (a "REIT"). Since that time, the Trust has elected to be treated as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). The Trust owns and operates a diversified portfolio of income producing real estate, which as of July 31, 1998 consisted of 67 commercial properties and three multi-family residential properties. The commercial portfolio consists of 5.8 million square feet, 87% of which is comprised of office, office/research and development and industrial properties. The multi-family properties consist of three residential communities aggregating 959 units. At July 31, 1998, the commercial and residential properties were 98.2% and 94.9% leased, respectively. Since 1992, the Trust has focused on the commercial segment of the real estate market, specifically office, office/research and development and industrial properties located in New England. At July 31, 1998, 66%, based upon cost, of the Trust's real estate assets were located in New England. During the fiscal year ended November 30, 1997, the Trust began the internalization of the property management function for its New England properties. As of September 1, 1998, the Trust had 4.0 million square feet of space under management. A list of the properties in which the Trust has invested and certain information in respect thereof are set forth on Exhibit B hereto. In connection with its review of strategic alternatives, the Trust engaged Ernst & Young LLP ("E&Y") to act as its strategic and financial advisor on July 7, 1998. On June 23, 1998 the Trust retained TC New England Brokerage, doing business as Fallon Hines & O'Connor, a Trammell Crow Company ("FHO" and together with E&Y, the "Advisors"), a real estate services company, to assist in the evaluation of the likely sales prices of the Trust's New England real estate. On August 12, 1998, the Trust retained FHO to act as the Trust's sole and exclusive sales agent for all of the Trust's properties in connection with the Plan. See "Role of Advisors" below. In July 1998, the Trustees, in conjunction with E&Y, initiated a strategic review of alternatives for maximizing shareholder values because of (a) the perceived undervaluation of the Common Shares relative to the value of the Trust's real estate portfolio and (b) the difficulty the Trust had been experiencing in finding new investments which continue to meet its investment and income criteria. Although management has been pleased with the substantial growth the Trust has accomplished under the current business plan and the quality of the Trust's portfolio of properties, it is their belief that it was prudent to reevaluate the Trust's overall business strategy. The Trustees also considered the general state of the real estate market, which in their view had reduced current returns to levels which may be low for income-oriented investors. In connection with the strategic review, the Trustees ultimately considered four alternatives: (i) maintaining the Trust's existing investment policy, (ii) modifying the Trust's investment policy, (iii) acquisition of the Trust by, or merger of the Trust with, other business entities, and (iv) liquidation. The Trustees, in conjunction with the Advisors, concluded that liquidation of the Trust's assets and subsequent distribution of the net cash proceeds to shareholders would likely be the best course to maximize value for the Trust's shareholders. Although the Trust's business remains sound and could readily be continued, the Trustees declined the alternative of maintaining the Trust's existing investment policy due to the difficulty the Trust has been experiencing in finding new investments which meet its investment and income criteria. In seeking investments, the Trust is competing with institutional investors, REITs, foreign investors, private funds and other investors which have substantial funds available for investment and which often make their investment evaluations on the basis of criteria different from the Trust's. Such competition has increased in recent months. Additionally, even if investment opportunities were to present themselves in the future, the continuing undervaluation of the Trust's shares in the securities market would restrict the Trust's ability to raise the additional funds required for such investments through the issuance of new securities without diluting existing shareholders. Although the Trust believes it can continue to operate successfully by pursuing its current investment 4 policies, it may be disadvantaged in accessing capital to fund continued growth at a feasible cost. In addition, the Trust has enjoyed a low dividend payout ratio which has provided cash for acquisition of properties and capital improvements due in part to the utilization of loss carryforwards which will be exhausted during the current fiscal year. Accordingly, the Trust will be required to pay higher dividends in the future leaving less cash available for acquisition activities. In considering a possible modification of its policies, the Trustees also discussed the feasibility of pursuing an accelerated growth strategy, including other investment opportunities in the New England region and possibly changing its investment criteria and/or expanding its operating capabilities. It was determined that the pursuit of such strategic modifications might also be adversely affected by difficulty in accessing capital (whether debt or equity) at satisfactory cost and could be dilutive to shareholders. In consultation with its strategic and financial advisor, E&Y, the Trust also determined to forego an acquisition of another REIT or real estate company, in light of current volatile stock market conditions affecting REITs and the likely high cost of capital and high risk in effecting such an acquisition. The Trustees believe that the appropriate course to maximize shareholder value in the current circumstances is to pursue the sale of its assets pursuant to the Plan rather than to pursue a merger or acquisition of the Trust, based on their belief that the interests of the shareholders would better be served by a sale of the assets and a distribution of the net cash proceeds of the sale to the shareholders, rather than by offering, in effect, a new investment alternative (vehicle) that may be likely to experience some of the same difficulties currently facing the Trust. However, the Trustees reserve the authority and discretion to consider merger or acquisition proposals, if any, from qualifying candidates. Based upon management's estimates, including consultation with the Advisors, the Trustees expect that sales of the Trust's assets will be made at prices that will yield aggregate net cash liquidation proceeds of between $30 and $33 per share; however, no assurance can be given that per share net cash proceeds will be within this range or will equal or exceed this range. See "Estimated Amounts Available for Distribution." The timing of any distributions of such net cash proceeds will be affected by, among other things, the timing of sales of assets, income tax considerations and the establishment of reserves. See "Description of the Plan"; "Estimated Amounts Available for Distribution"; "Distributions to Shareholders"; and "Income Tax Consequences of Liquidation." Accordingly, no assurances can be made as to the timing of such distributions, which could be made over a substantial period of time; provided, however, that in accordance with the Plan the final distribution shall be made no later than the second anniversary of the date of the Meeting. On June 17, 1998, the business day preceding public announcement of the Trustees' decision to consider strategic alternatives, the high and low prices of the Common Shares on the NYSE were $23-1/4 and $23-1/16, respectively. On June 18, the day of the public announcement, the reported closing price was $24-3/8. On August 12, 1998, the Trust announced that it would submit a Plan of Liquidation to its shareholders for approval. On August 11, the reported closing price was $23-15/16. On August 12, the reported closing price was $24-7/8 prior to a halt in NYSE trading. The opening price on August 13, 1998, upon the resumption of trading on the NYSE, was $27-3/4. See "Market Prices and Dividends." Description of the Plan The following is a brief summary of the Plan. It is qualified in its entirety by reference to the full text of the Plan attached hereto as Exhibit A, and incorporated herein by reference. You are encouraged to read the Plan in its entirety. The Plan provides that upon approval thereof by the holders of at least a majority of the Common Shares entitled to vote, the Trust will take such actions as are deemed necessary or appropriate by the Board of Trustees to wind up all Trust business and affairs and to dispose of, by sale, all assets of the Trust. The Plan provides that the Trust's 5 assets may be converted into cash or other assets which may be conveniently distributed to the shareholders. No further approvals by the shareholders will be obtained. It is expected that all of the Trust's assets will be sold for cash. To date, no discussions have occurred and no negotiations have been entered into with any prospective buyers with respect to the terms of any liquidating sales, although the Trust has received indications of interest. It is not expected that properties would be sold to any persons deemed to be affiliates of the Trust, though it is possible that one or more shareholders of the Trust who could be deemed "affiliates" of the Trust could purchase properties by virtue of submitting the highest bids in respect of such properties. Each offer to purchase the Trust's assets must be acted upon by the Board of Trustees. As part of the Plan, existing debts and obligations of the Trust will be satisfied from existing cash balances and the proceeds of the sale of the Trust's assets. In addition, reserves may be established, as the Board of Trustees deems necessary, for liabilities or expenses, contingent or otherwise, that may arise. The remaining proceeds will be distributed on a schedule established by the Board of Trustees, on a pro rata basis, to the Trust's shareholders as full payment for the Common Shares held by each shareholder. See "Distributions to Shareholders." Upon the complete liquidation of the Trust and distribution of its assets to or for the benefit of shareholders, the appropriate officers of the Trust, in accordance with the terms of the Plan, will execute, acknowledge and file an appropriate document with the Secretary of the Commonwealth of Massachusetts which will terminate the existence of the Trust. It is difficult to predict the timing of the sale of the Trust's assets and, consequently, the timing of liquidating distributions to shareholders since to date no discussions have occurred and no negotiations have been entered into with prospective buyers of the Trust's assets. See "Distributions to Shareholders." Although it is expected that the Trust will continue to qualify as a REIT for the period prior to the distribution of the Trust's assets to shareholders (including the transfer of assets of a liquidating trust), no assurance can be given that the Trust will not lose or terminate its status as a REIT as a result of unforeseen circumstances. See "Income Tax Consequences of Liquidation -- Consequences to the Trust." No federal or state regulatory approvals are required to consummate the liquidation of the Trust in accordance with the Plan. Role of Advisors On June 23, 1998 the Trust retained FHO to assist in the evaluation of the likely sales prices of the Trust's New England real estate. On July 7, 1998 E&Y was similarly retained with respect to the Trust's non-New England properties. In addition, the Trust also retained E&Y to act as strategic and financial advisor. In August 1998, the Trust retained FHO, a real estate services company to act as the Trust's sole and exclusive sales agent for all of the Trust's properties in connection with the Plan. FHO will have primary responsibility for the marketing and sale of Trust's real properties. It is anticipated that FHO, as exclusive sales agent to the Trust, will market the properties to prospective purchasers, solicit and receive offers to purchase the properties and present such offers to the Board of Trustees for consideration. In deciding whether to accept one or more offers, the Trustees will consider a variety of factors, including the offering price and the ability of the prospective purchaser to finance and close the purchase. The Trust has received an opinion from FHO as to the likely range of sales prices of the properties. Neither the Trust, E&Y nor FHO will seek third party appraisals with respect to any of the Trust's assets. As strategic advisor, E&Y will also assist the Trustees in the financial analysis to be considered in pursuing the Plan or other strategic opportunities which may arise, including valuation of consideration, evaluation of terms and conditions and transaction structures and consideration of relative values represented by asset liquidation versus possible entity level transactions. As financial advisor to the Trust, E&Y will assist FHO in connection with the sale of the Trust's real estate assets, including the development and implementation of the marketing plan. It is antici- 6 pated that E&Y, as strategic advisor to the Trust, will, among other things (i) provide financial analysis of the various offers to be considered by the Board of Trustees, (ii) review and monitor the process by which any asset sale, entity level transaction or other action on the part of the Board of Trustees is consummated, (iii) provide merger related services as may be required and (iv) provide assistance with ancillary relevant analyses (tax consequences, compensation impact). FHO, which is a Trammell Crow Company, is a Boston-based commercial real estate brokerage, consulting and advisory firm having a national presence. Since its formation in 1988, FHO has provided real estate consulting services to prominent institutional, corporate and entrepreneurial clients with both a local and national presence. E&Y is a nationally-recognized accounting and consulting firm. As part of its business, E&Y is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, liquidations, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate, and other purposes. The Trustees decided to retain E&Y based on its expertise and experience in valuing and marketing real estate portfolios. For services rendered in connection with its role as financial advisor, the Trust has agreed to pay E&Y $1.5 million (the "E&Y Fee") in the event of a liquidation or a possible entity transaction (i.e., a merger), to the extent provided in the engagement agreement. For services rendered in connection with its role as strategic advisor, the Trust has agreed to pay E&Y fees based on time incurred at hourly rates with a $75,000 minimum and a $250,000 maximum. In addition, the Trust will reimburse E&Y and FHO for their out-of-pocket expenses not to exceed $650,000 in the aggregate. If at any time during the term of the agreement with FHO (the "FHO Agreement"), a sale of all of the Trust's properties, upon terms acceptable to the Trust in its discretion, shall be consummated by a closing of title to a purchaser to whom the properties were submitted by FHO, the Trust or any other person, or a transaction occurs as a result of which the Trust pays E&Y the E&Y Fee, then the Trust shall pay to FHO a sales commission of $1.5 million (the "FHO Fee"), to the extent provided in the FHO Agreement. Notwithstanding the foregoing, if a sale involving less than all of the properties occurs, the E&Y Fee and FHO Fee shall each be prorated based on the value of the properties sold in proportion to the aggregate value of all the properties. If the Trust terminates the FHO Agreement or withdraws the properties from the market prior to FHO receiving sales commissions of at least $400,000, then the Trust shall pay to FHO the difference between $400,000 and the sales commissions paid to FHO by the Trust under the FHO Agreement through such date. If the Trust abandons the Plan and does not enter into an entity transaction, it will pay E&Y $400,000 for its financial advisory services in addition to the amounts otherwise payable for its strategic advisory services. Assets Subject to Liquidation The Trust has made long-term equity investments in major, completed, income-producing properties such as office buildings, office/research and development buildings, industrial properties, retail centers and apartment complexes. See "Trust Business and Properties." As of July 31, 1998, the Trust's assets consisted primarily of its real estate portfolio of 70 properties. See "Trust Business and Properties -- Trust Investments." The Trust's other assets consist of cash and short-term investments, interest and rents receivable and other assets (principally deferred financing costs and capitalized expenses related to investments). See "Financial Statements" included in the Trust's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (the "1997 Form 10-K"), the Trust's Quarterly Report on Form 10-Q for the three months ended February 28, 1998 and the Trust's Quarterly Report on Form 10-Q for the three months ended May 31, 1998, copies of which are incorporated herein by reference. See "Trust Business and Properties -- Incorporation of Certain Documents by Reference." The Plan gives the Trust's Board of Trustees the power to sell any and all of the assets of the Trust without further approval by the shareholders. The Trustees intend to conduct the sale of the Trust's assets in an orderly manner, and will seek offers for specific pools of assets, although individual sales of assets may be effected and offers for the entire portfolio of investments may be sought. The Advisors will assist in the sale of the assets, as described above. 7 In the course of the implementation of the Plan, the Trust reserves the right to make a distribution to its shareholders on a pro-rata basis of one or more of its existing subsidiary corporations (a "Spinoff"). The Spinoff could consist, for example, of the Trust's property management subsidiary and one or more qualified REIT subsidiary corporations which hold certain properties. Estimated Amounts Available for Distribution It is impossible to determine at this time with any precision the aggregate net proceeds that may ultimately be available for distribution to the Trust's shareholders upon liquidation. That amount will depend upon a variety of factors, including the timing of and the net proceeds realized from the sale of the Trust's assets, as well as the ultimate amounts of liquidation-related expenses and other obligations and liabilities that must be satisfied out of the Trust's assets. The prices at which the Trust will seek to sell the Trust's real estate portfolio will be determined by the Trustees with the assistance of the Advisors. To date, no sales prices have been agreed upon with respect to specific portfolio properties, although likely sales prices have been estimated by the Advisors. The assets could be sold to one or more purchasers, in one or more transactions over a period of time, in which case the Trust would continue to operate until all investments are sold or transferred to a liquidating trust. It is the objective of the Trustees to sell the Trust's assets at aggregate sales prices that will yield net cash proceeds of between $30 and $33 per share, however, no assurance can be given that this will be the case. Moreover, in view of the fact that assets may be sold in multiple transactions, the possibility exists that there could be unforeseen events that adversely impact the price of the remaining (unsold) assets, and no assurance can be given that the net proceeds per share will therefore equal such amount. As of August 31, 1998, the Trust had outstanding $35.0 million under a $75.0 million unsecured credit facility. If the Plan is approved by the shareholders, it is anticipated that the Trust would repay the debt outstanding under the credit facility. The Trust, with the advice of its Advisors, has established "Target" sales prices for specific pools of its portfolio properties. There can be no assurance that any or all of the assets will be sold at the Target sales prices which total approximately $628,000,000 (prior to costs associated with such sales and expenses relating to liquidation) or will be sold at all. The Target sales value was based primarily on an analysis of the portfolio utilizing discounted cash flow, comparable sales, capitalization rate and replacement cost analysis. Additionally, factors such as type of building, location, lease structure, lease turnover risk, in-place rent relative to market and operating and market economics were considered. The amount of proceeds received from the disposition of individual assets is dependent on a number of conditions, many of which are beyond the power of the Trust to control, including the condition of the real estate and financial markets. Accordingly, properties may be sold at prices which may be less than their Target values. It is currently estimated that the net proceeds from the sale of the Trust's properties and other assets would permit the Trust to make estimated net cash distributions to shareholders aggregating between $30 to $33 per share after allowing for the satisfaction of its known or contingent liabilities and obligations and payment of its liquidation expenses. There can be no assurance as to the amount or nature of the Trust's contingent liabilities, if any. At the Target pricing levels the Trust has estimated the aggregate gross cash proceeds from the disposition of all of its real estate investments and other assets at $628,000,000 and has deducted from such estimate the estimated cost of sales (estimated at $7 million), fees to the Advisors and other professionals (estimated at $5.0 million), general and administrative expenses, including compensation and other ongoing operating expenses, as well as all other expenses related to the liquidation, including severance compensation (estimated at $4.2 million), anticipated stock option costs and a reserve of $3.5 million for additional expenses. These costs, together with the repayment 8 of all liabilities, (including bank borrowings existing and estimated unfunded commitments) would result in net cash proceeds of approximately $455,000,000, assuming the properties are sold at the Target price levels. Based upon the 13,761,307 shares outstanding as of August 31, 1998, the net liquidation value per share, would be approximately $33 per share if the properties are sold at the Target price levels which have been set by the Trust. For purposes of the shareholder vote on this Proposal, management estimates that sales of the Trust's assets pursuant to the Plan will be made at prices that will yield net cash distributions of between $30 and $33 per share, although there can be no assurance that per share net cash distributions will fall within or reach such range. The Plan contemplates disposition of all of the assets of the Trust and distribution of the net proceeds to shareholders, but since the terms of such dispositions have not been determined, the Trust has concluded that pro forma financial information concerning the Plan would not be meaningful or appropriate. The financial statements furnished in the 1997 Form 10-K and the Quarterly Report on Form 10-Q for the period ended May 31, 1998 are incorporated herein by reference. See "Trust Business and Properties -- Incorporation of Certain Documents by Reference." The estimates contained in this section are forward-looking statements, and actual results could be affected by many factors, including the market for properties held by the Trust and the estimate of liquidation expenses. The estimates contained in this section also assume the continuation of reasonably stable market conditions during the liquidation period. See "Certain Other Considerations." Distributions to Shareholders Following the sale of the Trust's assets and satisfaction by the Trust, through payment or establishment of reserves, for all of its liabilities and obligations, including the expenses of liquidation, the Trust will distribute to its shareholders on a pro-rata basis the balance of available liquidation proceeds. It is difficult to predict the timing of the sale of the Trust's assets, however it is estimated at the present time that substantially all of the properties will be sold within 12 to 15 months of the adoption of the Plan by shareholders. No assurances can be made as to the actual timing of such sales and subsequent distributions which could be made over a substantial period of time. To date no discussions have occurred and no negotiations have been entered into with any prospective buyers with respect to the terms of any liquidating sales, although the Trust has received indications of interest. See "Trust Business and Properties -- Trust Investments." Accordingly, such distributions could be made over a substantial period of time. Distributions to shareholders will be made at such times and upon such terms as determined by the Board of Trustees. The Trustees may from time to time fix a date in respect of any distribution for the determination of the persons to be treated as shareholders of record entitled to receive such distributions. Shareholders will be advised at the time of any such distribution as to the details of the mechanics of distribution and the means by which shares will be cancelled. In the event that assets of the Trust are transferred to a liquidating trust as discussed below, certificates for Common Shares will be deemed to represent a shareholder's interests in the liquidating trust. In the event of multiple sales of assets, certificates for Common Shares as interests in any liquidating trust would not be cancelled until after completion of the final sale. Before the final distribution of the Trust's remaining assets to the shareholders, the Common Shares will continue to be transferable and the Trust's shareholders will continue to have such rights as applicable law confers upon shareholders. It is the intention of the Trustees to maintain the listing of the Common Shares on the NYSE until such time as the NYSE causes the Common Shares to be delisted. It is anticipated that the current officers and Trustees will continue to serve in their current capacities until the Trustees deem that their services are no longer necessary. The Trust has entered into severance agreements with several key executives in order to maintain their continued service. The Trustees will have the authority to transfer the assets of the Trust to a liquidating trust designated by the Trustees. In the event that the Trust is unable to dispose of all of its assets within 24 months after adoption of the 9 Plan or if it is otherwise advantageous or appropriate to do so, the Trustees may establish a liquidating trust to which the Trust could distribute in kind its unsold assets. The liquidating trust would be established pursuant to a Liquidating Trust Agreement in such form as the Trustees shall approve. Adoption of the Plan will constitute the approval by the shareholders of the liquidating trust agreement and the appointment of trustees thereunder. The Trustees would not expect to transfer assets to a liquidating trust except (i) when such a transfer is required to avoid the imposition of federal income taxes on the Trust or (ii) to establish reserves for liabilities and obligations of the Trust (contingent or otherwise) out of amounts which would otherwise be distributed to shareholders. As to the federal income tax consequences to shareholders of the establishment of a liquidating trust, see "Liquidating Trust." Authority of Trustees and Officers The Trustees and officers of the Trust will be given broad powers to take whatever action is necessary or desirable in order to carry out the provisions of the Plan and to effect the complete liquidation and termination of the Trust. Certain Other Considerations No Assurances of Distributions. There can be no assurances that the Trust will be successful in disposing of properties for values equaling or exceeding those currently estimated by the Trust or that such dispositions will occur as early as intended by the Trustees. If values of the Trust's assets decline or the costs and expenses related to such sales and to the liquidation process exceed those which are currently estimated by the Trust, the liquidation may not yield distributions as great as or greater than the recent market prices of the Common Shares. No assurances can be made as to the actual amount and timing of distributions which could be made over a substantial period of time. Possible Decreasing Liquidity. As assets of the Trust are sold and proceeds are distributed, the market capitalization and "float" will diminish further and market interest in the Common Shares by the investment community may diminish, thereby reducing or effectively eliminating the market demand and liquidity for the Common Shares, which would adversely affect the market price for the Common Shares. See also "Abandonment or Nonapproval of the Plan." Sales of Assets Not Subject to Further Shareholder Approval. If the shareholders approve the Plan (Proposal 1) and Proposal 2, the Trustees will have the authority to sell any and all of the Trust's assets on such terms as the Board of Trustees determines appropriate. Notably, the shareholders will have no subsequent opportunity to vote on such matters and will, therefore, have no right to approve or disapprove the terms of such sales. Qualification as a REIT. The calculation of the liquidation price per share set forth above under "Estimated Amounts Available for Distribution" assumes that the Trust will continue to qualify as a REIT under the Code during the entire liquidation process and, therefore, no provision has been made for federal income taxes. Although the Trust expects to maintain such REIT qualification, there can be no assurance thereof. Forward-Looking Statements. This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are dependent on a number of factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Such factors include, among other things, the risks of future action or inaction by the Board of Trustees or Shareholders (and the actual results thereof) with respect to the Plan (including the possibility of litigation pertaining thereto); the net realizable value of the properties in the event of the liquidation thereof; risks which may arise if the Plan is abandoned; the current market conditions remaining the same or improving; maintaining the current occupancy and rent levels at the Trust's properties; as well as those risk factors set forth under "Forward-Looking Statements" in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1997 Form 10-K and in its most recent report on Form 10 10-Q. The Trust undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Income Tax Consequences of Liquidation Consequences to the Trust Since its inception, the Trust has qualified as a REIT under Sections 856-860 (the "REIT Provisions") of the Code. Under the REIT Provisions, a real estate investment trust that meets certain requirements is generally not subject to Federal income tax with respect to income it distributes to its shareholders. If the Plan is adopted by the shareholders, it is presently contemplated that the liquidation will be carried out in a manner that will allow the Trust to continue to meet the requirements of the REIT Provisions until the distribution of all its assets to the shareholders (including the transfer of assets to a liquidating trust), although the Plan gives the Trustees the authority to cause the Trust to discontinue its status as a REIT at any time if they find it in the best interests of the Trust's shareholders to do so. In order to maintain its status as a REIT, the Trust must, among other things, continue to derive its income from qualified sources, principally rents from real property, interest from mortgages on real property and gains from the sale or exchange of real estate assets. In addition, its principal investments must continue to be in real estate assets. So long as the Trust continues to qualify as a REIT, any net gain from "prohibited transactions" (i.e., sales of property held primarily for sale to customers in the ordinary course of a trade or business) will be subject to a 100% tax. Whether a real estate asset is property held primarily for sale to customers in the ordinary course of a trade or business, the sale of which would be a prohibited transaction for a REIT, is a highly factual determination. Section 857(b)(6)(C) of the Code provides a safe harbor, pursuant to which sales of real estate assets by a REIT will not be treated as prohibited transactions. Such a sale meets the safe harbor requirements if: (i) the REIT held the property for not less than four years; (ii) aggregate expenditures made by the REIT in the four years before the sale of the property which are includible in the basis of the property do not exceed 30% of the net selling price of the property; (iii) (I) during the taxable year, the REIT does not make more than seven sales of such properties (other than property designated as "foreclosure property" under the REIT Provisions and involuntarily converted property); or (II) the aggregate bases of property sold during the taxable year does not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the taxable year; (iv) in the case of land or buildings (other than property acquired through foreclosure or lease termination), the REIT has held such property for not less than four years for the production of rental income; and (v) if the REIT makes more than seven sales of property during the taxable year, then substantially all of the marketing and development expenditures with respect to such property were made through an independent contractor from whom the REIT does not derive or receive income. For purposes of applying these rules, the sale of more than one property to one buyer as part of a single transaction constitutes one sale. As noted above, the determination as to whether property is held primarily for sale to customers in the ordinary course of a trade or business is highly factual. However, the Trust does not believe that any of its property should be so characterized but rather that all its properties are all held for investment and the production of rental income. Nevertheless, the Trust and its advisers will attempt to structure the dispositions of the Trust's assets in a manner that will prevent such dispositions from being treated as prohibited transactions. Distributions pursuant to the Plan made within 24 months after adoption of the Plan will, to the extent of earnings and profits of the Trust for the taxable year, be treated as dividends paid for purposes of meeting the REIT income distribution requirements. As a result, and provided the Trust continues to meet Internal Revenue Code qualifications for REITs, the Trust will not be subject to Federal income tax on gain recognized in connection with liq- 11 uidating sales of the Trust's assets, nor will it be subject to Federal income tax on gain realized upon a liquidating distribution of any appreciated assets of the Trust. While it is expected that the Trust will continue to qualify under the REIT Provisions for the period prior to the distribution of all its assets to the shareholders (including the transfer of assets to a liquidating trust), no assurance can be given that the Trust will not lose or terminate its status under the REIT Provisions as a result of unforeseen circumstances. Should the Trust lose its status as a REIT, either inadvertently or because the Trustees deem such loss to be in the best interests of the Trust's shareholders, it would be taxable as a corporation for Federal income tax purposes and would be liable for Federal income taxes at the corporate rate with respect to the Trust's entire income from operations and from liquidating sales and distribution of the Trust's assets for the taxable year in which its qualification under the REIT Provisions is terminated and in any subsequent years. Consequences to the Shareholders Although distributions by the Trust made within 24 months of adoption of the Plan will be eligible for the dividends paid deduction, as described above, such distributions in liquidation will not be dividend income when received by shareholders. Distributions in liquidation (including an amount equal to a shareholder's pro rata share of the fair market value of the assets transferred to a liquidating trust) should first be used to reduce the basis in his shares in the Trust, with any excess constituting a capital gain if the shares were held as a capital asset. If the sum of all liquidating distributions is less than a shareholder's basis in his shares, the difference will constitute a capital loss. Such capital gain or loss will be long or short term, depending on whether such shares have been held for more than one year. Liquidating Trust In the event that the Trust is unable to dispose of all of its assets within 24 months after adoption of the Plan or if it is otherwise advantageous or appropriate to do so, the Trustees may establish a liquidating trust to which the Trust could distribute in kind its unsold assets. In any event, even if all of the Trust's assets were disposed of within such period, the Trustees believe that it may be necessary to establish a liquidating trust to retain cash reserves beyond such 24-month period to meet contingent liabilities of the Trust. Under the Code, a trust will be treated as a liquidating trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to and consistent with the accomplishment of that purpose. However, if the liquidation is prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of the liquidation can be said to be lost or abandoned, it will no longer be considered a liquidating trust. Although neither the Code nor the Regulations thereunder provide any specific guidance as the length of time a liquidating trust may last, the Internal Revenue Service's guidelines for issuing rulings with respect to liquidating trust status call for a term not to exceed three years, which period may be extended to cover the collection of installment obligations. An entity classified as a liquidating trust may receive assets, including cash, from the liquidating entity without incurring any tax. It will be treated as a grantor trust, and accordingly will also not be subject to tax on any income or gain recognized by it. Instead, each shareholder will be treated as the owner of his pro rata portion of each asset, including cash, received by and held by the liquidating trust. Accordingly, each shareholder will be treated as having received a liquidating distribution equal to his share of the amount of cash and the fair market value of any asset distributed to the liquidating trust and recognize gain to the extent such value is greater than his basis in his stock, notwithstanding that he may not currently receive a distribution of cash or any other assets with which to satisfy the resulting tax liability. In addition, each shareholder will be required to take into account in computing his own taxable income his pro rata share of each item of income, gain and loss of the liquidating trust. An individual shareholder who itemizes deductions may deduct his pro rata share of fees and expenses of the liquidating trust only to the extent that such amount, together with the shareholder's other miscellaneous deductions, 12 exceeds 2% of his adjusted gross income. A shareholder will also recognize taxable gain or loss when all or part of his pro rata portion of an asset is disposed of for an amount greater or less than his pro rata portion of the fair market value of such asset at the time it was transferred to the liquidating trust. Any such gain or loss will be capital gain or loss so long as the shareholder holds his interest in the assets as a capital asset. If the liquidating trust fails to qualify as such, its treatment will depend, among other things, upon the reasons for its failure to so qualify. In such case, the liquidating trust would most likely be taxable as a corporation. In such case the liquidating trust itself would be subject to tax, and shareholders could also be subject to tax upon the receipt of certain distributions from the liquidating trust. If the Trustees avail themselves of the use of a liquidating trust, it is anticipated that every effort will be made to ensure that it will be classified as such for Federal income tax purposes. Taxation of Non-United States Shareholders Because the liquidating distributions pursuant to the Plan will be treated as paid in exchange for a shareholder's shares and not as dividends, no withholding on liquidating distributions will generally be required because of the Foreign Investment in Real Property Tax Act, commonly known as "FIRPTA," unless a shareholder who is not a U.S. citizen or resident owns, or has owned within the prior five years, 5% or more of the Trust's outstanding Common Shares. State and Local Income Tax Shareholders may also be subject to state or local taxes with respect to distributions received by them pursuant to the Plan and should consult their tax advisors regarding such taxes. THE ABOVE TAXATION DISCUSSION DOES NOT ATTEMPT TO COMMENT ON ALL TAX MATTERS WHICH MAY AFFECT THE TRUST OR THE SHAREHOLDERS IN THE COURSE OF THE LIQUIDATION NOR TO CONSIDER VARIOUS FACTS OR LIMITATIONS APPLICABLE TO ANY PARTICULAR SHAREHOLDER, INCLUDING, WITHOUT LIMITATION, TAX EXEMPT ENTITIES AND FOREIGN SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE LIQUIDATION, PARTICULARLY WITH RESPECT TO THE APPLICATION AND EFFECT OF TAX LAWS OF ANY STATE OR OTHER JURISDICTION TO WHICH THEY ARE SUBJECT. Abandonment or Nonapproval of the Plan If the Trustees determine (whether before or after the shareholder approval of the Plan but prior to the filing of a certificate of termination with the Secretary of the Commonwealth of Massachusetts), on the basis of unforeseen subsequent events (including, without limitation, a determination by the Trustees that it is unlikely that the Trust will obtain aggregate sales prices for its assets that would yield between $30 and $33 per share of net cash proceeds), that liquidation and termination of the Trust is not in the best interests of the Trust or its shareholders, the Trustees may direct that the Plan be abandoned. If the Plan is abandoned, the Trustees will determine in light of the circumstances giving rise to such abandonment whether or not the Trust will continue to transact business as a REIT. The Trustees, nevertheless, may cause the performance of any contracts for the sale of assets which they deem to be in the best interests of the Trust or its shareholders. The Plan could be abandoned if the Trustees, upon consultation with the Advisors, determine to accept a merger or acquisition proposal which is deemed to be in the best interests of the shareholders (when compared to the implementation of the Plan). The Plan could also be abandoned at any time during the liquidation process due to the development of unstable or unfavorable real estate or financial market conditions and at a time when the Trust is significantly reduced in size thereby increasing certain operating risks, as well as the risk that the Trust's share price would trade at an even greater discount to the perceived underlying value of its real estate holdings. 13 In the event of the failure of the shareholders to approve the Plan, the Trust currently intends to continue to transact business as a REIT and to consider alternative courses of action. Amendment of the Plan Notwithstanding approval of the Plan by the shareholders of the Trust at the Meeting, the Trustees may amend or modify the Plan without the necessity of further action by the shareholders of the Trust to the extent permitted under the then current law. Dissenters' Rights General. Pursuant to Section 13.3 of the Trust's Declaration of Trust, shareholders of the Trust are entitled to rights of appraisal to the same extent, if any, as a shareholder of a Massachusetts business corporation and the Declaration of Trust states that such rights of appraisal shall be the exclusive remedy in respect of any such dissenting shareholder. Shareholders of the Trust may, under certain circumstances described below and in Sections 76 and 86 to 98, inclusive, of Chapter 156B of the Massachusetts General Laws (the "Massachusetts Business Corporation Law" or "MBCL") copies of which sections are included with this Proxy Statement as Exhibit C, exercise dissenters' rights pursuant to the MBCL. In accordance with such sections of the MBCL, the Trust's shareholders have the right to dissent from the approval of the Plan and the sale of the Trust's assets and to be paid the "fair value" of their Common Shares. Where a sale of substantially all the Trust's property and assets is to be submitted for approval at a meeting of shareholders, pursuant to the Trust's Declaration of Trust and under Section 87 of the MBCL, the Trust must notify each of its shareholders of the right to dissent. This Proxy Statement constitutes such notice to the shareholders of the Trust. The applicable statutory provisions of the MBCL are attached as Exhibit C. The following discussion is not a complete statement of the law pertaining to a dissenting shareholder's rights under the MBCL and is qualified in its entirety by the full text of Sections 76 and 86 to 98, inclusive, attached hereto as Exhibit C. Any shareholder who wishes to exercise the right to dissent and demand the fair value of his or her shares, or who wishes to preserve the right to do so, should review the following discussion and Exhibit C carefully because failure to timely and properly comply with the procedures will result in the loss of a shareholder's right to dissent under the MBCL. Appraisal Rights of Dissenting Shareholders. If the Plan is approved by the shareholders at the Meeting and effected by the Trust, any shareholder (i) who files with the Trust before the taking of the vote on the approval of the Plan, written objection to the Plan stating that he or she intends to demand payment for his or her shares if the Plan is effected by the Trust and (ii) whose shares are not voted in favor of the Plan, has or may have the right to demand in writing from the Trust, within 20 days after the date of mailing to him or her of notice in writing that the Plan has been effected by the Trust, payment for his or her shares and an appraisal of the value thereof. The Trust and any such shareholder shall in such cases have the rights and duties and shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the MBCL. The failure of a dissenting shareholder to follow the appropriate procedures may result in the termination or waiver of the right to appraisal. A demand for appraisal must be executed by or for the shareholder of record, fully and correctly, as such shareholder's name appears on his or her stock certificate. If the Common Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand must be executed by the fiduciary. If the Common Shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a shareholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A record owner who holds shares as a nominee for others, such as a broker, may demand an appraisal of the shares held for all, or fewer than all, of the beneficial owners of such shares. In such a case, the written demand 14 should set forth the number of shares to which it relates. When no number of shares is expressly mentioned, the demand will be presumed to cover all shares standing in the name of the record owner. Beneficial owners of Common Shares who are not record owners and who intend to exercise appraisal rights should instruct the record owner to comply with the statutory requirements with respect to the exercise of appraisal rights before the date of the Meeting. While the dissenting shareholder may perfect his or her appraisal rights in accordance with the procedures outlined herein, the Massachusetts Supreme Judicial Court has held that a dissenting shareholder may not obtain payment for shares until (i) the Trust has approved of the transaction and (ii) the Trust has in fact consummated a sale of its assets. Appraisal rights in connection with the Plan will be triggered only upon a sale of "all or substantially all" of the Trust's assets. Neither Section 76 of the MBCL nor the Massachusetts courts have provided a bright line quantitative definition of "substantially all of the assets." Instead, the courts have determined the issue on a case-by-case basis, looking at the amount of assets sold, how the sale of assets will affect the company's income and whether the sale will change the nature of the business. Subject to the foregoing, Section 76 and Sections 86 through 98, inclusive, of the MBCL (a copy of which is attached hereto as Exhibit C) entitle any holder of record of Common Shares who files written objection to the Plan prior to the taking of the vote on the Plan at the Meeting and who does not consent to or vote in favor of the Plan, to demand in writing that the Trust pay to such shareholder in cash the "fair value" (as such term is used in the MBCL) of such shares determined by appraisal (exclusive of any value arising from the accomplishment or expectation of the Plan). In the event that the Trust effects a sale of all or substantially all of its assets, dissenting shareholders who perfect appraisal rights in accordance with the MBCL will be entitled to receive the fair value of their shares, as determined in accordance with the MBCL. Any shareholder of record contemplating making a demand for appraisal of his or her shares is urged to review carefully the provisions of Section 76 and Sections 86 through 98 of the MBCL, particularly the procedural steps required to perfect dissenters' rights thereunder. Dissenters' rights will be lost if the procedural requirements of MBCL Section 76 and Sections 86 through 98 are not fully satisfied. Under the Declaration of Trust and Massachusetts statutory law, procedures relating to dissenters' rights are stated to be the exclusive remedy available to a shareholder objecting to the Plan, except upon grounds that the Plan will be or is illegal or fraudulent as to such shareholder. Set forth below is a summary of the procedures relating to the exercise of dissenters' rights. The following summary does not purport to be a complete statement of the provisions of MBCL Section 76 and Sections 86 through 98 and is qualified in its entirety by reference to the full text thereof attached hereto as Exhibit C. Filing Written Demand. Prior to the taking of the vote at the Meeting, a shareholder of record who intends to exercise dissenters' rights must deliver to the Trust a written objection to the Plan stating that such shareholder intends to demand payment for such shareholder's Common Shares if the Plan is effected. Such written objection should be sent to the Trust at MGI Properties, One Winthrop Square, Boston, Massachusetts 02110, Attention: Phillip C. Vitali, Chief Financial Officer. The written demand for appraisal should specify the shareholder's name and mailing address, the number of Common Shares owned, and that the shareholder is thereby demanding appraisal of his or her shares. The failure to consent to the Plan or the return of a proxy by a shareholder with instructions to vote the Common Shares covered thereby against the Plan (or abstaining from voting) is not sufficient to satisfy the requirement of delivering written objection to the Trust. No Vote in Favor of Plan. Common Shares for which appraisal is sought must not be voted in favor of the Plan. The submission of a blank proxy which has not been properly revoked will serve to waive dissenters' rights, but a failure to return a proxy or a failure to vote (or abstaining from voting), or a vote in person or by proxy against the Plan, will not waive such dissenters' rights. 15 Notice of Effectuation of Plan. Within 10 days after the Plan becomes effective, the Trust, as required by Section 88 of the MBCL, will notify each shareholder who has purported to comply with the provisions of MBCL Section 86, and whose shares were not voted in favor of the Plan, that the Plan has become effective. The giving of such notice shall not be deemed to create any rights in such shareholder receiving such notice to demand payment for such shares. The notice shall be sent by registered or certified mail, addressed to the shareholder at such shareholder's last known address as it appears in the records of the Trust. (Note: For the purposes of notice, the Plan will become effective upon a sale, exchange or transfer of all or substantially all of the Trust's assets and not necessarily upon the shareholders' approval of the Plan.) Written Demand. Within 20 days after the mailing of notice by the Trust, any dissenting shareholder must demand in writing from the Trust payment of the fair value of such shareholder's Common Shares. If the Trust and such shareholder shall have agreed as to the fair value of such shares, the Trust shall pay to such shareholder the fair value of such shares within 30 days after the expiration of the 20-day period during which such demand may be made. Settlement of Appraisal. Any shareholder shall, with the Trust's consent, have the right to withdraw a demand for appraisal. Within four months after the expiration of the 30-day period discussed in the immediately preceding paragraph, if the Trust and any shareholder seeking appraisal have not agreed upon the fair value of such shareholder's Common Shares, the Trust or any such shareholder who has complied with MBCL Section 86 may, by an appropriate filing with the Superior Court, Suffolk County, Massachusetts (the "Massachusetts Court"), demand a determination of the fair value of the Common Shares of all dissenting shareholders with whom agreements as to the value of their shares have not been reached. If no such filing is made within such four-month period, such shareholder will forfeit dissenters' rights. Upon such filing, notice of the time and place fixed by the Massachusetts Court for a hearing will be given by the Trust by registered or certified mail to all who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. After the hearing, the Massachusetts Court will determine the shareholders who have complied with the provisions of MBCL Section 86 and who have become entitled to dissenters' rights, and the court will appraise the Common Shares determining the fair value thereof as of the date immediately preceding the Meeting, exclusive of any element of value arising from the accomplishment or expectations of the Plan. Payment and Costs. When the fair value is so determined, the Massachusetts Court will direct the payment by the Trust of such value, with interest thereon as the Massachusetts Court determines, to the dissenting shareholders entitled to receive the same, upon surrender to the Trust by such shareholders of the certificates representing their Common Shares. Costs of any appraisal proceeding (other than attorneys' and experts' fees, which are the responsibility of the party retaining such attorneys or experts) and expenses of any master appointed by the Massachusetts Court may be taxed upon the parties thereto by the Massachusetts Court as the Massachusetts Court deems equitable in the circumstances. All payments to dissenting shareholders and costs of the notice described above will be borne by the Trust. The discussion in the preceding paragraphs assumes that the Massachusetts Court will both (i) accept jurisdiction of the appraisal proceedings in the case of the Trust, as to which the provisions relative to dissenters' rights are established by Section 13.3 of the Declaration of Trust (in contrast to cases involving Massachusetts business corporations that are subject to the mandate of the MBCL) and (ii) apply the same procedures in the case of the Trust as are provided for in the MBCL in the case of dissenters' rights proceedings involving Massachusetts business corporations. 16 PROPOSAL NO. 2 AMENDMENT TO DECLARATION OF TRUST CONCERNING LIQUIDATION The Board of Trustees has determined to submit for approval of the shareholders an amendment to the Declaration of Trust that, in the Board's view, will facilitate implementation of the Plan. The amendment is set forth on Exhibit D to this Proxy Statement. Under Section 13.1(b) of the Declaration of Trust as currently in effect, upon a termination of the Trust, the Trustees may dispose of all or substantially all of the assets only if the principal terms of the transaction and the nature and amount of consideration are approved by the affirmative vote of holders of not less than a majority of Common Shares entitled to vote. The Trustees believe that this standard is unclear in its application to a plan of liquidation. Accordingly, they recommend the adoption of an amendment to the Declaration of Trust to permit all sales of assets in liquidation without further shareholder approval even if the assets disposed of might be considered substantially all of the assets of the Trust. Under the Plan, the Trustees expect to dispose of the Trust's real estate assets in pools or on a property-by-property basis, although offers for the entire portfolio of investments may be sought. Section 13.1(b) of the Declaration of Trust as currently in effect would require the Trustees to seek the approval of the holders of a majority of the outstanding Common Shares prior to the sale of assets of the Trust that constitute "all or substantially all" of the Trust's assets. Application of this requirement to the Plan is difficult because the Plan contemplates not necessarily a bulk sale of all or substantially all of the Trust's assets, but rather a series of sales of specific pools of properties although properties could be sold on an individual basis. As pools of properties or individual properties are sold and the real estate assets held by the Trust decrease, the effect of the provision may be to require the Trustees to obtain shareholder approval of sales of the last property or properties held by the Trust. It is likely that such a requirement would materially hinder the Trustees' ability to dispose of such property or properties on economic terms favorable to the Trust. In acknowledgment of the foregoing it is proposed that Section 13.1(b) of the Declaration of Trust be amended to eliminate the requirement for shareholder approval of any disposition in liquidation. Section 13.1(b) of the Declaration of Trust, as proposed to be amended, would allow the Trustees to sell, exchange, transfer or otherwise dispose of any or all assets of the Trust in one or more transactions, which may or may not be related, without approval of the Trust's shareholders. Disposition of assets will be approved by the Trustees applying their business judgment to determine whether the sale is in the best interest of the Trust and the shareholders. The Trustees have not established guidelines or criteria to make such determination. Pursuant to Section 13.1 of the Declaration of Trust, approval of the amendment to the Declaration of Trust set forth on Exhibit D to this Proxy Statement requires the affirmative vote of holders of not less than a majority of the Common Shares then outstanding. Trustees and officers of the Trust who own Common Shares (constituting approximately 1.7% of the outstanding shares) have indicated to the Trust that they intend to vote all such shares to approve the amendment to the Declaration of Trust. The Board of Trustees believes that the amendment to the Declaration of Trust is in the best interests of the Trust and its shareholders and recommends that shareholders vote FOR this proposal. TRUST BUSINESS AND PROPERTIES General The Trust is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts. The Trust commenced operations in 1971 as a REIT. Since that time, the Trust has elected to be treated as a REIT under Sections 856-860 of the Code. The Trust owns and operates a diversified portfolio of income producing real 17 estate, which as of July 31, 1998 consisted of 67 commercial properties and three multi-family residential properties. The commercial portfolio consists of 5.8 million square feet, 87% of which is comprised of office, office/research and development and industrial properties. The multi-family properties consist of three residential communities aggregating 959 units. At July 31, 1998, the commercial and residential properties were 98.2% and 94.9% leased, respectively. Since 1992, the Trust has focused on the commercial segment of the real estate market, specifically office, office/research and development and industrial properties located in New England. At July 31, 1998, 66%, based upon cost, of MGI's real estate assets were located in New England. During the fiscal year ended November 30, 1997, the Trust began the internalization of the property management function for its New England properties. As of September 1, 1998, the Trust had 4.0 million square feet of space under management. Trust Investments A list of the properties in which the Trust has invested and certain information in respect thereof are set forth on Exhibit B hereto. Incorporation of Certain Documents by Reference The following documents filed by the Trust with the Securities and Exchange Commission (the "Commission") are incorporated by reference herein: 1. Annual Report on Form 10-K for the fiscal year ended November 30, 1997. 2. Quarterly Report on Form 10-Q for the quarterly period ended February 28, 1998. 3. Quarterly Report on Form 10-Q for the quarterly period ended May 31, 1998. 4. Current Report on Form 8-K dated June 18, 1998. 5. Current Report on Form 8-K dated August 5, 1998. The Trust will provide without charge to each person to whom a copy of this Proxy Statement is delivered, upon the written or oral request of any such person, a copy of all documents incorporated herein by reference (other than the exhibits to such documents which are not specifically incorporated herein or into such documents by reference). Requests for such copies should be addressed to: Ms. Jean Harrington, Vice President, MGI Properties, One Winthrop Square, Boston, Massachusetts 02110. All documents filed by the Trust with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date hereof and prior to the date of the Meeting or any adjournment or postponement thereof shall be deemed to be incorporated by reference herein. Any statements contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document that also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall be deemed to constitute a part hereof except as so modified or superseded. 18 MARKET PRICES AND DIVIDENDS The Common Shares are traded and listed on the NYSE under the symbol MGI. The approximate number of record holders of the Common Shares at September 1, 1998 was 2,152. The high and low sales prices of the Common Shares on the NYSE for each quarter of fiscal 1997 and 1996 and for the first, second and third quarters of fiscal 1998, and dividends declared during such periods, were as follows:
Dividends High Low Declared ----------- --------- ---------- Fiscal 1996 - ----------- 1st quarter ......... $17-1/4 $15-7/8 $.24 2nd quarter ......... $17-1/2 $16-1/4 $.24 3rd quarter ......... $18-5/8 $16-5/8 $.25 4th quarter ......... $20-3/8 $18-1/8 $.25 Fiscal 1997 - ----------- 1st quarter ......... $22-3/4 $20-1/8 $.27 2nd quarter ......... $22-3/8 $20-3/8 $.27 3rd quarter ......... $23-5/8 $20-3/4 $.28 4th quarter ......... $25-3/8 $22-1/8 $.28 Fiscal 1998 - ----------- 1st quarter ......... $26 $23-1/4 $.29 2nd quarter ......... $25-15/16 $23-1/2 $.29 3rd quarter ......... $28-1/2 $22-3/4 $.31
On September 2, 1998, the closing price of the Common Shares as reported on the NYSE was $27-1/8. The Trust in the past declared and paid, approximately 45 days following the close of each fiscal quarter, cash dividends equal to approximately 55% of funds from operations. This policy may be varied in the future by reason of the effect of the proposed Plan, and to avoid payment by the Trust of Federal excise taxes. 19 INDEPENDENT AUDITORS A representative of KPMG Peat Marwick LLP, the Trust's independent accountants, is expected to be present at the Meeting and, if he so desires, will have the opportunity to make a statement, and in any event will be available to respond to appropriate questions. OTHER MATTERS So far as now known, there is no business other than that described above to be presented for action by the shareholders at the Meeting, but it is intended that the proxies will be voted upon any other matters and proposals that may legally come before the Meeting or any adjournment thereof, in accordance with the discretion of the persons named therein. By Order of the Trustees, W. Pearce Coues Chairman of the Board Dated: Boston, Massachusetts September 10, 1998 IMPORTANT TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY. 20 EXHIBIT A MGI PROPERTIES PLAN OF COMPLETE LIQUIDATION AND TERMINATION 1. This Plan of Complete Liquidation and Termination (the "Plan") of MGI Properties, a Massachusetts business trust (the "Trust"), has been approved by the Trust's Board of Trustees as being in the best interests of the Trust and its shareholders. The Board of Trustees has directed that the Plan be submitted to the shareholders of the Trust for approval. Upon approval of the Plan by the holders of at least a majority of the Trust's common shares, $1 par value (the "Common Shares"), the Plan shall become effective. The date of the shareholder meeting for the purpose of approving the Plan is hereinafter referred to as the "Effective Date." 2. On or after the Effective Date, the Trust shall be voluntarily liquidated and terminated. Pursuant to the Plan, the Board shall cause the Trust to sell, convey, transfer and deliver or otherwise dispose of any and/or all of the assets of the Trust in one or more transactions, without further approval of the shareholders. The Trust shall not engage in any business activities, except to the extent necessary for preserving the values of the Trust's assets, winding up its business and affairs, discharging and paying all Trust liabilities and distributing Trust assets to the shareholders in accordance with the Plan. 3. The appropriate officers of the Trust shall take such actions as may be necessary or appropriate to marshal the assets of the Trust and convert the same, in whole or in parts, into such form as may be conveniently distributed to the shareholders. 4. After provision for all debts and other reserves as may be deemed necessary or appropriate by the Board of Trustees, the appropriate officers of the Trust shall distribute, by means of one or more distributions (which distribution may be in the form of beneficial interests in a trust holding Trust assets), all of the assets of the Trust to the shareholders and in connection therewith such officers shall execute all checks, instruments, notices and any and all other documents necessary to effectuate such distribution. The final distribution shall be made no later than the second anniversary of the Effective Date. 5. Subject to Section 7 below, the distribution contemplated by Section 4 above shall be in complete liquidation of the Trust and in cancellation of all Common Shares issued and outstanding, and all certificates representing such issued and outstanding Common Shares shall thereupon be cancelled. The Trustees shall make such provisions as they deem appropriate regarding the cancellation, in connection with the making of distributions hereunder, of certificates representing the Common Shares (or certificates representing interests in the Liquidating Trust as provided in Section 7 hereof) outstanding. 6. In the course of the liquidation, the Board of Trustees, acting in its discretion, shall have the authority to terminate the Trust's status as a real estate investment trust under Section 856-860 of the Internal Revenue Code of 1986, as amended. 7. In the event that it should not be feasible, in the opinion of the Board of Trustees, for the Trust to pay, or adequately provide for, all debts and liabilities of the Trust (including costs and expenses incurred and anticipated to be incurred in connection with the liquidation of the Trust) at the time the final liquidation distribution is made pursuant to Section 4 hereof, or, if earlier, the latest applicable date to avoid payment by the Trust of Federal income taxes, or the Board of Trustees shall determine that it is not advisable to distribute at such time any of the property then held by or for the account of the Trust because such property is not reasonably susceptible of distribution to shareholders or otherwise, the Trust shall transfer and assign, at such time as is determined by the Board of Trustees, to a liquidating trust as designated by the Board of Trustees (the "Liquidating Trust") sufficient cash and property A-1 to pay, or adequately provide for, all such debts and liabilities and such other property as it shall have determined is appropriate. Upon such transfer and assignment, certificates for Common Shares will be deemed to represent certificates for interests in the Liquidating Trust. The Liquidating Trust shall be constituted pursuant to a Liquidating Trust Agreement in such form as the Board of Trustees may approve and its initial trustees shall be appointed by the Board of Trustees, it being intended that the transfer and assignment to the Liquidating Trust pursuant hereto and the distribution to the shareholders of the beneficial interests therein shall constitute a part of the final liquidating distribution by the Trust to the shareholders of their pro rata interest in the remaining amount of cash and other property held by or for the account of the Trust. From and after the date of the Trust's transfer of cash and property to the Liquidating Trust, the Trust shall have no interest of any character in and to any such cash and property and all of such cash and property shall thereafter be held by the Liquidating Trust solely for the benefit of an ultimate distribution to the shareholders, subject to any unsatisfied debts, liabilities and expenses. Adoption of the Plan will constitute the approval by the shareholders of the Liquidating Trust Agreement and the appointment of trustees. 8. Upon assignment and conveyance of the assets of the Trust to the shareholders, in complete liquidation of the Trust as contemplated by Sections 4 and 5 above, and the taking of all actions required under the law of the Commonwealth of Massachusetts in connection with the liquidation and termination of the Trust, the appropriate officers of the Trust shall execute and cause to be filed in the Office of the Secretary of State of the Commonwealth of Massachusetts, and elsewhere as may be required or deemed appropriate, such documents as may be required to terminate the existence of the Trust. 9. The Board of Trustees of the Trust, or the trustees of the Liquidating Trust, and such officers of the Trust as the Board of Trustees may direct, are hereby authorized to interpret the provisions of this Plan and are hereby authorized and directed to take such further actions, to execute such agreements, conveyances, assignments, transfers, certificates and other documents, as may in their judgment be necessary or desirable in order to wind up expeditiously the affairs of the Trust and complete the liquidation thereof, including, without limitation, (i) the execution of any contracts, deeds, assignments or other instruments necessary or appropriate to sell or otherwise dispose of, any and all property of the Trust, whether real or personal, tangible or intangible, (ii) the appointment of other persons to carry out any aspect of this Plan, (iii) the temporary investment of funds in such medium as the Board of Trustees may deem appropriate, and (iv) the modification of this Plan as may be necessary to implement this Plan. The death, resignation or other disability of any Trustee or officer of the Trust shall not impair the authority of the surviving or remaining Trustees or officers of the Trust (or any persons appointed as substitutes therefor) to exercise any of the powers provided for in this Plan. Upon such death, resignation or other disability, the surviving or remaining Trustees shall have the authority to fill the vacancy or vacancies so created, but the failure to fill such vacancy or vacancies shall not impair the authority of the surviving or remaining Trustees or officers to exercise any of the powers provided for in this Plan. 10. The Board of Trustees may terminate this Plan for any reason. The power of termination shall be exercisable both before and after approval of the Plan by the shareholders of the Trust, but such power shall not continue after a certificate of termination shall have been filed with the Commonwealth of Massachusetts as contemplated by Section 8 hereof. Notwithstanding approval of the Plan by the shareholders of the Trust, the Board of Trustees may modify or amend the Plan without further action by the shareholders of the Trust to the extent permitted under then current law. 11. The approval of this Plan of Complete Liquidation and Termination by the shareholders as provided in Section 1 hereof shall constitute the authorization and approval contemplated by Sections 13.1 and 13.3 of the Trust's Declaration of Trust for (i) the termination of the Trust pursuant to Section 13.1 thereof, (ii) the sale of all or substantially all of the Trust Property pursuant to Section 13.3 thereof, and (iii) the amendment of the Declaration of Trust pursuant to Section 13.1 thereof such that the provisions of this Plan shall supersede and take precedence over any conflicting provision of the Declaration of Trust. A-2 EXHIBIT B MGI PROPERTIES REAL ESTATE OWNED July 31, 1998
- ------------------------------------------------------------------------------------------ Weighted Net Carrying Value Percentage Average INDUSTRIAL Sq Ft Dollars Per Sq Ft Leased Rent - -------------------------- ------------ -------------- ----------- ------------ ---------- Flex Tewksbury, MA ............ 189,200 $10,449,000 $ 55.23 100% $ 9.00 Nashua, NH ............... 150,600 5,043,000 33.49 81% 4.51 Wilmington, MA ........... 109,500 4,339,000 39.63 100% 5.92 Westford, MA ............. 107,600 3,388,000 31.49 100% 3.50 Methuen, MA .............. 106,800 4,716,000 44.16 100% 5.29 Wilmington, MA ........... 100,200 2,367,000 23.62 100% 4.07 Franklin, MA ............. 100,000 4,893,000 48.93 100% 5.94 Nashua, NH ............... 98,100 3,096,000 31.56 94% 4.18 Bedford, MA .............. 93,200 2,370,000 25.43 100% 7.26 Franklin, MA ............. 83,500 3,645,000 43.65 100% 5.64 Andover, MA .............. 82,500 4,442,000 53.84 100% 5.86 Marlborough, MA .......... 75,000 3,006,000 40.08 100% 6.46 Marlborough, MA .......... 59,400 2,250,000 37.88 100% 6.25 Hopkinton, MA ............ 39,000 1,934,000 49.59 100% 6.50 Methuen, MA .............. 38,700 1,714,000 44.29 100% 5.66 Distribution and Manufacturing Wilmington, MA ........... 294,000 6,621,000 22.52 100% 3.91 Franklin, MA ............. 65,300 3,085,000 47.24 100% 6.00 - ------------------------------------------------------------------------------------------ Total .................... 1,792,600 $67,358,000 $ 37.58 98% $ 5.51 - ------------------------------------------------------------------------------------------ OFFICE/RESEARCH & DEVELOPMENT - ------------------------------------------------------------------------------------------ Tewksbury, MA ............ 140,000 $ 8,509,000 $ 60.78 100% $ 9.30 Andover, MA .............. 128,400 5,928,000 46.17 100% 5.00 Billerica, MA ............ 122,300 4,419,000 36.13 100% 4.52 Chelmsford, MA ........... 110,100 4,433,000 40.26 100% 6.92 Andover, MA .............. 105,500 6,564,000 62.22 100% 11.60 Billerica, MA ............ 100,000 4,977,000 49.77 100% 12.00 Hudson, NH ............... 76,800 3,501,000 45.59 100% 5.61 Hopkinton, MA ............ 76,100 5,282,000 69.41 100% 10.09 Chelmsford, MA ........... 70,900 1,882,000 26.54 100% 8.09 Bedford, MA .............. 70,600 2,068,000 29.29 100% 3.50 Littleton, MA ............ 66,800 2,301,000 34.45 100% 8.29 Andover, MA .............. 60,600 3,843,000 63.42 100% 7.01 Billerica, MA ............ 60,000 1,906,000 31.77 100% 4.75 Westford, MA ............. 59,700 3,418,000 57.25 100% 5.22 Billerica, MA ............ 56,300 1,879,000 33.37 100% 3.85 Raynham, MA .............. 49,200 2,535,000 51.52 100% 7.17 Hopkinton, MA ............ 40,800 2,829,000 69.34 100% 10.08 - ------------------------------------------------------------------------------------------ Total .................... 1,394,100 $66,274,000 $ 47.54 100% $ 7.38 - ------------------------------------------------------------------------------------------ Net Carrying Value Percentage MULTI-FAMILY Units Dollars Per Unit Leased - ------------------------------------------------------------------------------------------ Harrison Township, MI..... 376 $ 8,938,000 $ 23,771 96% Bloomfield Hills, MI...... 346 13,183,000 38,101 93% Laurel, MD ............... 237 10,651,000 44,941 92% - ------------------------------------------------------------------------------------------ Total .................... 959 $32,772,000 $ 34,173 94% - ------------------------------------------------------------------------------------------ - --------------------------------------------------------------------------------------------------- Scheduled Lease Number Expirations of INDUSTRIAL 1999 2000 Tenants Principal Tenant Expiration - -------------------------- -------- -------- --------- -------------------------------- ------------ Flex Tewksbury, MA ............ -- -- 1 Avid Technology, Inc. 06/30/10 Nashua, NH ............... 32% 10% 7 Logicraft, Inc. 01/31/01 Wilmington, MA ........... -- -- 3 United Shoe Machinery Corp. 12/31/01 Westford, MA ............. 100% -- 1 Mack Technologies 11/30/98 Methuen, MA .............. -- -- 2 Microtouch Systems, Inc. 04/30/03 Wilmington, MA ........... 52% 48% 2 Progress Software Corp. 04/30/99 Franklin, MA ............. -- -- 1 Thermo Instruments Systems 01/31/06 Nashua, NH ............... 44% 40% 10 Pure Distributors, Inc. 06/30/99 Bedford, MA .............. -- 51% 3 Imaging Technology, Inc. 07/31/01 Franklin, MA ............. -- -- 2 Chromatic Technologies, Inc. 06/30/02 Andover, MA .............. 24% -- 4 Bay Networks, Inc. 04/30/01 Marlborough, MA .......... -- -- 4 The Concorde Group 09/30/02 Marlborough, MA .......... -- -- 4 Diebold Incorporated 01/31/03 Hopkinton, MA ............ -- -- 1 SCP Pool Corp. 12/31/05 Methuen, MA .............. -- -- 2 Larson Juhl, Inc. 12/31/01 Distribution and Manufacturing Wilmington, MA ........... 14% 36% 3 MVP Sports 02/05/03 Franklin, MA ............. -- -- 1 Massachusetts Electric Company 12/31/02 - --------------------------------------------------------------------------------------------------- Total .................... 11% 14% 51 - --------------------------------------------------------------------------------------------------- OFFICE/RESEARCH & DEVELOPMENT - --------------------------------------------------------------------------------------------------- Tewksbury, MA ............ -- -- 1 Avid Technology, Inc. 06/30/10 Andover, MA .............. -- 100% 1 Hewlett-Packard Company 07/31/00 Billerica, MA ............ -- -- 1 PRI Automation, Inc. 07/31/01 Chelmsford, MA ........... -- 75% 3 Sun Microsystems 12/31/99 Andover, MA .............. 100% -- 1 ISI Systems, Inc. 04/30/99 Billerica, MA ............ -- -- 1 Peritus Software Services 02/28/06 Hudson, NH ............... -- -- 1 Atrium Medical Corp. 06/30/04 Hopkinton, MA ............ -- -- 1 Zymark Corporation 12/31/05 Chelmsford, MA ........... -- -- 5 Biscom, Inc. 02/28/03 Bedford, MA .............. -- 100% 1 Atex Media Solutions, Inc. 07/31/98 Littleton, MA ............ -- -- 4 Inforonics. 05/31/03 Andover, MA .............. -- -- 1 Cabletron Systems, Inc. 05/31/01 Billerica, MA ............ -- 100% 1 Bay Networks, Inc. 03/30/00 Westford, MA ............. -- -- 1 Hewlett-Packard Company 11/30/98 Billerica, MA ............ -- 100% 1 Bay Networks, Inc. 12/31/99 Raynham, MA .............. -- -- 4 Johnson & Johnson, Inc. 07/31/99 Hopkinton, MA ............ -- -- 1 Zymark Corporation 12/31/05 - --------------------------------------------------------------------------------------------------- Total .................... 8% 29% 29 - ---------------------------------------------------------------------------------------------------
B-1 MGI PROPERTIES REAL ESTATE OWNED July 31, 1998
- ----------------------------------------------------------------------------------------- Weighted Net Carrying Value Percentage Average OFFICE Sq Ft Dollars Per Sq Ft Leased Rent - ---------------------- ------------ --------------- ----------- ------------ ------------ Somerset, NJ ......... 178,600 $ 13,992,000 $ 78.34 100% $ 16.63 Hopkinton, MA ........ 159,800 12,523,000 78.37 100% 7.60 Portland, ME ......... 149,500 16,241,000 108.64 99% 19.32 Manchester, NH ....... 127,900 11,058,000 86.46 100% 15.29 Tampa, FL ............ 122,400 8,665,000 70.79 92% 12.02 Boston, MA ........... 114,300 10,226,000 89.47 91% 23.64 Framingham, MA ....... 111,400 7,156,000 64.24 100% 23.15 Portland, ME ......... 104,600 11,803,000 112.84 100% 19.08 Andover, MA .......... 97,700 7,574,000 77.52 100% 15.70 Ann Arbor, MI ........ 81,500 6,074,000 74.53 100% 12.07 Farmington, CT ....... 68,100 5,522,000 81.09 100% 15.78 Nashua, NH ........... 66,200 4,544,000 68.64 95% 12.67 South Portland, ME ... 58,400 5,094,000 87.23 100% 13.55 Greenville, SC ....... 49,600 1,883,000 37.96 94% 10.24 Greenville, SC ....... 46,300 1,322,000 28.55 89% 9.72 Glastonbury, CT ...... 40,900 3,784,000 92.52 100% 19.56 Glastonbury, CT ...... 39,900 3,619,000 90.70 100% 18.26 Peabody, MA .......... 37,500 4,274,000 113.97 100% 19.55 Nashua, NH ........... 36,700 2,289,000 62.37 100% 14.83 South Portland, ME ... 31,800 3,306,000 103.96 100% 17.08 Raynham, MA .......... 27,300 2,586,000 94.73 81% 16.56 Boston, MA ........... 27,100 1,607,000 59.30 100% 20.11 Nashua, NH ........... 26,100 1,550,000 59.39 84% 15.04 South Portland, ME ... 18,400 1,715,000 93.21 100% 12.34 - ----------------------------------------------------------------------------------------- Total ................ 1,822,000 $148,407,000 $ 81.45 98% $ 15.88 - ----------------------------------------------------------------------------------------- RETAIL - ----------------------------------------------------------------------------------------- Aurora, IL ........... 361,100 $ 26,692,000 $ 73.92 94% $ 8.08 Baltimore, MD ........ 146,700 6,171,000 42.07 100% 6.35 Peabody, MA .......... 106,900 9,905,000 92.66 100% 11.75 Temple Terrace, FL ... 100,500 7,562,000 75.24 95% 10.02 Hagerstown, MD ....... 40,200 1,332,000 33.13 100% 5.22 - ----------------------------------------------------------------------------------------- Total ................ 755,400 $ 51,662,000 $ 68.39 96% $ 8.39 - ----------------------------------------------------------------------------------------- Net Carrying Value LAND AND OTHER Dollars - ----------------------------------------------------------------------------------------- Portland, ME ......... $ 2,320,000 Tampa, FL ............ 427,000 Mount Clemens, MI..... 26,000 Hopkinton, MA ........ 202,000 - ----------------------------------------------------------------------------------------- Total ................ $ 2,975,000 - ----------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------ Scheduled Lease Number Expirations of OFFICE 1999 2000 Tenants Principal Tenant Expiration - ---------------------- ------ ------ --------- ------------------------------------- ----------- Somerset, NJ ......... 1% 10% 13 Merrill Lynch 06/30/01 Hopkinton, MA ........ -- -- 1 EMC Corporation 04/30/04 Portland, ME ......... 5% -- 13 UNUM Life Insurance Co. 01/31/01 Manchester, NH ....... -- 43% 12 Fleet Bank 04/07/02 Tampa, FL ............ 10% 40% 20 Olsten Kimberly Quality Care 02/28/02 Boston, MA ........... -- 4% 5 Cambridge Associates, Inc. 12/31/02 Framingham, MA ....... 10% 42% 25 Dolphin Interconnect Solutions 11/30/00 Portland, ME ......... 4% 1% 9 People's Heritage Bank 07/31/04 Andover, MA .......... 15% 44% 12 Computer Associates 12/31/02 Ann Arbor, MI ........ 13% -- 2 Comshare, Inc. 02/28/05 Farmington, CT ....... -- 84% 4 McGraw-Hill Companies, Inc. 07/31/00 Nashua, NH ........... 22% 2% 13 Hesser, Inc. 08/31/98 South Portland, ME ... 31% 42% 22 American Express Financial Advisors 04/30/02 Greenville, SC ....... 18% 19% 25 S.C. Tax Commission 06/30/01 Greenville, SC ....... -- 14% 5 S.C. Voc. Rehab. Dept. 11/30/98 Glastonbury, CT ...... 6% -- 4 Hewlett-Packard Company 03/31/03 Glastonbury, CT ...... -- 89% 4 Equator U.S.A., Inc. 12/31/99 Peabody, MA .......... -- -- 1 Oxford & Associates, Inc. 10/31/01 Nashua, NH ........... 23% 18% 11 Puma 12/31/02 South Portland, ME ... 18% 52% 8 S.D. Warren Company 01/31/00 Raynham, MA .......... 6% -- 8 Arbella Mutual Insurance Company 11/30/98 Boston, MA ........... -- 27% 10 N. E. Realty Resources, Inc. 11/03/03 Nashua, NH ........... 8% -- 4 Promis Systems Corp. 05/31/01 South Portland, ME ... 31% 14% 5 Tufts Health Plan 03/31/01 - ------------------------------------------------------------------------------------------------ Total ................ 7% 21% 236 - ------------------------------------------------------------------------------------------------ RETAIL - ------------------------------------------------------------------------------------------------ Aurora, IL ........... 2% 2% 30 Best Buy 01/31/11 Baltimore, MD ........ 11% 5% 14 Kmart Corp. 11/30/05 Peabody, MA .......... -- -- 1 Bradlees, Inc. 10/31/15 Temple Terrace, FL ... 3% 7% 18 Publix Super Market, Inc. 11/30/06 Hagerstown, MD ....... -- -- 7 Giant Food Stores, Inc. 12/31/04 - ------------------------------------------------------------------------------------------------ Total ................ 4% 3% 70 - ------------------------------------------------------------------------------------------------
B-2 EXHIBIT C MASSACHUSETTS GENERAL LAWS, CHAPTER 156B SECTIONS 76 AND 86 TO 98, INCLUSIVE 76. RIGHTS OF MINORITY STOCKHOLDER, ETC. A stockholder in any corporation which shall have voted to sell, lease or exchange all or substantially all its property and assets, or which shall have adopted any amendment of its articles of organization which adversely affects the rights of such stockholder, who objects to such action, in the manner provided in section eighty-six, shall be entitled, if such sale, lease or exchange shall have been consummated or such amendment shall have become effective, as the case may be, to demand payment for his stock from the corporation and an appraisal thereof in accordance with the provisions of sections eighty-six to ninety-eight, inclusive, and such stockholder and the corporation shall have the rights and duties and follow the procedure set forth in those sections. * * * 86. RIGHT OF APPRAISAL. If a corporation proposes to take a corporate action as to which any section of this chapter provides that a stockholder who objects to such action shall have the right to demand payment for his shares and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except as otherwise specifically provided in any section of this chapter. Except as provided in sections eight-two and eight-three, no stockholder shall have such right unless (1) he files with the corporation before the taking of the vote of the shareholders on such corporate action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) his shares are not voted in favor of the proposed action. 87. NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL RIGHTS. The notice of the meeting of stockholders at which the approval of such proposed action is to be considered shall contain a statement of the rights of objecting stockholders. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock, and the directors may authorize the inclusion in any such notice of a statement of opinion by the management as to the existence or non-existence of the right of the stockholders to demand payment for their stock on account of the proposed corporate action. The notice may be in such form as the directors or officers calling the meeting deem advisable, but the following form of notice shall be sufficient to comply with this section: "If the action proposed is approved by the stockholders at the meeting and effected by the corporation, any stockholder (1) who files with the corporation before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action has or may have the right to demand in writing from the corporation (or, in the case of a consolidation or merger, the name of the resulting or surviving corporation shall be inserted), within twenty days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Such corporation and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the General Laws of Massachusetts. 88. NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME EFFECTIVE. The corporation taking such action, or in the case of a merger or consolidation the surviving or resulting corporation, shall, within ten days after the date on which such corporate action became effective, notify each stockholder who filed written objection meeting the requirements of section eighty-six and whose shares were not voted in favor of the approval of such action, that the action approved at the meeting of the corporation of which he is a stockholder has become effective. The giving of such notice shall not be deemed to create any rights in any stock- C-1 holder receiving the same to demand payment for his stock. The notice shall be sent by registered or certified mail, addressed to the stockholder at his last known address as it appears in the records of the corporation. 89. DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER. If within twenty days after the date of mailing of a notice under subsection (e) of section eighty-two, subsection (f) of section eighty-three, or section eighty-eight any stockholder to whom the corporation was required to give such notice shall demand in writing from the corporation taking such action, or in the case of a consolidation or merger from the resulting or surviving corporation, payment for his stock, the corporation upon which such demand is made shall pay to him the fair value of his stock within thirty days after the expiration of the period during which such demand may be made. 90. DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT. If during the period of thirty days provided for in section eighty-nine the corporation upon which such demand is made and any such objecting stockholder fail to agree as to the value of such stock, such corporation or any such stockholder may within four months after the expiration of such thirty-day period demand a determination of the value of the stock of all such objecting stockholders by a bill in equity filed in the superior court in the county where the corporation in which such objecting stockholder held stock had or has its principal office in the commonwealth. 91. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON FAILURE TO AGREE ON VALUE THEREOF ETC; PARTIES TO BILL ETC; SERVICE OF BILL ON CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC. If the bill is filed by the corporation, it shall name as parties respondent all stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof. If the bill is filed by a stockholder, he shall bring the bill in his own behalf and in behalf of all other stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof, and service of the bill shall be made upon the corporation by subpoena with a copy of the bill annexed. The corporation shall file with its answer a duly verified list of all such other stockholders, and such stockholders shall thereupon be deemed to have been added as parties to the bill. The corporation shall give notice in such form and returnable on such date as the court shall order to each stockholder party to the bill by registered or certified mail, addressed to the last known address of such stockholder as shown in the records of the corporation, and the court may order such additional notice by publication or otherwise as it deems advisable. Each stockholder who makes demand as provided in section eighty-nine shall be deemed to have consented to the provisions of this section relating to notice, and the giving of notice by the corporation to any such stockholder in compliance with the order of the court shall be a sufficient service of process on him. Failure to give notice to any stockholder making demand shall not invalidate the proceedings as to other stockholders to whom notice was properly given, and the court may at any time before the entry of a final decree make supplementary orders of notice. 92. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON FAILURE TO AGREE ON VALUE THEREOF, ETC; ENTRY OF DECREE DETERMINING VALUE OF STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. After hearing the court shall enter a decree determining the fair value of the stock of those stockholders who have become entitled to the valuation of and payment for their shares, and shall order the corporation to make payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto upon the transfer by them to the corporation of the certificates representing such stock if certificated or if uncertificated, upon receipt of an instruction transferring such stock to the corporation. For this purpose, the value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action. 93. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON FAILURE TO AGREE ON VALUE THEREOF, ETC., COURT MAY REFER BILL, ETC., TO SPECIAL MAS- C-2 TER TO HEAR PARTIES, ETC. The court in its discretion may refer the bill or any question arising thereunder to a special master to hear the parties, make findings and report the same to the court, all in accordance with the usual practice in suits in equity in the superior court. 94. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON FAILURE TO AGREED ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED TO SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL, ETC. On motion the court may order stockholder parties to the bill to submit their certificates of stock to the corporation for notation thereon of the pendency of the bill, and may order the corporation to note such pendency in its records with respect to any uncertificated shares held by such stockholder parties, and may on motion dismiss the bill as to any stockholder who fails to comply with such order. 95. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON AWARD, ETC. The costs of the bill, including the reasonable compensation and expenses of any master appointed by the court, but exclusive of fees of counsel or of experts retained by any party, shall be determined by the court and taxed upon the parties to the bill, or any of them, in such manner as appears to be equitable, except that all costs of giving notice to stockholders as provided in this chapter shall be paid by the corporation. Interest shall be paid upon any award from the date of the vote approving the proposed corporate action, and the court may on application of any interested party determine the amount of interest to be paid in the case of any stockholder. 96. STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.; EXCEPTIONS. Any stockholder who has demanded payment for his stock as provided in this chapter shall not thereafter be entitled to notice of any meeting of stockholders or to vote such stock for any purpose and shall not be entitled to the payment of dividends or other distribution on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the date of the vote approving the proposed corporate action) unless: (1) A bill shall not be filed within the time provided in section ninety; (2) A bill, if filed, shall be dismissed as to such stockholder; or (3) Such stockholder shall with the written approval of the corporation, or in the case of a consolidation or merger, the resulting or surviving corporation, deliver to it a written withdrawal of his objections to and an acceptance of such corporate action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said stockholder shall have only the rights of a stockholder who did not so demand payment for his stock as provided in this chapter. 97. CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY STOCK, ETC. The shares of the corporation paid for by the corporation pursuant to the provision of this chapter shall have the status of treasury stock or in the case of a consolidation or merger the shares or the securities of the resulting or surviving corporation into which the shares of such objecting stockholder would have been converted had he not objected to such consolidation or merger shall have the status of treasury stock or securities. 98. ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES TO BE EXCLUSIVE REMEDY; EXCEPTION. The enforcement by a stockholder of his right to receive payment for his shares in the manner provided in this chapter shall be an exclusive remedy except that this chapter shall not exclude the right of such stockholder to bring or maintain an appropriate proceeding to obtain relief on the ground that such corporate action will be or is illegal or fraudulent as to him. C-3 (This page intentionally left blank) EXHIBIT D PROPOSED AMENDMENT TO SECTION 13.1 OF DECLARATION OF TRUST Section 13.1(b) shall be amended to read in its entirety as follows: The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration of Trust shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business, including but not limited to the transfer of Trust Property to a liquidating trust or similar entity. D-1 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF MGI PROPERTIES ---------------- PROXY--SPECIAL MEETING OF SHAREHOLDERS October 14, 1998 ---------------- The undersigned, a shareholder of MGI Properties (the "Trust"), does hereby appoint W. Pearce Coues and Phillip C. Vitali, and each of them, the true and lawful attorneys and proxies with full power of substitution, for and in the name, place and stead of the undersigned, to vote all of the common shares of the Trust which the undersigned would be entitled to vote if personally present at the Special Meeting of Shareholders of the Trust to be held in the Board Room, 33rd Floor, 225 Franklin Street, Boston, Massachusetts, on October 14, 1998, at 10:00 A.M., Local Time, or at any adjournment or adjournments thereof. The undersigned hereby revokes any proxy or proxies heretofore given and acknowledges receipt of a copy of the Notice of Special Meeting and Proxy Statement, both dated September 10, 1998. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREIN GIVEN. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO APPROVE THE PLAN OF COMPLETE LIQUIDATION AND TERMINATION OF THE TRUST. 1. To approve the Plan of Complete Liquidation and Termination of the Trust described in Exhibit A to the Proxy Statement. [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. To approve the amendment to the Declaration of Trust described in Exhibit D to the Proxy Statement. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with respect to all other matters which may come before the Meeting. [ ] FOR [ ] AGAINST [ ] ABSTAIN NOTE: Your signature should appear the same as your name appears hereon. In signing as attorney, executor, administrator, trustee or guardian, please indicate the capacity in which signing. When signing as joint tenants, all parties in the joint tenancy must sign. When a proxy is given by a corporation, it should be signed by an authorized officer and the corporate seal affixed. No postage is required if mailed in the United States. Signature: __________________________ Date ______________ Signature: __________________________ Date ______________ MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW: ____________________ EX-27 4 R14 FDS FOR 1998 10-K
5 0000068330 MGI PROPERTIES 1,000 USD 12-MOS NOV-30-1998 DEC-1-1997 NOV-30-1998 1 12,265 0 5,040 0 0 11,655 365,543 0 394,503 7,164 130,517 0 0 13,764 243,058 394,503 0 70,989 0 39,425 0 0 10,122 21,442 0 21,442 0 0 0 29,817 2.17 2.12
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